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The recent Databricks funding round, a $1 billion investment at a $28 billion valuation, was one of the year’s most notable private investments so far.
For Databricks signaled its IPO readiness by disclosing to TechCrunch last year that it had scaled its revenue run rate from $200 million to $350 million in a year, so the new capital looked like the capstone on its private fundraising before an eventual public debut.
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But I did have a few questions, starting with the price of the round.
At a $28 billion valuation and ARR of $425 million, Databricks is valued at around 66x top line. That’s steep, if not the highest number we can dredge up on the public markets. Of course, for Databricks shareholders, seeing the value of their stock rise so quickly is hardly a bad thing. They are hardly going to complain about having more paper wealth.
But what about the investor perspective? Does the price really make sense? The Exchange caught up with Battery Ventures’ Dharmesh Thakker earlier this week to discuss a number of things, one of which was Databricks’ round and pricing. Thakker is named in the Databricks Series D funding announcement, which brought Battery into the company.
What was surprising about our conversation was not that Thakker was bullish on Databricks — a company that he and his firm have backed since its $140 million, 2017 round when the company was worth just under $1 billion. What surprised me was that he thinks its new $28 billion valuation might be a little low.
Intriguing, yeah? So this morning for both of us, I’ve pulled out quotes from our chat to help explain how Thakker views the market for Databricks, unicorns at scale more broadly through the lens of risk-adjusted investing, and the scale of the market some unicorns are playing in.
At the close, we’ll remind ourselves what Databricks CEO Ali Ghodsi told TechCrunch when we asked him the same question. Let’s go!
Databricks at $28 billion
Here’s how the valuation part of my chat with the Battery Ventures’ investor went down:
The Exchange: I want to talk about Databricks, because I spoke to [CEO] Ali [Ghodsi] yesterday about this round, and hot damn, it’s a lot of money at a valuation that is roughly 64x ARR, give or take. I don’t understand the price, and I know it’s a boring thing to talk about. [It’s a] great company, I get their market, I’ve talked to them a bunch, I know their revenue numbers. [But] I don’t understand the price, and I was hoping you could tell me why I’m being too conservative.
Dharmesh Thakker: I, for what it’s worth, think [the price] fair. If anything, I think it is on the lower end — he could have done better, frankly. But I think it comes down to three major things, right?
One is the addressable market. Just think about the addressable market of data. If there’s a trillion dollars spent in software or technology, I think you and I would be both hard pressed to say, almost all of that [isn’t] influenced by some data-oriented decisioning. Whether it’s digital transformation, whether it’s analytics, data is everywhere. So the TAM is massive … I think you and I both agree on that, whether it is $20 billion or $80 billion — it’s massive.
Source: https://techcrunch.com/2021/02/04/why-one-databricks-investor-thinks-the-company-may-be-undervalued/
Fundraising is challenging, especially for deep tech founders who need to get investors excited about a complex technology, a complex sales cycle and a complex risk profile.
As a former investor and current angel investor, I have met thousands of founders, many in the deep tech space.
Based on my experience, here’s how to avoid making the most common mistakes deep tech founders make when pitching investors:
Work on your storytelling
Highlight your big vision
Early-stage investors are in the business of funding dreams. They chose to be early-stage investors because they love hearing about new ideas and enthralling futures. They deliberately are not investment bankers or accountants because they do not want to constantly pour over endless spreadsheets or dive deep into financial models. Similarly, they are not operators because they do not want to spend time figuring out the intricacies of a supply chain or a marketing campaign or the configuration of a product component.
Make your pitch tailored to what excites venture capital investors and avoid what does not.
So make your pitch tailored to what excites venture capital investors and avoid what does not. Keep the financial model details and the warehouse system logistics information to your Appendix. You have it in case anyone wants to dive in deeper, but your core presentation should be focused on your biggest, most bullish hopes for the company seven to 10 years from now. Dedicate multiple slides to painting the picture of what society would look like should you meet all your intended milestones as a company.
Underscore the impact
As a deep tech company, your differentiation is in your intellectual property. However, investors care less about the “what” and much more about the “so what.” Investors are less interested in the intricacies of your technology and more interested in what impact it can create.
Formulate your slides to focus on answering questions like, “What can people or companies do as a result of your technology?” and “How will people save time, money and lives with your product?”
Put your presentation to the “grandma” test. Would your grandmother be able to understand and be excited about everything you share? Investor pitch meetings are not dissertation defenses. You are being evaluated on your potential for impact rather than the intricate details of your research. The best way to succeed in this evaluation framework is to ensure that everything you share is relevant and exciting to a diverse audience of even nontechnical folks.
Try to reach hearts and minds
Five million people are a statistic, but one person is a story. When people read data on massive populations of people, they conceptually understand the implications but only on a logical level, not an emotional one. When pitching, you want to reach the hearts of investors.
Source: https://techcrunch.com/2021/02/04/4-strategies-for-deep-tech-founders-who-are-fundraising/
Today, two giants of the cannabis industry are announcing a partnership to create an improved retail experience for consumers and dispensaries alike. Through this partnership, Leafly and Jane’s technology solutions will offer dispensaries powerful tools to sync online e-commerce with in-store inventory — something that is sorely lacking in the cannabis world.
