Databricks, a prominent data analytics and AI software company, has successfully secured a Series I funding round exceeding $500 million, catapulting its valuation to a staggering $43 billion.
This achievement stands out, especially considering the prevailing trend of reduced valuations for many late-stage startups amid a broader funding slowdown. In August 2021, Databricks had raised $1.6 billion, establishing a post-money valuation of $38 billion. This $5 billion increase in its valuation underscores the notion that not everyone is equally affected by broader market trends, if at all.
The roster of investors involved in this Series I round appears to blend aspects of both pre-IPO financing and strategic investment. Notable pre-IPO investors, including T. Rowe Price, Morgan Stanley, Fidelity, and Franklin Templeton, reflect a strong interest in companies poised for imminent public offerings. On the strategic front, Capital One Ventures and Nvidia play a significant role.
The connection between Nvidia and Databricks is evident, as Databricks is intensifying its focus on AI capabilities, building upon its history of selling data and machine learning software. Nvidia is also thriving due to heightened demand for its AI-powered chips and software, to the extent that some nations are securing supplies for their domestic economies.
Traditional private-market investors, such as Andreessen Horowitz and Tiger Global, also participated in the Series I round.
How did Databricks achieve an upswing in a market characterized by more conservative revenue multiples? The company cited its second-quarter performance, ending on July 31, where its revenue run rate exceeded $1.5 billion. Additionally, Databricks revealed it boasts over 10,000 global customers, with more than 300 generating annual revenues of $1 million or more through its software and services.
While recent partial data suggests a potential slowdown in Databricks’ revenue growth, the company also announced its fiscal second quarter witnessed the “strongest quarterly incremental revenue growth” in its history. Investors appear to believe that when Databricks eventually goes public, it will likely surpass the $43 billion valuation.
However, this implies that Databricks isn’t rushing toward an immediate public offering, which may disappoint those eagerly anticipating its S-1 filing. With an effective revenue multiple of 29x, the company appears relatively pricey in the current market. This suggests that Databricks intends to further expand its operations before pursuing a public listing, indicating a later IPO.
The fresh capital infusion can be seen more as a strategic replenishment than a desperate cash injection, as Databricks didn’t appear to be running critically low on funds. This additional funding provides Databricks with additional flexibility to explore strategic opportunities. Given the intense competition in the rapidly growing AI market, having half a billion dollars in capital at its disposal will undoubtedly bolster Databricks’ ambitions.
