When enterprise software firm Databricks revealed on Monday it would pay $1.3 billion for a two-year-old artificial intelligence startup, MosaicML, the deal looked overpriced. Databricks is paying 65 times Mosaic’s $20 million in annual recurring revenue, a measure of customer commitments to pay for its software, according to Databricks CEO Ali Ghodsi.
In reality, the value of the deal is much less. Databricks is paying for Mosaic in stock at the same share price as Databricks’ last equity financing round, in 2021, which valued it at $38 billion, Ghodsi said. That period was the peak of startup valuations, so Databricks’ current valuation may be closer to half that. If Databricks’ share price were to be cut in half, the Mosaic deal would be worth closer to $650 million, or 32.5 times revenue. That’s well above the value put on most enterprise software deals outside AI, which lately have been done at less than 10 times next year’s revenue.
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