It doesn't look like a typical round for raising capital for investments. Instead:
1. Liquidity: Early investors could sell to late-stage investors, since they are not IPO. Their previous round looked like that.
2. Markup: The previous investors can increase their valuation by doing a round again. It also provides a paper valuation for acquiring new companies. That combined with preferred stock (always get 1x back) might be appealing and make some investors more generous on valuation.
So if I understand well, investors are not really investing for the company results, but more on the hope that people will continue to invest in the company?
A Ponzi scheme is extreme, where the underlying asset is worthless.
Databricks is a fast-growing company with ~$4B in annualised revenue and huge potential.
Many rounds got some portion of the round for liquidity. Similarly, markup strategies are common and valid. For existing investors, it works because they have already done research on the company and believe in it, so they put their money where their mouth is. For the company, it may speed up their fundraising process.
> So if I understand well, investors are not really investing for the company results
I don't know where you got that idea. Investors are putting their money into this company because they like the results and believe it's a better investment that their alternatives.
Any time you sell shares you generate some signal about what a company is worth. You can claim the company is worth a $100B all day long, but until you can sell a significant number of fractional shares of the company at that valuation it's just talk.
> In a kind of a ... ponzi pyramid?
A ponzi scheme or pyramid scheme implies that the company is lying about their results and books. Classic ponzi schemes might not have any real assets at all. The operators lie about the company and rely on incoming cash from new investors to pay out claims from past investors.
There's no ponzi here unless you believe Databricks is completely falsifying their operations and results. If any of those investors took their shares to the secondary market there would be plenty of other investors interested in buying them because they represent shares in the real company.
Not a Ponzi, but definitely some markup and valuation engineering.
Let’s say that Databricks has 100B valuation (just for the sake of simplicity).
They do this round, and due to this markup they can do acquisitions via stock option exchange. For instance, let’s say that you’re Neon, and you as a founder wants some sort of exit.
It’s preferable to get acquired for 1B with let’s say, 100Mi in cash and 900Mi in Databricks paper valuation shares; than to wait for a long process for an IPO.
If the mothership company (Databricks) goes public, you have liquidation and a good payday, or in meanwhile you can sell secondaries at a discount.
Man I am not kidding but atleast this company has some returns but yes to me also its definitely risky, but it still has some decent intrinsic value as compared to companies whose sole objective is to trade within (MNC's should be illegal)
Also, maybe I just want to talk about it, but whenever I hear about ponzi pyramid, I think about cryptocoins like bitcoin and then remember about the people paying 2$ to buy 1$ worth of btc in american institutional markets.
My rant about crypto is unwarranted but I want to still share it. Stablecoins are really really cool but any native coins/tokens are literally ponzi pyramids / scams.
I had no idea how preferred shares actually worked, so I went down a rabbit hole looking it up. That "always get 1x back" thing you mentioned is called a liquidation preference, which means preferred shareholders get their money back first before anyone else sees a dime.
Turns out there are different flavors too. "Non-participating" means preferred gets their original investment back, then common stock splits whatever's left. "Participating" means preferred gets their money back AND also gets to participate in splitting the leftovers with common shareholders. No wonder investors are willing to pay up for these late-stage rounds when they've got that safety net.
Definitely seem like bad investments from my perspective on databricks.
Databricks is great at offering a "distributed spark/kubernetes in a box" platform. But its AI integration is one of the least helpful I've experienced. It's very interuptive to a workflow, and very rarely offers genuinely useful help. Most users I've seen turn it off, something databricks must be aware of because they require admins permission for users to opt out of AI.
I don't mean to rant, there's lots that is useful in databricks, but it doesn't seem like this funding round is targeting any of that.
i don't think that it is possible to raise a 100 billion without name dropping ai in every sentence in every meeting you have with a potential investor....
My company is heavily invested in Databricks and let me tell you it sucks. 5 min to spin up a job that needs to run for 10 seconds is a terrible way to spend ones time and money.
use serverless then. its literally the simplest solution. what sort of poor decisions your team is making? it needs to run 10 seconds but still spinning up a cluster?
Unfortunately what I see is companies, especially smaller companies who originally got into Databricks because they hired people with Databricks/Spark experience, are trying to get away from the platform because it is too expensive -- and with that kind of money it is just easier to use Snowflake.
Yeah but looks like it is more "managed" and analysts especially prefer writing SQL over Python.
Honestly, as a Data engineer on the DWH side, I figured that my career is going to come to an end in a few years. AI + Cloud managed DWH are going to make all technical issues trivial, and I'm not someone who is interested in business context. Not sure where to move though.
What’s the obvious rationale for going through the whole alphabet of funding rounds, instead of going public / IPO after «the usual» number of raising money.
Wouldn’t the current strategy result in some serious stock dilution for the early investors?
Investors put 10 billion in in a previous round; that's a lot. Somehow, more is needed now. 100M is just 1% of that. So it's not going to massively move the needle. But it does raise the question where all that cash is going.
