It’s been a busy week for investors in Databricks’ record $10 billion financing, one of the VCs who led the deal told TechCrunch.
George Mathew, managing director of Insight Partners, explained with a laugh: “I was able to communicate well on the phone until late at night, but it’s okay. “That’s how a great opportunity was born.” Along with Joshua Kushner’s company, Thrive, Insight was one of six companies that led the deal. All but Thrive were existing investors.
“We tried to make ourselves co-representatives even though we were already cap investors,” Mathew said. Insight first invested in Databricks in 2021. But to participate in this huge deal, Insight had to tap its Insight Partners Public Equities fund, which Managing Director John Wolff set up to buy public stocks.
Interest was so high that allocations and valuations rose quickly. At the time, Reuters reported that the deal was expected to be worth about $8 billion in mid-November. A few days later it was at $9.5 billion at a valuation of $60 billion, and on Tuesday it closed at $10 billion at a valuation of $62 billion.
For perspective, that’s more than the $6.6 billion OpenAI raised in its largest venture round ever last October.
“There was so much institutional demand and interest in generational companies,” Mathew said. “I have been an investor in Insight for the past four years in everything related to data, AI and ML. This is what I live for.”
The investment included a large secondary public offering in which shares could be sold by Databricks employees or other existing investors. New preferred shares were issued to new investors. Databricks did not specify how much of the increase was secondary, other than calling the $10 billion “non-dilutive.”
Interestingly, Databricks, founded in 2013, could have been a tragic story. Ten years ago, its founders created a technology called Spark that was at the heart of the “big data” trend of the past. Spark has helped companies analyze their in-house big data very quickly.
As data was increasingly hosted in the cloud, companies were processing it and then handing it off to other players. It may have been slowly relegated to an irrelevant big data function.
Databricks co-founder and CEO Ali Ghodsi (pictured) sought advice from Mathew, who ran big data company Alteryx as COO before becoming a VC. The two have been friends since the early days of Databricks.
“Ali called me a few years ago and said, ‘Hi, I’m thinking about getting into the data warehousing market.’ And I said, ‘That’s the stupidest idea I’ve ever heard.’ And I couldn’t be more wrong.” Mathew laughed and added that he was lucky that Ghodsi neither listened to him nor gave him bad advice.
At the time, traditional data warehouse vendors that stored vast amounts of enterprise data used for analytics were competing against products owned by rising cloud stars like Snowflake or cloud providers like Redshift on AWS.
But in late 2020, Databricks released its data warehouse product, Databricks SQL, anyway, and it quickly became a big Snowflake competitor.
Then came the LLM, which continues to thirst for high-quality corporate data. “Where does this high-quality data come from? For enterprises, it will come from places like Databricks,” Mathew said.
We are heading towards the end of 2024, when the IPO market is still locked down and investors are dying to get AI infrastructure products like data warehouses that can offer LLMs.
Databricks said it will achieve $3 billion in revenue by the end of its fiscal fourth quarter, and that Databricks SQL will have $600 million in revenue, up 150% from this year.
