Databricks CEO on Why IPO Plans Are on Hold

Databricks Defers IPO, Secures Massive Funding

Databricks recently finalized a substantial funding round, successfully raising $10 billion in new capital. This significant influx of investment has naturally prompted inquiries regarding the timing of the company’s anticipated initial public offering (IPO).

CEO Explains IPO Timeline

During an event held in San Francisco on Tuesday evening, Databricks CEO Ali Ghodsi articulated the rationale behind postponing the IPO until at least 2025. He cited prevailing economic uncertainties as a key factor in this decision.

“Given the current year’s political climate and concerns surrounding interest rates and inflation, we determined that proceeding with an IPO this year would be imprudent,” Ghodsi explained in an interview with Dan Primack at the Axios AI Summit. “An IPO next year is the earliest theoretical possibility, but considering lock-up periods, it would unduly delay liquidity for our employees.”

Utilizing the Funding

The “Series J” funding will be utilized to provide early employees with an opportunity to realize returns on their equity and to facilitate continued company growth. Despite uncertainties in 2024, the IPOs of companies like ServiceTitan and Reddit have generally proven successful.

However, Ghodsi questioned the necessity of risking an IPO when the company possesses the capacity to secure substantial funding through private markets.

Investor Demand and Valuation

Ghodsi revealed that the funding round could have potentially reached nearly double the amount ultimately raised. The intense investor interest led Databricks to increase its share price.

Initially aiming to raise between $3 billion and $4 billion, the company witnessed a surge in demand following reports of its fundraising efforts. “The tally of interested investors reached $19 billion, which was quite astonishing,” Ghodsi stated. “This prompted us to adjust the price upwards.”

Future IPO Considerations

Despite the successful fundraise, Ghodsi hasn’t dismissed the possibility of a Databricks IPO in 2025, though 2026 remains a potential timeframe. He emphasized that going public is less critical now than it was a decade or more ago, given the availability of alternative funding sources.

However, he also expressed a desire to avoid launching an IPO during what he termed the “AI bubble.”

Concerns About the AI Bubble

“The current market sees companies with minimal substance – lacking products, innovation, or intellectual property – achieving valuations in the hundreds of millions, even billions,” Ghodsi observed. “These billion-dollar valuations for startups with little to no foundation represent a clear bubble.”

While Ghodsi refrained from naming specific companies, he acknowledged the proliferation of AI “unicorns” in the current market. He remains confident in his company’s ability to withstand market fluctuations.

Competition and Acquisitions

Ghodsi indicated that Databricks has already overcome a significant challenge from data analytics competitor Snowflake. “We had a program called ‘SnowMelt,’” he confirmed, acknowledging reports of a strategic initiative to attract customers away from Snowflake.

This competitive effort reportedly led to Databricks acquiring Tabular for $2 billion, despite the startup generating only $1 million in annual recurring revenue. Snowflake was also reportedly interested in acquiring Tabular.

Expanding Market Reach

Databricks is now focused on competing with larger enterprises such as Salesforce and Microsoft. Ghodsi believes that data and AI will continue to grow in importance, positioning his company to capitalize on this trend.

Databricks is well-positioned to fill this growing niche in the market.