My guess is that they might be about to embark on a shopping spree and acquire some more VC backed companies. They've actually bought quite a few companies already in the past few years. And they would need cash to buy more. The company itself seems healthy and generating revenue. So, it shouldn't strictly need a lot of extra capital. Acquisitions would be the exception. You can either do that via share swaps or cash. And of course cash would mostly go to the VCs backing the acquired companies. Which is an interesting way to liquidate investments. I would not be surprised to learn that there's a large overlap with the groups of VCs of those companies and those backing databricks. 100M$ on top of 10B sounds like somebody wants in on that action.
As a financial construction it's a bit shady of course. VCs are using money from big institutional investors to artificially inflate one of their companies so that it can create exits for some of their other investments via acquisitions financed with more investment. It creates a steady stream of "successes". But it sounds a bit like a pyramid game. At some point the big company will have to deliver some value. I assume the hope is some gigantic IPO here to offload the whole construction to the stock market.
At least in some sort, this new venture market dynamics in those private markets is looking more similar with the Art market. I remember that J used to follow several private auctions where most of the auctioneers had some sort of ring where in time to time someone needed some liquidity.
Even in some situations where some artworks could have way less value at the public auction houses (Christie’s, Phillips, Sotheby's) their preference was to market between in this circuit of private auctions.
Stock dilution doesn't work like that. If a seed investor invests for 5% at a $10mil valuation, and the company goes 10x (ie. a valuation of $100mil), if the company now raises a $100mil Series K, that means the Series K investor owns 50% of the company, and the seed investor got diluted down to 2.5%. However, the new valuation of the company is now $200mil with the cash that the new investor brought in, effectively making the seed investor's investment worth the same.
It's a smaller piece of a bigger pie.
To answer your question, the right question to ask is why go public when you can remain private? Public means more paperwork, more legalese, more scrutiny, and less control for the founder, and all of that only to get a bit more liquidity for your stock. If you can remain private, there really isn't much of a reason to not do that.
An IPO means selling a whole bunch of people, whereas fundraising rounds pre-IPO mean courting a small number of large investors. I think it's partly a sign of the times that there's enough concentrated capital that you can get enough money from private hands to not need to go the IPO route yet.
This heavily depends on share classes and preferences. Surely the new investor wants better terms. The issue isn't so much dilution as a preference but added risk of never even getting a payout at all.
Both have benefits. Staying private means a lot less distractions, less investor scrutiny (good and bad), and the general ability to do whatever you want (good and bad).
It's a lot easier to stay long-term focused without investors breathing down your neck. As a private company you're not dealing with shortsellers, retail memers, institutional capital that wants good earnings now, etc..
Of course, the bad side is that if the company gets mismanaged, there's far less accountability and thus it could continue until it's too late. In the public markets it's far easier to oust the C-suite if things go south.
It's a shame that the trend of staying private longer means retail gets shut out from companies like this.
An order of magnitude less scrutiny, but also an order of magnitude in size of investor base. The private markets trade at Palantir levels so why go public. Also the private markets are now routinely doing secondary transactions so even less reason to go public.
it's funny how we're letting private companies get away with made up numbers. Rather than making IPOs easier, owning a private company above a certain valuation should come with at least an obligation for GAAP accounting, indepndent audits etc.
This is really for the greater good - so what is we see 2-5 years of a beautiful AI bubble if it's going to come crashing down again. It's lawmakers and regulators role to smooth out and dampen the natural tendency for the markets to go bubbly.
In India, Zomato[0] (now listed) and Swiggy[1] both had a Series K. SpaceX has only gotten to a Series J, but they've done some secondary sales since. Apparently, Palantir[2] has had a Series K as well, back in 2015.
If you Google "Series K investment" basically all the hits are about this. Same applies for J and I - you have to get back to H before you start seeing anyone else.
Why Databricks would do this (rather than IPO) is obvious. When you can raise privately, it’s way easier than IPO. The real question to me is why the investors (new and previous) are going along with it?
You'd think previous investors would want some actual liquidity though at some point. The early investors have had plenty of chances now but surely not everyone's been able to cash out. But hey, they have lots of funny money now I guess?
Looks like someone is thinking “hey let’s wave our hands in the air and talk about AI and someone will write us a cheque!” as a way to kick the can down the road that this far into it they’re still not selling a product that’s making money. Looks a bit desperate TBH.
Readit News
1. Liquidity: Early investors could sell to late-stage investors, since they are not IPO. Their previous round looked like that.
2. Markup: The previous investors can increase their valuation by doing a round again. It also provides a paper valuation for acquiring new companies. That combined with preferred stock (always get 1x back) might be appealing and make some investors more generous on valuation.
In a kind of a ... ponzi pyramid?
Databricks is a fast-growing company with ~$4B in annualised revenue and huge potential.
Many rounds got some portion of the round for liquidity. Similarly, markup strategies are common and valid. For existing investors, it works because they have already done research on the company and believe in it, so they put their money where their mouth is. For the company, it may speed up their fundraising process.
Though those strategies carry some risks.
I don't know where you got that idea. Investors are putting their money into this company because they like the results and believe it's a better investment that their alternatives.