Legal weed shoppers know the pain. A handful of different apps report to show the inventory of local dispensaries and often do not line up with the store’s real-time inventory. What’s more, sometimes other dispensaries have different ways of listing the same product. There’s a good reason for the dispensaries: there’s not an industry standard UPC barcode and the dispensaries often have hundreds of fast-moving SKUs from dozens of vendors.
Leafly and Jane’s partnership seeks to solve the pain on both sides of the counter. Jane’s technology enables dispensaries to build a modern e-commerce platform through automation and machine learning. Jane’s technology will soon be built into Leafly’s Menu Solutions that works with over 30 point-of-sale systems. This should result in less tedious work for the dispensaries and a much more consistent online experience for the shopper.
Jane and Leafly have deep inroads into the cannabis world. According to this announcement’s press release, over the past year, Jane’s solution powered over 17 million orders and $2 billion in cannabis sales. Over 1,800 dispensaries and brands use Jane. Likewise, in 2020, more than 4,500 cannabis retailers used Leafly’s platform, and the company saw 120 million visitors to its online marketplace.
Despite the successes, Leafly experienced a turbulent 2020 with layoffs and leadership changes. Yoko Miyashita took over as the company’s CEO in August 2020 and has been focused on Leafly leaning heavily into building a better online shopping experience.
Right now, in early 2021, there isn’t an Amazon of weed or even a Shopify of weed for several reasons, but primarily because the cannabis industry is still under a federal prohibition. This solution pushes the cannabis industry closer to a modern e-commerce business. With Jane’s ability to standardize and auto-populate product listings, and Leafly’s deep point of sale integrations, both the consumer and dispensary sees benefits.
TechCrunch spoke to Leafly and Jane’s CEOs on this partnership. It’s clear that the two are excited about this project and see this partnership as a watershed moment for retail cannabis.
“[Dispensaries] don’t have a solution that can be seamless like a Shopify or Amazon,” Jane’s CEO Socrates Rosenfeldsaid. “I think, together with Jane’s ability to cleanse information in real-time, and essentially automate e-commerce for large brick and mortar selling sellers, combining that with Leafly’s consumer marketplace, we are making shopping for cannabis as simple as shopping on Amazon.”
TK explained that he sees this partnership goes behind an Amazon-like shopping experience. He sees this as a way of returning value and protecting local dispensaries by empowering them with technology.
“The problems in cannabis are unique enough, and the plant has a complexity that we want to honor,” Leafly CEO Yoko Miyashita said. We don’t think we can get there with antiquated ways of doing things. It’s bringing the intentionality around shared values to innovate and ultimately empower the communities that we serve.”
Identity and access management service Okta today launched its new design system, both for its own corporate and brand use, but also as an open-source project under the Apache 2.0 license. The Odyssey Design System, as the company calls it, is similar to the likes of Google’s Material Design or Microsoft’s Fluent Design. It may not have quite the same number of features, but what makes it stand out is a focus on accessibility, with every element of the design system being compliant with the W3’s Web Content Accessibility Guidelines.
Brian Hansen, Okta’s SVP of Design, told me that until now, the company didn’t really have a unified design system. Instead, it had what he called a “glorified pattern library.” And while the engineers loved it, because it allowed them to build new UIs quickly, it was hard for the team to add new patterns. “And so it was limited in what it could do,” Hansen said. “And what you ended up having to do sometimes is compromise — particularly as a designer — and kind of shove the square peg into the round hole.”
Image Credits: Okta
Now that Okta has moved beyond its early startup roots, though, the team decided that it was time to go back to the drawing board and build a more fully-featured design system for the company — and you may soon see it yourself in Okta’s sign-in widget, which is where most users are likely to encounter it. But it’s worth remembering that Okta, the platform, also offers a plethora of backend tools for admins that most users never see. Those admins typically want a very information-dense user experience and a design that makes it easy for them to get things done and move on. Okta’s third group of users, Hansen stressed, is developers and what matters a lot to them — in addition to all the technical details — is documentation, which has to be easily readable (from a design perspective).
As Hansen noted, though, internally, it wasn’t a realistic project to simply switch every surface area to Odyssee at once. “As a designer, you want everything to be perfect all at once. But you also have to be pragmatic and live with some things that aren’t perfect,” he acknowledged. So while the Okta brand is now getting this refresh and some of the user-facing services, it’ll take a while before every Okta service can make this move.
For the admin console, for example, Hansen’s team decided that it would take years to switch out the UI. So instead, the team opted for a bridge strategy where it created the style sheets to essentially mimic the Odyssee design. “Then we can cut over to Odyssee-native components and they’ll blend in. We can’t have a Franken app — we can’t have two different generations of UI coexisting. That to me just ruins trust. No one would be happy with that,” Hansen said.
Developers who want to give Odyssee a try for their own projects can do so and explore the different components it has to offer. And designers can try it out in Figma, too.
