After playing coy for the past two weeks, Cloudera has finally gone public with its plans to go public, filing the relevant IPO forms with the US Securities and Exchange Commission.
The company is looking to raise $200m and the S-1 filing gives some insight into the big data company – mostly that it is losing a lot of money, but less than last year.
The company's revenues jumped nearly 60 per cent last year – from $166m in fiscal year 2016 to $261m for 2017. Its gross profit did likewise – up 90 per cent from $91m to $174m.
But the company still made a loss of $187m; most of it thanks to its huge sales and marketing spend of $203m. If there's any good news, it's that the company lost less in 2017 than the previous year (it was $203m in 2016).
For a company valued at $4.1bn and losing $200m a year, it may seem odd that Cloudera is only seeking to raise $200m. And that is in large part thanks to its peculiar contractual relationship with Intel.
Cloudera was started in 2008 by three engineers from Facebook, Google, and Yahoo! It raised $11m in VC money the next year; then $25m in 2010; then $40m in 2012. But the company was blowing through it all and by 2013 had become a much-talked-about tech company because VCs were wavering on putting in additional funds. So it was assumed the company would either IPO or be acquired.
The fact that no one imagined Cloudera would simply disappear was an encouraging sign for the Hadoop-based software, support and services company. Clearly people were using its products and it offered something unique in a crowded market.
In the end, the company managed to maintain its independence by doing a deal with Intel in a big $900m funding round in March 2014, of which the chipmaker put in $740m. But the deal came with an unusual contract that the IPO documents have shed light on for the first time.
To the max
Under the terms of the contract with Cloudera, Intel is not allowed to own more than 20 per cent of the company when it goes public – something the company is calling the "Intel Maximum Percentage."
Intel currently owns 22 per cent of Cloudera stock (its two biggest and earliest VC investors, Accel and Greylock, own 16.3 and 12.5 per cent respectively). After the IPO, that percentage will fall to the magic 20 per cent – implying that Intel may put have put a limit on the amount that Cloudera can raise so it can maintain its percentage. Intel also has a provision, however, that allows it to maintain the same percentage as any other investor in the company.
Aside from its $740m investment, Intel has invested a lot into Cloudera in terms of products: the cybersecurity project Apache Spot and work on new chip encryption to name but two.
For Intel to go above that 20 per cent figure, it would either have to acquire the entire company (payday for the investors) or it would be allowed to buy shares to match the percentage holding of another company. So if Company X decided to buy out the two other largest investors and their 28.8 per cent holding, Intel would be allowed to buy an additional 8.8 per cent to match them.
In effect, for bailing Cloudera out in 2014, Intel gets to maintain a certain level of control over the company.
In June 2016, Cloudera's chief architect Doug Cutting told The Register that the company would never need to raise money thanks to Intel's big investment. "We believe that we don't need to raise more money for... ever, I guess is the point, until we are profitable. We will IPO when we feel like we have a business we can show that is profitable."
In reality of course, investors have a pretty big say on what a company does. And in this case it seems the VCs want to cash out, at least in part. With Snap's recent IPO, the tech industry sees a potential new window for going public after fears of a bubble collapse last year all but dried up the market.
In fact, Cloudera was one of the companies hit hardest in tech devaluations this time last year, mostly because it was assumed the VCs wanted to cash out but the market was a mess: Fidelity Investments cut its valuation of the company by no less than 38 per cent.
All of which leads to the question: is Cloudera a good bet?
Well, it has Intel's backing, which is both a positive and a negative. Intel is not planning on going anywhere and so Cloudera has a good foundation. At the same time, Intel clearly has quite a significant say in what the company can do, so their fates are entwined together.
On the flip side, Cloudera has a lot of competition from some very big tech companies including Amazon, Microsoft and Google. The big plus of Cloudera? Open source software. ®