I like to think it was serendipity that led the CEOs of Databricks and MosaicML to meet in late March, an encounter that eventually led to one of the biggest deals in A.I. this year.
I got a chance to hear directly from the two CEOs recently, who gave me an exclusive peek behind the curtain. The full story, which you can read here, gives a unique look at something most people never get to see: How a big acquisition in a red-hot space comes together.
Ali Ghodsi, the cofounder and chief executive of Databricks, and Naveen Rao, MosaicML’s CEO and cofounder, had known of each other, but first met on March 30 when they attended the Cerebral Valley conference in San Francisco. The A.I. summit attracted about 200 people, including Ghodsi who gave a talk about movement towards open source in A.I.
After the conference, Ghodsi and Rao connected at a VIP dinner that was held at Rich Table restaurant. As I wrote in my story, “Over glasses of sangria and plates of bucatini, the two executives discussed the buying behaviors of customers in the cloud, client perceptions about security, as well as what things have worked out for Databricks.”
Both realized at this dinner that they had similar goals. Both Ghodsi and Rao wanted to democratize A.I. and enable lots of people to have access to these models. They knew security was a big concern for their customers, and neither was interested in building a consumer app, Ghodsi told Fortune.
This was the foundation that led to initial merger talks in May. Does it sound like a bromance? The two founders clearly have much in common. They are similar in ages; Ghodsi is 44, while Rao is 48. They are each highly educated. Ghodsi has a doctorate in computer science from KTH Royal Institute of Technology and is an adjunct professor at University of California, Berkeley where he teaches computer science. Rao has a PhD in neuroscience from Brown University. Both are married and have children.
And neither was looking to do a deal. In fact, Rao didn’t want to join a big company again. He sold his first company, Nervana Systems, to Intel in 2016 for $408 million. When he left four years later, in 2020, Rao was Intel’s top A.I. executive. “I’m just not a big company person. I don’t enjoy the politics. I don’t enjoy the backstabbing,” Rao told Fortune.
Databricks isn’t a large, corporate behemoth but it is bigger than MosaicML. Founded in 2013, Databricks is a data-analytics company that employs more than 5,500 people and was valued at $38 billion in 2021. MosaicML, by comparison, was launched two years ago, has 62 employees and is looking to disrupt the A.I. sector. MosaicML’s software lets startups use their own data to train and deploy large language models as well as other generative A.I. Instead of having to rely on Big Tech to train their A.I. models, which would be very expensive, companies can turn to MosaicML and potentially save millions of dollars, as well as weeks to months of time, Fortune has reported.
Rao needed a sign that selling to Databricks would be different. That came in May when Ghodsi texted him, “mind doing a Zoom?” They scheduled a call for Monday, May 10 and Ghodsi sent the link to Rao. It’s this small detail that helped convince Rao that Databricks was still very founder-led, and that Ghodsi was super involved directly with many things, Rao said.
“The reality is, if I did that with somebody from Intel or Microsoft or Google, it would go through five layers of EAs before the CEO had sent me an invite,” he said.
About three weeks later, Ghodsi signed a term sheet on May 29 for Databricks to buy MosaicML. The parties agreed to the $1.3 billion deal in June and completed the transaction this week. MosaicML’s 62 employees have joined Databricks, which generated more than $1 billion in revenue for the fiscal year ending in January 2023.
Read the full story here—including how Rao’s skills as a negotiator helped him get a good price for MosaicML.
Sequoia China’s breakup billions: Sequoia’s recent big breakup with its Chinese affiliate caused a commotion in the VC world. But Sequoia Capital China, which is set to split from its U.S.-based counterpart by early 2024, is in talks to raise a new Chinese currency fund of around 20 billion yuan ($2.8 billion) from local backers including the government of the city of Hangzhou, according to The Information. The firm has been raising the yuan fund since last year, per the report. Sequoia China raised a whopping $9 billion in capital last year. —Anne Sraders
Have a great weekend,
Luisa Beltran
Twitter: @LuisaRBeltran
Email: luisa.beltran@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
