Databricks' $190B Valuation: $5B Raise Bridges Funding Gap

The fundraising landscape for late-stage startups often presents a unique challenge: the necessity to issue more shares than initially planned to avoid alienating existing venture capital investors.

This very scenario recently unfolded for the AI big-data leader, Databricks, with its latest $5 billion funding round, as confirmed by co-founder and CEO Ali Ghodsi in an interview with TechCrunch.

Ghodsi recounted the unexpected turn of events, stating, “We wanted to raise $1 billion, but then The Information printed this article saying that Databricks is doing a big fundraise. They did that in the middle of our conference. We were heads down with our conference, and we were not actually at all focused on fundraising.” This refers to a conference held in June.

He further elaborated on the immediate aftermath: “As soon as that article went out, there was a long line of investors that started calling. My phone blew up. It was like the worst timing for us because we were busy with our conference.”

What began as an untimely news report quickly evolved into an enviable problem, effectively becoming a self-fulfilling prophecy.

The level of investor enthusiasm was staggering. Ghodsi revealed, “The interest level was just insane. Just from this select group of investors that we looked at, there was $15 billion of interest.”

With such overwhelming demand to participate, declining long-standing backers could lead to strained relationships. Consequently, Databricks opted to issue additional stock. In July, the company announced the closure of its new funding round, valuing it at $188 billion, though the specific amount raised was not disclosed at the time.

This past Thursday, Databricks confirmed it had successfully raised $5 billion, with its valuation climbing further to a robust $190 billion. The round was spearheaded by Coatue, with significant contributions from Blackstone, MGX, various entities associated with T. Rowe Price, and new investor Sixth Street Growth—a firm founded by former Goldman Sachs chief investment officer Alan Waxman. Approximately two dozen venture capital firms were listed as participants.

The intense eagerness of these investors stems from Databricks’ perceived status as a highly secure investment.

Ghodsi highlighted the company's strong financial performance, reporting an annualized run rate revenue of $7 billion, currently growing at 80% and operating cash-flow positive. Its flagship cloud data warehouse product alone contributes $1.5 billion to this run rate and continues to expand at 100% year-over-year.

Moreover, Databricks benefits from the burgeoning AI sector. Its recently launched database for agents, Lakebase, has already achieved a $100 million revenue run-rate. The company’s AI chatbot tool, Genie, which offers instant business analysis, is "insanely popular," according to Ghodsi.

Given the company’s impressive performance, and having already secured $20 billion over the past 20 months, the question arises: why pursue additional capital?

Ghodsi explained that "AI is expensive." Databricks maintains multi-billion dollar cloud commitments with all three major hyperscalers. Furthermore, he noted that "AI research is very expensive," underscoring the company's 100-person AI research team operating in a highly competitive domain.

Another driving factor is Databricks’ active mergers and acquisitions strategy. Ghodsi stated, “We do a lot of M&A,” referencing the acquisition of Electric, makers of the lightweight Postgres database PGlite, announced this week (terms undisclosed). This follows the acquisition of AI cybersecurity firm Panther in June and two additional startups in March.

While a $1 billion funding round was once considered a monumental achievement, the current era of significant AI investment has shifted perceptions. With startups now raising $1 billion for seed or Series A rounds right from inception, that sum is increasingly viewed as modest.

Databricks' sustained private fundraising, rather than pursuing a public listing, has become a notable topic in Silicon Valley, even spawning online jokes about the company potentially running out of alphabet letters for its numerous funding rounds.

Despite this, Ghodsi affirmed to CNBC his long-term intention to take the company public, an inevitable step given the large number of investors who will eventually seek an exit.

However, his immediate focus remains on investing heavily in AI. Considering the substantial expenses involved in this endeavor, executing such investments away from the scrutiny of public markets may be a prudent strategy.

Ultimately, when the company can effortlessly attract $15 billion in investor interest on its own terms, there appears to be little urgency to rush into an IPO.