If you missed the Snowflake (NASDAQ: SNOW) initial public offering (IPO) at $120 per share in September of 2020 and wanted to get in on the bottom floor of a promising AI/data company, then you might consider buying into Databricks’ upcoming IPO.
Artificial intelligence (AI) and massive scale data engineering make up the bulk of Databricks’ business. Keep reading to find out more about the Databricks IPO and how to buy stocks in companies when they go public.
When is the Databricks IPO Date?
As of this writing, no announcement or date for an IPO has been released from Databricks, although due to the success of the company’s latest round of funding in early February of 2021, many analysts now speculate that the company will go public sometime in 2021.
A Bloomberg article from October of 2020, cited “unnamed” sources familiar with the matter stating that Databricks was already in the early process of offering stock. According to that source, the company was then holding talks with investment banks but had not yet hired underwriters.
Databricks Financial History
San Francisco-based Databricks is a data and AI company founded in 2013 by the creators of Apache Spark, MLflow and Delta Lake. Over 5,000 companies and organizations — including 40% of the Fortune 500 companies — currently rely on Databricks’ unified data platform for analytics, machine learning and data engineering.
Databricks has had 7 major rounds of funding since its founding and has raised a total of $1.9 billion from a total of 28 investors. In chronological order, the 7 rounds of funding and the investors in each round included:
- 2013: Databricks’ financial history began on September 25, 2013, with the first round of its series A financing that raised $14 million of venture capital funds from Andreessen Horowitz and Alfred Chuang.
- 2014: The 2nd early-stage venture capital funding round of series B debt on June 30, 2014, yielded $33 million from New Enterprise Associates, DCVC and Andreessen Horowitz.
- 2016: The 3rd round of late-stage venture capital for series C debt was on December 15, 2016. This raised an additional $60 million from SineWave Ventures, New Enterprise Associates and Andreessen Horowitz to augment Databricks’ valuation of $460 million.
- 2017: The series D late-stage venture capital round occurred on August 22, 2017, and raised $140 million. The company’s pre-money valuation before this financing round was $800 million.
- 2019: The 5th round of financing for series E late-stage venture capital was on February 5, 2019. It raised $250 million from a group of investors that included Andreessen Horowitz, Battery Ventures, Coatue, Founders Future, Geodesic Capital, Green Bay Ventures, Microsoft and New Enterprise Associates. At this point, the company’s premoney valuation was $2.5 billion.
- 2019: On October 22, 2019, the company announced its 6th late-stage venture Series F financing that raised $400 million from 11 investors. The company’s premoney valuation rose to $5.8 billion at this point in its financing history.
- 2021: Databricks’ latest round of Series G late-stage venture financing raised a total of $1 billion from 23 investors. This latest round of financing left Databricks with a post-money valuation of $28 billion.
As noted above in Databricks’ financing history, many prestigious and successful money managers and venture capitalists have already invested heavily in the company, and for good reason. Powered on the cloud by Delta Lake, the Databricks Lakehouse platform allows companies of any size to efficiently consolidate all of their data in 1 place.
Databricks’ Lakehouse Platform. Source: Databricks.
Databricks’ ability to leverage customer data helps its clients understand their customers’ operational processes. Also, the Lakehouse platform builds a competitive advantage for the client company rooted in hard data. The “lakehouse” data management architecture used by Databricks has increasingly become the standard for simplifying data infrastructure and accelerating innovation.
Databricks’ stock and the amount of money raised through an IPO remains a key decisive factor for any new investor interested in buying its IPO shares.
If underwriters note a strong demand for shares, then the price of the IPO shares could increase, as was the case with the Snowflake IPO in 2020. Despite raising its IPO price, SNOW stock now trades at more than double its IPO share price.
Keep in mind that once you’ve acquired Databricks’ shares in its upcoming IPO, you may not be able to sell your shares immediately. Also, if the issue is oversubscribed, you might have to wait to buy the shares on the secondary market after the IPO, since most shares get allocated to underwriters and their best customers.
How to Buy Databricks IPO Stock
When a company issues stock, it needs an agent to offer its shares to the general public. The agent is typically an investment bank and/or a broker-dealer. These financial firms initially buy shares from the issuing company to sell to investors.
If you want to buy IPO stock, then you will need a funded account at a stockbroker. Many online brokers require a substantial minimum account balance before you can invest in IPO shares. You will also need to fill out a questionnaire to make sure you meet your broker’s additional requirements.
- Pick a brokerage.
Some of the largest online stock trading brokers allow qualified clients to participate in select IPOs. Each broker has its own requirements for doing so.
Even those eligible investors who have accounts with the best brokers might still not be able to buy IPO shares at the initial price. You also could be limited in the number of IPO shares you’re permitted to purchase depending on how much in demand they are and where you stand on the eligible investors list.
- Decide how many shares to buy.
You can state how many shares you want to purchase with the existing funds in your account. You might have to hold any purchased shares in your account for a “lockout” period that can last for 90 to 180 days.
- Choose your order type.
Once your broker approves you to buy IPO shares, you’ll need to place a “conditional offer to buy” that brokers typically start accepting 1 week before the IPO stock is priced. After the initial price is determined, you might need to confirm your interest in buying IPO stock at that price.
You’re not guaranteed the quantity of stock you requested. Instead, your standing on the eligible buyer's list will determine how many shares get allocated to your account. Many brokers have a scoring system to allocate IPO stock that gives priority to their best clients.
Remember that you will need to keep IPO stock for any required lock-out period, so thoroughly review the IPO prospectus and its lock-out terms to make sure you understand them before placing a conditional offer to buy.
- Execute your trade.
If you get notified that you have been allocated IPO shares at the IPO price, then they will show up in your brokerage account on the IPO day and the required sum will be deducted from your account.
Best Online Stockbrokers
Below is a list of best brokers for your consideration.
Equitybee is an online investing platform that allows accredited investors to access startups by helping fund employee stock options. Often, employees at pre-IPO companies don’t have the funds to exercise those stock options, but Equitybee helps on both sides of the process. It works like this:
- The investor wires the initial investment amount plus the 5% fee
- As mentioned, the employee agrees to pay 30% of the future value of the shares and x% in annual interest to the investors
- The company takes an undetermined amount of time (let’s say 3 years) from the time the investor funds the options to the time it IPOs at [whatever the IPO price is]
- After a successful IPO, the employee receives the proceeds of the stock option [the number of shares multiplied by the stock price.] As a result of their funding agreement, the employee wires the investor their original investment amount plus 3 years of interest. Additionally, the employee has agreed to pay 30% of the total they earned from the IPO.
- After the employee wires 30% of the total proceeds and interest to the investor, the investor pays a 5% fee to Equitybee
- Keep in mind that this is a taxable event for the employee and the investor. It’s wise to consult with a tax professional to seek further assistance.
With a system like this, investors can access pre-IPO companies and gauge their performance without making a huge bet on the day of the IPO.
Is the Databricks IPO for You?
The Databricks IPO has yet to be announced, although some sources state the company is preparing to go public. The steps Databricks took in February of 2021 to add support for Google Cloud and the substantial investment by Alphabet’s CapitalG remain strong indications of an upcoming IPO.
If you’ve thought about investing in Databricks, then keep an eye on the IPO calendar and the news to find out when its IPO will take place. In addition, watch out for which brokers, investment banks and bookrunners will manage the initial stock offering for Databricks in case that requires you to open a new brokerage account.