How The Hottest VC-Backed Cloud Data Companies Are Prepping For The Funding Winter
ILLUSTRATION BY STEPHANIE JONES FOR FORBES; PHOTOS BY GETTY IMAGES
Even for 2021’s bloated fundraising environment, the cloud data sector was among the frothiest.
Enticed by the rapid adoption of the cloud, venture capital investors clamored to fund startups building the infrastructure to support the gigantic quantities of data being generated. Databricks (No. 2 on Cloud 100 list), Fivetran (No. 27) and Dbt Labs (No. 79) were among the biggest names that skyrocketed in valuation. The most in-demand startups raised money in ways previously unfathomable, like securing three rounds of funding within 12 months or obtaining a billion-dollar valuation before revenue had reached $1 million. “A lot of companies that actually have very interesting tech, they fundamentally broke their businesses because they over-raised,” says Jonathan Lehr, general partner at Work-Bench, a seed-stage firm that invests in the sector.
Now, with later stage funding firmly cooled down, many of these companies with huge swaths of cash on hand are reorienting—though not always in the same way. Forbes gathered revenue data, some of which was previously undisclosed, and caught up with five of the leading data unicorns to discuss how they’ve updated their business strategies.
For Databricks, last valued at $38 billion in August 2021, the market downturn provides the chance to move faster while competitors—both public companies which must answer to fickle Wall Street investors, and smaller startups with shakier financials—are forced to slow down, says cofounder and CEO Ali Ghodsi. The company, which makes software to store and analyze business data, raised $1.6 billion in capital one year ago and recently reached $1 billion in annualized revenue. “We’re not facing the pressures that come with being public,” Ghodsi says. “That’s why we’re not doing layoffs and we’re hiring 2,500 people this year.”
Ghodsi says he plans to continue hiring and hunting for early stage acquisitions. He estimates Databricks will have five years of runway remaining even after the spree. “I think we’re going to see a lot of Series A, B and C companies that are going to have a difficult time if the recession hits,” he says of potential acquisition targets.
His sentiment echoes a belief common among founders and investors across the ecosystem that consolidation is coming. Mike Volpi, a partner at Index Ventures, predicts that Databricks and Snowflake—a former No. 1 on the Cloud 100 which is now among the most resilient public software stocks, with a market cap of $54 billion—could eventually try to gobble up unicorns like Fivetran ($5.6 billion valuation) and Starburst Data ($3.4 billion), the latter in which he is an investor. Smaller companies, then, could be even easier targets. “When you’re worth hundreds of millions of dollars but have less than $2 or $3 million of revenue, you can’t always catch up to that [valuation], even if you cut burn,” Lehr says.
So it’s no surprise that other data startups with less bountiful revenues are acting with greater caution than Ghodsi—even the hottest companies in last year’s VC market:
- Dbt Labs, which raised at a $4.2 billion valuation in February, had about $15 million in annualized revenue when it was courting investors in late 2021, according to three sources. One of the people said the company reported plans to reach $45 million in revenue in 2022. The company declined to comment on the revenue figures.
- Monte Carlo announced at a $1.6 billion valuation in May but two sources say the company was making around $5 million to $7 million in annualized revenue while it was fundraising in late 2021. Lior Gavish, cofounder and chief technology officer, says revenue has since reached double-digit millions, but declined to provide additional details.
- Airbyte, which raised at a $1.5 billion valuation in December 2021, was making less than $1 million in annualized revenue, Forbes reported at the time.
Dbt Labs, which is debuting on the Cloud 100 list this year, was among the startups most sought after by VC firms amid the funding frenzy. The startup, which sells software to make raw data usable for analytics purposes, raised $414 million in four funding rounds between April 2020 and February 2022. The company has grown to 330 employees from 25 at the time of that first funding round two years ago. But cofounder and CEO Tristan Handy says he recently made the decision to cut hiring targets by 7% to 8%, mainly for go-to-market staff, after conducting an internal audit to extend runway from three years to four.
Handy says he also plans to launch fewer big projects. “Let’s get better at what we’ve already launched,” he says. “If you make these small adjustments in plans, they actually matter a lot,” he says, adding that “we have not and will not do layoffs.”
For companies like Dbt Labs, which raised consecutive funding rounds months apart prior to the market downturn, extending runway also comes as an attempt to now stave off fundraising again for years. “You want to be raising in favorable markets,” Handy says. “We don’t have to raise, so why shouldn’t we wait?”
Many startups are no longer raising money at the same pace they did prior to this year out of fear of a down round, in which their valuation decreases compared to the previous round. Executives at Airbyte and Monte Carlo, like Handy, say they do not plan to return to the market for at least 24 months. “A lot of companies were generously funded, and we fall under that category,” says Lior Gavish, cofounder and chief technology officer of Monte Carlo, which raised four funding rounds totaling $236 million in a 20-month span ending in May.
Airbyte will likely need to reach $50 million in revenue to guarantee a flat round under current market conditions, says Altimeter partner Jamin Ball, who was a lead investor on the latest funding round. The startup, which helps customers transport data from one place to another, hauled in $181 million in three rounds between March and December of last year. The Series B stage company started with an open-source approach before launching its first paid product in April. It is still “getting there” on its path to $1 million in annual sales, cofounder and CEO Michel Tricot told Forbes in June.
Tricot has made 50 hires this year, more than doubling headcount to 80. He plans to hire another 20 in the coming months, at which size he says the company will have about five years of runway. From there, whether Airbyte continues hiring all the way to its planned 200-person target may no longer follow the “grow as fast as you can” mentality. “We need to be a bit defensive but we cannot be defensive completely,” Tricot says. “Revenue has to compensate for burn. If it doesn’t, then we don’t hire as much and we’ll take more time to mature the product.”
One exception to down round fears is Fivetran cofounder and CEO George Fraser, who says he plans to raise a funding round within the next two years regardless of market conditions. His startup, which like Airbyte sells software for data transportation, crossed $100 million in annualized revenue late last year, and is on track to to hit $250 million in ARR around the end of this year (that translates to $189 million in GAAP revenue), Fraser tells Forbes. “We’ve done the math, and even under pessimistic assumptions, we’ve grown revenue so much that we’ve outrun the decline of the market,” he boasts.
Still, even if Fivetran increases its valuation and the others weather the funding winter, the companies surveyed are among the most well-capitalized to brace for the storm ahead. That some of them have begun to exercise caution means others among the several hundred startups in the ecosystem will have even tougher decisions to make.
“There are great founders who have a great product, but they might not have enough runway,” says Databricks’ Ghodsi, licking his chops at the prospect of more acquisitions. “Maybe they over-hired a bit. Instead of them having to do layoffs, we can provide a home for them. We have the cash balances to do that.”
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