Nvidia and Capital One Back Databricks with $43 Billion Valuation, Fuelling Next-Gen Data Revolution

While some high-valued tech startups are turning to the IPO market for funding, Databricks has chosen to stay private, at least for now, and has managed to secure more investment.

Databricks, a data analytics software provider, announced on Thursday that it has raised over $500 million at a valuation of $43 billion.

Founded in 2013 and headquartered in San Francisco, Databricks last secured funding in 2021 at a valuation of $38 billion. Since then, the stock prices of cloud software companies have declined, with Snowflake, a competitor of Databricks, experiencing a 45% drop in value. However, Databricks has maintained its share price unlike other software IPO candidates such as Canva and Stripe.

In this latest funding round, shares were sold at $73.50 per share, which is similar to their 2021 price. The $5 billion increase in valuation is attributed to the issuance of new shares to the company’s employees and investors. Databricks has hired approximately 3,500 employees in the last two years, bringing the total headcount to around 6,000.

Despite concerns over high interest rates and the economy, Databricks is capitalizing on the growing momentum in artificial intelligence. In July, the company acquired MosaicML, a startup specializing in large language models, for $1.3 billion.

Nvidia, a prominent chipmaker, has also become an investor in Databricks, further strengthening the ties between the two companies in the AI space. Capital One’s venture arm, a major customer of Snowflake, has invested in Databricks for the first time. Other investors in the latest funding round include T. Rowe Price, Andreessen Horowitz, Baillie Gifford, Fidelity, Morgan Stanley’s Counterpoint Global, and Tiger Global.

Databricks CEO Ali Ghodsi stated that the funding round exceeded their initial expectations, with the company originally planning to raise no more than $100 million. An IPO is still in the company’s roadmap, and the recent funding does not change their plans.

Many enterprise software companies have been cutting costs due to slower growth rates in the uncertain economy. However, Databricks remains in growth mode and has not announced any layoffs. Ghodsi emphasized that the cost-cutting measures they implemented were focused on technology expenses, particularly software subscriptions.

Databricks reported reaching a $1.5 billion annual revenue run rate in the quarter ending in July, with a 50% year-over-year sales growth. Snowflake, on the other hand, reported a 36% growth in revenue to $674 million in the latest quarter.

Overall, Databricks’ latest funding round showcases the continued interest in AI-focused companies and their potential for future growth.

Ghodsi revealed that he had been in discussions with Nvidia CEO Jensen Huang for some time, and that a closer partnership between the two companies is becoming more important as they dive deeper into AI. Databricks heavily relies on Nvidia’s graphics processing units, especially with the acquisition of Mosaic. The decision to partner closely with Nvidia was a logical step as their markets complement each other.

Furthermore, Capital One’s venture arm’s participation as an investor is notable, as the bank is a significant customer of Snowflake. In a recent investor event, Snowflake’s CFO stated that Capital One spends almost $50 million annually with Snowflake and that the bank is their top customer. Capital One is also a Databricks customer and utilizes their technology for fraud detection.

Existing investor T. Rowe Price led Databricks’ latest funding round, with participation from Andreessen Horowitz, Baillie Gifford, Fidelity, Morgan Stanley’s Counterpoint Global, and Tiger Global, among others.

Ghodsi mentioned that the company initially anticipated raising no more than $100 million in the financing round. However, the demand from investors exceeded expectations, leading to a significant increase in funding.

While an IPO is still part of Databricks’ plans, the recent funding round demonstrates their ability to attract investment and maintain growth. The tech market will continue to watch for new opportunities in the coming weeks, with Arm, Instacart, and Klaviyo planning to go public.

In conclusion, Databricks’ latest funding round highlights the company’s position in the AI space and its potential for further development and expansion.