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Does Recent Databricks’ Massive Investment Signal A Maturing Data Science Industry?

Does Recent Databricks’ Massive Investment Signal A Maturing Data Science Industry?

  • Compared to five years back, data science firms are experiencing a spurt of growth and are profusely raising funds.

In February 2021, San Francisco- based Databricks closed a $1 billion late-stage round led by Franklin Templeton. Canada Pension Plan investment board, Amazon Web Services (AWS), and Salesforce Ventures have also participated in the Series G funding.

The billion-dollar investment came in the wake of Databricks’ partnership with the cloud companies, which CEO Ali Ghodsi called a ‘symbiotic relationship of strategic importance’. 

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With such firms attracting significant investments, is the data science industry maturing?

Growth Phase

Databricks has seen rapid growth in the past couple of years. In 2019, the company raised $250 million and $400 million in two funding rounds. Currently, the company is valued at $28 billion.

Many other data companies are also seeing huge investments. Snowflake, a cloud data warehousing firm, attracted funding of $479 million in February 2020, taking the total investment tally to $1.4 billion. In September, the company raised $3.36 billion in the biggest software IPO ever.

Alteryx, a data science company, listed in 2017, has raised $163 million in funding and is currently valued at $9.11 billion. Datarobot raised $270 million investment last year, taking its total funding to $751 million, and is currently valued at $2.7 billion. 

All of these companies have shown high revenue growths. Alteryx generated quarterly revenue growth of 26% year-on-year, whereas Snowflake grew by 119%. While Databricks is not publicly listed, according to news reports, it grew by 75% in Q3 2020 to $350 million, up from $200 million in Q3 2019. 

The two listed companies, Alteryx and Snowflake, showed a negative Earning Per Share (Trailing Twelve Months) of 0.24 and 5.11 last year in September. Alteryx grew its customer base by 27% at the end of the second quarter of 2020, and Snowflake doubled its customer base last year.  

Matured industries tend to have slow and steady progress with consistent returns. Hence, even with the high valuations, indicators like the rising revenues, investments, and customer bases show that the data science industry is in a growing phase. Investments pour in tantamount to industry’s topicality and the potential applications and services. 

The right strategies in investments, along with mergers and acquisitions, play a role in the maturing of industries.

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Aligned Strategies

In an interview following the Databricks funding round, Ghodsi said the Series G made a lot of sense with respect to the participants. On closer inspection, Databricks funding round is strategic investments by big cloud players on an open and unified data analytics platform. In other words, giants like AWS and Salesforce are finding niche opportunities in niche markets. Databricks’ acquisition of Redash, a data visualisation platform last year, ties in perfectly with the overall vision.

In the case of Snowflake, the latest round came from Salesforce Ventures. Snowflake is a data cloud firm providing various applications, including data sharing, data science, data warehousing, among others. Salesforce, on the other hand, is the world’s number one CRM solutions provider that needs huge data storage and platforms for data analysis.

Similarly, the DataRobot, that provides an end-to-end enterprise AI platform to build value from data, has seen fundings mostly from tech investors. It acquired Cursor in 2019 to bolster data collaborations.

Wrapping Up

Compared to five years back, data science firms are experiencing a spurt of growth and are profusely raising funds. The strategic collaborations and mergers also suggest the industry is on track to consolidation. However, the key metrics suggest the industry is in a high-growth phase and is far from being mature.

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