Any time you sell shares you generate some signal about what a company is worth. You can claim the company is worth a $100B all day long, but until you can sell a significant number of fractional shares of the company at that valuation it's just talk.
> In a kind of a ... ponzi pyramid?
A ponzi scheme or pyramid scheme implies that the company is lying about their results and books. Classic ponzi schemes might not have any real assets at all. The operators lie about the company and rely on incoming cash from new investors to pay out claims from past investors.
There's no ponzi here unless you believe Databricks is completely falsifying their operations and results. If any of those investors took their shares to the secondary market there would be plenty of other investors interested in buying them because they represent shares in the real company.
Let’s say that Databricks has 100B valuation (just for the sake of simplicity).
They do this round, and due to this markup they can do acquisitions via stock option exchange. For instance, let’s say that you’re Neon, and you as a founder wants some sort of exit.
It’s preferable to get acquired for 1B with let’s say, 100Mi in cash and 900Mi in Databricks paper valuation shares; than to wait for a long process for an IPO.
If the mothership company (Databricks) goes public, you have liquidation and a good payday, or in meanwhile you can sell secondaries at a discount.
Also, maybe I just want to talk about it, but whenever I hear about ponzi pyramid, I think about cryptocoins like bitcoin and then remember about the people paying 2$ to buy 1$ worth of btc in american institutional markets.
My rant about crypto is unwarranted but I want to still share it. Stablecoins are really really cool but any native coins/tokens are literally ponzi pyramids / scams.
Turns out there are different flavors too. "Non-participating" means preferred gets their original investment back, then common stock splits whatever's left. "Participating" means preferred gets their money back AND also gets to participate in splitting the leftovers with common shareholders. No wonder investors are willing to pay up for these late-stage rounds when they've got that safety net.
Ai is not far away from dropping to the “trough of disillusionment” and I can’t see why databricks even needs Postgres.
Hopefully I’m wrong as I’m a big fan of databricks.
Databricks is great at offering a "distributed spark/kubernetes in a box" platform. But its AI integration is one of the least helpful I've experienced. It's very interuptive to a workflow, and very rarely offers genuinely useful help. Most users I've seen turn it off, something databricks must be aware of because they require admins permission for users to opt out of AI.
I don't mean to rant, there's lots that is useful in databricks, but it doesn't seem like this funding round is targeting any of that.
This is a very worrying trend of having AI enabled by default that you cannot turn it off unless you're the admin.
It might come down like the dotcom bubble like fallout when this thing bursts.
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Honestly, as a Data engineer on the DWH side, I figured that my career is going to come to an end in a few years. AI + Cloud managed DWH are going to make all technical issues trivial, and I'm not someone who is interested in business context. Not sure where to move though.
Wouldn’t the current strategy result in some serious stock dilution for the early investors?
My guess is that they might be about to embark on a shopping spree and acquire some more VC backed companies. They've actually bought quite a few companies already in the past few years. And they would need cash to buy more. The company itself seems healthy and generating revenue. So, it shouldn't strictly need a lot of extra capital. Acquisitions would be the exception. You can either do that via share swaps or cash. And of course cash would mostly go to the VCs backing the acquired companies. Which is an interesting way to liquidate investments. I would not be surprised to learn that there's a large overlap with the groups of VCs of those companies and those backing databricks. 100M$ on top of 10B sounds like somebody wants in on that action.
As a financial construction it's a bit shady of course. VCs are using money from big institutional investors to artificially inflate one of their companies so that it can create exits for some of their other investments via acquisitions financed with more investment. It creates a steady stream of "successes". But it sounds a bit like a pyramid game. At some point the big company will have to deliver some value. I assume the hope is some gigantic IPO here to offload the whole construction to the stock market.
Even in some situations where some artworks could have way less value at the public auction houses (Christie’s, Phillips, Sotheby's) their preference was to market between in this circuit of private auctions.
It's a smaller piece of a bigger pie.
To answer your question, the right question to ask is why go public when you can remain private? Public means more paperwork, more legalese, more scrutiny, and less control for the founder, and all of that only to get a bit more liquidity for your stock. If you can remain private, there really isn't much of a reason to not do that.
With the exception of founders it's better for literally everybody else, more scrutiny, more pressure on c-corp, more liquidity, etc.
It's a lot easier to stay long-term focused without investors breathing down your neck. As a private company you're not dealing with shortsellers, retail memers, institutional capital that wants good earnings now, etc..
Of course, the bad side is that if the company gets mismanaged, there's far less accountability and thus it could continue until it's too late. In the public markets it's far easier to oust the C-suite if things go south.
It's a shame that the trend of staying private longer means retail gets shut out from companies like this.
Plus the markets are in a weird state right now.
[0]: https://appedus.com/indias-zomato-raised-500-million-in-seri...
[1]: https://techcrunch.com/2022/01/24/indian-food-delivery-giant...
[2]: https://www.finsmes.com/2015/12/palantir-technologies-raises...
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whats so hard about this. i don't get it.