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Databricks plans to take on Snowflake and Google and score a huge IPO

Even against intensifying competition, Databricks hopes to be a hit when it heads to the public markets this year.

Databricks plans to take on Snowflake and Google and score a huge IPO

Ali Ghodsi is the CEO of Databricks.

Photo: Databricks

Enterprise software had a huge 2020 on Wall Street as companies such as Snowflake and C3.ai went public with blockbuster initial offerings. Databricks CEO Ali Ghodsi is hoping to ride the same wave in 2021.

The public debut of the data analytics startup, valued at $6.2 billion, is among the most-watched IPOs for the year. And for good reason: It competes in a similar space as the much-hyped Snowflake, helping customers find the data to power the algorithms that help with everything from picking which products to order to which candidates to bring in for job interviews. While Databricks has been tight-lipped on its specific plans, including which bankers it is tapping to help navigate the often arduous process, it is taking steps internally to prepare.

"There's a lot of compliance that goes into it," Ghodsi told Protocol. "Much of it is making sure that we have that predictability that you need when you IPO."

Unlike other startups that tend to bring on a new chief financial officer to oversee the IPO, Databricks is already set: CFO Dave Conte previously helped take Splunk public in 2012. But it does plan to make other key hires, according to Ghodsi, including a new head of engineering and new board members.

Databricks is also shoring up its own internal software, including investing "massively" in Workday, according to Ghodsi. And while an IPO is looming, the company is weighing another funding round in the interim amid what Ghodsi described as a rush of calls from venture capital firms looking to invest.

While Ghodsi says 2020 brought a "significant acceleration" of its business, he declined to provide any up-to-date revenue figures. Databricks said in October that it passed a $350 million revenue run-rate at the end of Q3, up from $200 million a year earlier — an acknowledgement that, despite COVID-19 gutting some sectors, the appetite for data analytics and artificial intelligence is robust. Still, the competition is fierce and, despite notably partnering with Snowflake in 2018 (a partnership that continues today), Databricks faces an increasing rivalry from the current industry darling, as well as Google's BigQuery.

"For data science and analytics, those are really going to be the three competitors," Sapphire Ventures co-founder Jai Das said. "But the market is still so big, I think all three are going to be successful."

First time IPO'er

The investor appetite is, of course, a big vote of confidence in Databricks. But it's also a show of support for Ghodsi, a former researcher at the Swedish Institute of Computer Science who still teaches classes at the University of California, Berkeley.

It's not uncommon for companies to bring on CEOs skilled in taking startups public prior to their own offerings. Snowflake, for instance, poached Frank Slootman, who led the IPOs for ServiceNow and Data Domain, for its own offering.

That's not the approach at Databricks. It'll be Ghodsi's first time leading through the process. But while he doesn't come armed with detailed knowledge of the public markets, he believes a deep understanding of Databricks and its offerings is a much more significant advantage.

"These professional CEOs very rarely are good at that because they don't really understand the products that your company is selling," Ghodsi said. "Oftentimes what happens is that you have great technical founders, they start the company, you launch the product, but you don't really hit your revenue targets. Then the board looks at making changes to fix that. That's basically the death of the company in the long term."

For Ghodsi, the long-term mindset meant largely ignoring the frothy equity markets in 2020 that led some firms to quickly launch a public offering. And despite claiming it will be a "really successful" offering in 2021, he views the IPO as just one step in the vision to make Databricks akin to Salesforce — an enterprise software firm that continues to grow in revenue and influence roughly 16 years after its own IPO.

To get to this point, however, took what Ghodsi described as three phases of evolution.

When he and six other co-founders started the company in 2013, Ghodsi served as vice president of engineering and product management. That gave him a leading voice in figuring out exactly what market needs its offering was solving. But it also meant forgoing lofty revenue targets — it made roughly $1 million that year — to instead focus on "making sure that this is a product that companies really need and love."

The growth came when Ghodsi took the reins, assuming the role of CEO in 2016. At the time, Databricks poured money into its "go-to-market function," including sales and marketing. That also included developing a "customer success" function, an increasingly common facet to organizations that sell their services via the cloud, designed to keep close contact with customers and ensure they don't pivot to another provider. By the end of 2019, Databricks reported a $200 million revenue run, up from "almost no revenue," according to a statement at the time.

That also meant hiring beyond 150 total employees, breaching what is commonly referred to as "Dunbar's number" or the maximum number of people that one person can keep in social contact with. In a practical sense, that meant Ghodsi no longer knew the names of all the employees.

Now, Databricks is in what Ghodsi calls the "operational excellence" phase, or making sure all the company's processes are "aligned and rowing in the same direction." It's produced one of the company's biggest new product releases to date: SQL Analytics, which helps data scientists or analysts more easily run queries on a vast amount of unstructured data through commonly used tools such as Tableau.

While similar offerings are available from Snowflake and BigQuery, the release is Databricks' way of championing the "data lakehouse," or a combination of curated information alongside unstructured data. Typically, they reside in two different stacks, often referred to as a data lake (a vast pool of information) and a data warehouse (a more structured storage center).

And more product announcements are in store for 2021 as Databricks looks to capitalize on its fastest growing industry sectors, including health care.

"Databricks is behind the scenes of pretty much all the vaccines that are being talked about," Ghodsi said. He added: "Health care providers are using it to track inventory and how crowded their hospitals are."

But despite Ghodsi's best attempt at downplaying the current financial environment's influence on the company's next steps, it's clear that competitors' successes are top of mind — and that the biggest event of Databricks' year will be held on Wall Street.

"It's a really, really good IPO climate and we will be IPO-ready," he said.

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