Databricks’ employees are cashing in on its Series J

Big news in the startup world as data-warehouse company Databricks announced a $10 billion Series J funding round yesterday that valued the company at $62 billion. Raising a “Series J” is a rare feat: SpaceX is one of the few other companies to hit this mark, raising its Series J in 2019.

In its press release, Databricks said that the $10 billion was expected to be “non-dilutive.” Dan Primack noted in his Axios Pro Rata newsletter this morning that “almost all of this $10 billion” is going to buy shares from employees. My question when seeing this was, why not just go public?

If the money is just going toward buying shares from employees, couldn’t Databricks accomplish the same thing through an IPO or direct listing? During an interview with Primack at the Axios AI Summit, CEO Ali Ghodsi explained why his company was holding off on going public:

“This year was an election year. We wanted to get some stability — people are worried about interest rates, inflation... So we said look, it’s dumb to IPO this year, so we’re definitely going to wait.”

One of the more interesting trends in the venture-backed startup market over the last few years has been IPO postponement by some of the strongest startups. Because the best-performing companies have high demand for their stock, they can create liquidity events for employees and investors through tender offers, eliminating one of the primary uses of an IPO. As I wrote two weeks ago,

“However, there are two very important reasons for companies to go public: easier access to capital and liquidity for shareholders. On the first point, publicly traded companies can easily raise new funding through secondary offerings, allowing them to opportunistically strengthen their balance sheets...

But what if you’re a company with a well-capitalized balance sheet that doesn’t need outside funding? Then your only real motivation for going public is liquidity. And what if private market investors will happily buy those shares from you and your employees? Then you could… just… stay private forever?”

For Databricks, the Series J makes a ton of sense. Employees can derisk their wealth by selling stock to investors, and the company can wait for a more opportune moment to go public when it might fetch an even higher valuation. Given the company’s accelerating revenue growth (revenue was up 60% year on year in Q3 2024), it’s not unreasonable to think that its valuation will continue to climb as it approaches a potential 2025 or 2026 IPO. Investors in the Series J round certainly hope so.