Databricks Grabs $500 Million on $43 Billion Valuation

Databricks has scored $500 million in fresh funding at a valuation of $43 billion, part of the company's push to the next AI level. The round was led by T. Rowe Price Associates with participation from Andreessen Horowitz, Baillie Gifford, Fidelity, Morgan Stanley’s Counterpoint Global, and Tiger Global.

Also participating was NVIDIA and, to the glee of the media, Capitol One Ventures, which represents the venture arm of a top customer of Databricks archrival Snowflake. (Capitol One also uses Databricks.)

NVIDIA’s endorsement is important, given that the vendor is the world’s leading supplier of AI components. Databricks CEO Ali Ghodsi told CNBC that he perceives the investment as part of a broader partnership that will benefit both firms.

Cash Flow Negative

The round was no surprise, having been anticipated by The Information earlier this week in an article that also said the company expects to burn up to $900 million in cash over the next two years and expects it will be 2025 before it’s cash flow positive. By the time that happens, according to the article, the company could have racked up $1.5 billion in cash flow loss from 2022 through 2025.

That said, by directing its new money toward further enhancing its position as a purveyor of generative AI for enterprise use, Databricks could propel itself to a good position for an IPO, a goal that CEO Ghodsi told CNBC is still “on the roadmap,” though he didn’t give a specific timeframe. Clearly, there’s plenty of time if the company won’t show positive cash flow for the next few quarters. There’s also time for the IPO waters to be tested, as with today’s float of Arm on the Nasdaq (more on that separately).

Clear AI Intent

Databricks, a mature startup founded in 2013, specializes in the data lakehouse, a model that combines data warehousing – the analysis of data from a common repository – with data lake functionality, meaning the storage of data in its original state. Databricks claims over 7,000 customers worldwide, including ABN Amro, AT&T, Comcast, Conde Nast, Rolls Royce, Scribd, Sega, Shell, TD Bank, Toyota, and Walgreens, among others. With this round, it has raised over $4 billion in capital.

In June 2023, Databricks spent $1.3 billion to acquire MosaicML, a two-year-old startup specializing in large language models (LLMs) that feature security, speed, and customizability. That last is key: By absorbing enterprise-specific datasets from Databricks into LLMs from MosaicML, Databricks can help customers create generative AI applications across a range of industry verticals.

The work is already begun. One of MosaicML’s customers is Hippocratic AI, which provides interactive access to medical information. The startup claims to have outperformed OpenAI’s GPT-4 on a range of metrics, including exceeding the chatbot on 105 of 114 healthcare tests and certifications. Hippocratic AI launched in May 2023 with $50 million in seed money from General Catalyst and Andreessen Horowitz.

Futuriom Take: Databricks may be burning cash, but if the company can come through with customizable LLMs for its enterprise customers, that could propel Databricks to an enviable spot in the generative AI market – and possibly to IPO.