Opportuna Newsletter #6 | Jan-25 Edition

The past few weeks have been busy as we wrapped up 2024. We conducted some deep dives on private companies, like Klarna, who is preparing for an IPO in the near future, and Databricks, who recently closed a massive $10bn round in December. If you want to learn more about either Klarna or Databricks, please let us know.

As always, our newsletter follows the same structured format: 

• highlights of the month - Databrick’s record breaking funding and insights on stablecoins;

• a chart of the month - performance of 2024 US venture-backed IPOs above $5bn;;

• insights on current topics - Databricks; and

• analysis of a long-term issue - the potential of stablecoins as infrastructure. 

This edition remains focused on the convergence of private and public tech investing.

In the “Chart of the Month” and “Current Topics”, we discuss the mixed performance of 2024 tech IPO’s and analyse Databrick’s recent funding. Our “Long-Term theme” examines the potential of stablecoins’ to reshape global finance.

You can see past editions here. Anybody can sign up following this link.

If you are a founder, executive, BA, or GP seeking liquidity solutions, please reach out for a confidential chat. For those seeking quality exposure to private markets, with faster liquidity and downside protection, book a call with us here.

Finally, we are keen to hear from you about which unicorns you would like us to research next! Here is a list to choose from.

🚨 Highlights of the Month

Databricks gathers $10bn in a Series J funding round and adds $5bn in debt. We have written  a detailed report on this significant development; let us know if you would like to read it to read it.

Simon Taylor’s interesting post on Fintech Brainfood highlights that selling stablecoins’  as cheaper misses the point.

“Stablecoins are not cheaper for most use cases yet. But they are better infrastructure. We’re in the dial-up era of Stablecoins, so they’re still janky, and connecting is slow and painful (beep boop, bee boo beeeeeep).

In time, Stablecoins will create an abstraction layer above existing payment rails, just as the Internet did over the telcos. In the same way, entire sectors will become “onstable,” as we saw with video, messaging, and commerce. That network layer will eventually remove intermediaries and compete out costs.”

Ardian raised a massive $30bn for a secondary platform acquiring stakes in private equity assets, with private wealth clients accounting for 22% of the equity raised

📈 Chart of the Month: Mixed Performance for 2024 VC-backed IPOs

Crunchbase published an article on 2024 IPOs, featuring a chart of the mixed performance of 2024 US Venture-backed IPOs above $5bn. Astera Labs and Reddit are trading above their IPO value,  delivering results and guidance that exceeded expectations. Service Titan, which IPO’d last month, benefitted from a “pop” on the day of the IPO.

Source: “Forecast: 2024 Was Slow For Tech IPOs, But 2025 Could Be Different”, Crunchbase, December 20^th 2024

🌐 Current Topics: Databricks Secures $15bn in News Funding

Databricks, a leader in enterprise data management and analytics, recently secured $15bn in funding, in a mix of equity ($10bn) and debt ($5bn). This represents a significant challenge to its publicly listed peer, Snowflake. To put things in perspective, Snowflake generated $2.3bn in Gross Profits in the last twelve months; Databricks just secured the equivalent of six years of Snowflake’s GP to spend on Sales, Marketing, and R&D.

The pivotal moment came with the introduction of the company's Lakehouse architecture in 2020, which has driven significant ARR year-over-year growth, exceeding 60% in Q3 FY25. Databricks projects over $3bn in revenue and positive free cash flow by January 31, 2025. This strong performance is bolstered by its close alignment with the burgeoning AI market and positive feedback from numerous CIOs and industry consultants. The company's acquisition of MosaicML, further enhances its AI capabilities, integrating large language model (LLM) functionality into its platform.

Databricks' competitive advantage stems from its cohesive platform offering a cost-effective, comprehensive solution compared to rivals like Snowflake. Client feedback emphasizes the platform's strength in creating consistent data views and accurate KPIs, crucial for effective GenAI applications. Consultants are also driving adoption by creating verticalized data and machine learning products built on the Databricks platform. This expands Databricks’ reach into various workflows.

The company's substantial growth and market leadership position make it an attractive investment. The Series J round in December values the company at $62bn. It is very rare for a large enterprise software asset to grow at scale so rapidly. Investors are betting that Databricks will become a generational winner, similar to ServiceNow, and Salesforce. This growth trajectory is supported by its expanding addressable market and increasing adoption across diverse sectors. However, one should remember how quickly Snowflake went from darling to disappointment. The key risk, in the short term, is one of potential overspending by clients on data and analytics and the company's reliance on large enterprise clients.

In conclusion, Databricks presents a one-of-a-kind asset. It now sits on a significant war chest, which will solidify its grip on the market. Despite inherent risks, its strong growth, market leadership, and alignment with AI trends suggest significant long-term potential. We anticipate an IPO around 2027 or 2028.

If you would like a detailed report on Databricks, fill this form.

🧭LT: Stablecoins as Infrastructure

Our recent investment in Mesh partially reflects our belief that stablecoins hold immense promise for the economy and need to be democratized. These digital assets are gaining traction as a transformative financial technology, offering a blend of stability and the efficiency of blockchain. Their potential to revolutionize payments and corporate treasury operations is significant.

In our view, stablecoins are not designed to be a cheaper alternative to existing payment rails, but rather a better form of infrastructure, offering programmability, global reach and instant transaction capabilities. Outside of payment nerds’ circles, few understand that the costs associated with traditional payment systems like Visa and SWIFT are not primarily from the networks themselves, but rather from intermediaries, risk management, and compliance measures. Stablecoins have the potential to reduce the need for these intermediaries and therefore streamline global payments.

The current applications of stablecoins are growing, and by 2025, they are anticipated to be at the forefront of broader corporate adoption, facilitating global trade and commerce, supporting smart contracts, and enabling new business models. Their inherent flexibility, speed, and availability make them indispensable tools for businesses seeking to optimize financial operations and reduce costs. Stablecoins also play a crucial role in decentralized finance (DeFi), bridging the gap between traditional fiat currencies and the volatile world of cryptocurrencies.

However, the adoption of stablecoins faces both regulatory and risk challenges. The lack of a standardized regulatory framework, especially in the US, creates uncertainty. Maintaining value parity with fiat currencies, managing operational risks, and ensuring the security of the underlying technology are critical. Additionally, the potential for "runs" on stablecoin issuers and counterparty risks in settlement highlight the need for effective risk management frameworks.

As the stablecoin market evolves, regulatory bodies are working to balance innovation with oversight, addressing concerns about money laundering, financial stability, and consumer protection. International coordination is essential to mitigate risks associated with stablecoin issuance, particularly for global stablecoins (GSCs),which have the potential to become systemically important across jurisdictions. The future success of stablecoins will depend on the ability to address these risks through technology, automation and the establishment of robust regulatory frameworks.

Stablecoins represent a significant advancement in financial technology, offering efficiency, programmability, and global reach. However, realizing their full potential requires overcoming key challenges related touser interface, regulation and consumer trust. The long term success lies with those who see Stablecoins as the foundation for a new financial stack rather than just a cheaper payment rail.