Ali Ghodsi, Co-Founder and CEO of Databricks, speaks at the company’s Spark and AI Summit in April 2019 in San Francisco.
UiPath and Databricks became two of the most valuable private tech companies in the United States on Monday, with massive new rounds of funding giving them an overall valuation of more than $ 60 billion. The transport of money gives them the opportunity to take a non-traditional – but increasingly popular – route to the public markets.
UiPath, which makes software to automate office work, raised $ 750 million at a valuation of $ 35 billion on Monday. Databricks, whose software supports companies in processing large amounts of data in the cloud, wrapped up $ 1 billion at a valuation of $ 28 billion.
You belong to most of them Highly anticipated public tech offerings from 2021 and have now filled their balance sheets in such a way that they can avoid an IPO in favor of a direct listing. This is how UiPath expects to go public, according to people familiar with the company who have asked not to be named because their plans are confidential. In December, UiPath filed one Draft registration to announce with the SEC its intention to go public.
A UiPath spokesperson declined to comment on the story.
Ali Ghodsi, CEO of Databricks, told CNBC after announcing the financing that his company was considering a direct listing but had not made a decision.
“All options are on the table,” said Ghodsi. He added that a public listing is likely this year, but right now he is using private capital because “I can get all the benefits without even going public.”
With a direct listing, a company lets existing shareholders and employees sell shares immediately to new investors instead of raising capital by issuing new shares to a selected group of companies. Spotify was the first notable tech company to take this approach in 2018, followed by Relaxed in 2019 and Palantir and Asana last year. Coinbase said last week it will also go public through direct listing.
Gambling company Roblox is expected to launch with a direct listing this month. In January the company became raised $ 520 million in a pre-public financing round to support the cash position.
The decision is particularly important for UiPath and Databricks, as they go public in the shadow of Snowflake, which conducted the largest software IPO in history last year, grossing $ 3.9 billion. Snowflake has valued its shares at $ 120 each popped immediately to $ 245. This means that new investors were effectively given two shares for the price of one share at the expense of the company.
Critics like venture capitalist Bill Gurley have been clamoring for change. describe The traditional IPO as an “archaic process that has led to massive one-day capital transfers directly from founders, employees and investors to the buyer side”.
UiPath and Databricks have one more option that wasn’t available at the time Snowflake was offered. In December, the SEC approved a rule from the New York Stock Exchange, where companies can raise primary capital simultaneously with a direct listing.
Ghodsi said Databricks is exploring this street too. When asked if the company, fresh from its $ 1 billion donation, has enough cash to go public with no additional funds, he said “absolutely”.
However, he was quick to point out that the traditional IPO has value as it allows a company to choose its new shareholders, an argument the Snowflake CEO makes Frank Slootman made last year. Part of the tradeoff is that if you sign up to support them, you will offer a discount to top investors.
With a direct listing, nobody gets a discount and it is an open season for all investors.
“Maybe it’s worth diluting a few percent down to build that relationship and that trust,” said Ghodsi. “Because they’ll be investing in you for the next decade.”
According to Ghodsi, Databricks sales grew 70% last year, reaching annual sales of $ 425 million. Healthcare, pharmaceuticals, and financial technology companies were among the top buyers of the software that enables customers to store, clean, and visualize large amounts of data from disparate sources.
UiPath said in mid-2020 that annualized sales hit $ 400 million, up from $ 100 million two years ago. The company’s technology, known as robotic process automation, enables companies to configure software to eliminate human tasks and increase speed and productivity.
Both companies are recognized valued at $ 80 billion in part in response to Snowflake’s success. According to Refinitiv, analysts, on average, expect Snowflake sales to hit $ 1.1 billion in fiscal 2022, up from $ 580.1 million in the fiscal year that ended just last week.
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