Databricks and DataRobot Funding Rounds Highlight a Rising Trend in Tech Funding: the Investipartner
In the tech era, one of the key buzzwords to describe businesses going to market is the idea of “coopertition” where companies choose to work together towards common goals while competing with each other.
Coined by Novell founder Raymond Noorda, this neologism now describes a common occurrence in the technology world and is a key operational aspect in describing Microsoft’s rapid ascent as Satya Nadella took office as CEO. Under Nadella, Microsoft is happy to sell its cloud infrastructure services while supporting competitive applications such as the 2019 announcement of selling Salesforce on Azure. Needless to say, coopertition is both a mature and expected business practice.
In the 2020s, this idea of coopertition has transformed and evolved as several tech trends have accelerated the pace of business.
- Large tech companies have billions of dollars in cash on hand, see their stock trading at record highs, and need to continue growing rapidly.
- Venture capital and private equity-backed companies have improved their ability to build “unicorns,” startups that grow to billion-dollar valuations within a few years. This size increasingly prevents even relatively large companies from purchasing these startups.
- The radical growth of data, analytics, and machine learning as both data and algorithmic models continue to grow at triple-digit pace year over year
- Customer interest in purchasing best-in-breed point solutions to solve specific problems
- Customers are increasingly comfortable in quickly knitting these solutions together through a shared platform, use of APIs, virtualization, and containerization.
This combination of technology creation and consumption makes it difficult for incumbent vendors to build and bring tools to market in a relevant time frame before startups pop up and rapidly gain market share. In light of this challenge, Amalgam Insights notes that a number of recent funding announcements show signs of modernization of “cooperition” where vendor companies in competitive or adjacent markets invest in a quickly emerging and growing partner that solves issues that are related to their own solutions.
Rather than purchasing the company outright or creating their own version, the vendors choose to take a minority stake in these companies while having some shared go-to-market or partnering strategy. This additional step beyond cooperation involving an equity investment is a trend that Amalgam Insights calls “Investipartnering” where companies choose to make equity commitments with go-to-market partners. Recent examples include:
DataRobot, an automated machine learning solution that has quickly acquired and developed machine learning preparation, operations, and deployment capabilities. In December 2020, DataRobot raised a $320 million Series F round which added investipartners Snowflake, Salesforce Ventures, and Hewlett Packard Enterprise to accompany go-to-market approaches to pair analytics and cloud infrastructure with DataRobot’s ability to develop and operationalize machine learning.
Databricks, a unified analytics platform built by the creators of Apache Spark, announced its $1 billion Series G round on February 2021. This round included new investors Amazon Web Services, Salesforce Ventures as well as additional investment from Microsoft. In addition, Databricks took investment from the Canada Pension Plan Investment Board, which is currently a private equity owner of Informatica. Databricks competes in data management, machine learning, and analytics against each of these investors to some extent, but is also seen as a strategic partner.
Of course, this approach requires both that the startup is willing to partner with an established company in a space where the startup may also be positioned for further growth. And it requires that the large investing company both has the humility to realize that it may not be best suited to create the solution in question or that it should diversify its holdings in a particular market.
And this is not a unique or especially new trend. Microsoft’s investments in Apple in 1997 and Facebook in 2007 both show prior examples of investipartnering. However, what is new is the increased frequency with which high-flying companies such as Microsoft, Amazon, Adobe, Salesforce, Paypal, ServiceNow, Zoom, Snowflake, and Workday will continue to play this role in building fast-growing startups.
As large technology companies continue the need for growth and startups seek strategic smart money to facilitate their transition from private to public companies, Amalgam Insights expects that the Investipartner route will continue to be an attractive one for savvy technology companies that realize that the power of building markets is more important than a basic winner-take-all strategy.