One of the biggest questions in the venture capital world over the last two years has been, “When will the IPO window reopen?” After a hot 2020 and 2021 which delivered 46 and 121 tech IPOs, respectively, new listings slowed to a crawl, with only 15 total tech IPOs through 2022 and 2023 combined. With venture capitalists growing anxious to return capital to their investors, the hope was that 2025 would be the year that the IPO window reopened.
Given the strong performance of companies like Reddit, which has seen its stock price more than triple since going public in March, and ServiceTitan, which ended its first trading day above $100 per share after initially pricing its IPO at $71 a piece, VCs are hopeful that there will be more to come. However, ironically, one of the biggest forces preventing more companies from going public is venture capitalists themselves.
Earlier this week, data and AI platform company Databricks announced that it was raising a $10 billion, non-dilutive Series J at a $62 billion valuation led by Thrive Capital. The non-dilutive stems from the fact that most of the capital is going toward buying employees’ shares in a tender offer. Basically, this fundraise is as much an employee liquidity event as it is anything else.
Historically, a liquidity event for a $62 billion dollar company would be an IPO, not a private funding round, but in an interview with Dan Primack at Axios’s 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 primary drivers for going public is employee liquidity: long-time employees are richly-valued private companies have a significant portion of their net worth tied to illiquid stock, and an IPO allows them to realize that wealth. However, public markets come with headaches, such as extensive regulatory requirements, investors who obsess over quarterly earnings, and the stress associated with a stock price that fluctuates in real time.
Databricks, and other A-list private companies like Stripe and SpaceX, is in an enviable position in that there is a large selection of willing buyers in the private markets who are interested in Databricks stock, so the company can tap private markets for funding that it would have historically looked to public markets for. The result? Databricks can extend its life as a private company, waiting for an optimal, derisked time to go public.
This is great for companies who can be choosy on their IPO timing, but it only amplifies the existing liquidity woes in private markets. That being said, Ghodsi hinted at a 2025 or 2026 IPO, so maybe we’ll see a public listing in the near future instead of a Series K.
For further reading on Databricks, check out our memo on the company, as well as our deep dive comparing Databricks and its competitor Snowflake.
Important Disclosures
This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and Contrary LLC (Contrary LLC, together with its affiliates, “Contrary”) makes no representation as to its accuracy, adequacy, or completeness.
The information herein is based on Contrary beliefs, as well as certain assumptions regarding future events based on information available to Contrary on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance of a company is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
Contrary shall have no responsibility for: (i) determining that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein is suitable for any particular reader; (ii) monitoring whether any opinions, forecasts, projections, risk assumptions, or commentary discussed herein continues to be suitable for any reader; or (iii) tailoring any opinions, forecasts, projections, risk assumptions, or commentary discussed herein to any particular reader’s objectives, guidelines, or restrictions. Receipt of this material does not, by itself, imply that Contrary has an advisory agreement, oral or otherwise, with any reader.
Contrary is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. The registration of Contrary in no way implies a certain level of skill or expertise or that the SEC has endorsed Contrary. Investment decisions for Contrary clients are made by Contrary. Please note that, although Contrary manages assets on behalf of Contrary clients, Contrary clients may take any position (whether positive or negative) with respect to the company described in this material. The information provided in this material does not represent any investment strategy that Contrary manages on behalf of, or recommends to, its clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, company or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in any security of the company discussed in this presentation.
Please see www.contrary.com/legal for additional important information.
