The retail investor

Investing platform startup Sandhill has been running this live auction of Databricks shares for the last few days. I’ve been following it closely as it’s a transparent view on retail investors bidding on a top private company. I don’t believe this has been done before so props to Sandhill.

The reason I’m interested in this is because I do this for a living, and I’m curious to how people who don’t do this for a living interact. I’ve followed Databricks very closely since joining Secfi and it’s been one of the top private companies in this space ever since.

The company just announced a fundraise and the projected share price should be around $75 give or take a few dollars based on some back of the napkin math. That is an upround from the Series I of $73.48, but not by much. Interestingly enough the round was announced during the live auction.

One noted observation is that bids have picked up since the announcement. Unfortunately, that could be a product of both the the auction coming to an end because people are waiting to put their bids in. Or the announcement affecting behavior. Likely a combination of both.

Secondly, it’s very interesting to see retail bidders putting in bids higher than that “market” for common stock. Yes, investors are buying in at $75, but they’re playing a different game. For one they are buying preferred stock. For another, they have different return profiles and holding periods than retail investors investing in a SPV that likely gets liquidated after an IPO.

The last 409A value was $55 and the market based on the data sources I’m seeing is somewhat around there as well meaning investors are typically buying common there. Pretty much ALL the bids made here are over the $55. As it stands now, the price of the live auction is $69.69. (I know… not a joke… but nice coincidence). So retail buyers are paying a premium to what they would or could typically get in the secondary markets.

In the secondary markets, there’s definitely a supply issue as there are likely more buyers than sellers right now so that’s something to consider. Regardless, it seems that retail investors are very much happy to pay a premium to be invested in a hot name like Databricks.

I’d love the opportunity to interview some of these people and get a bit of their strategy for putting thousands of dollars in Databricks at these prices. That won’t happen unfortunately. At the end, it’s a great company and could be a good investment despite paying a premium, but it’s fascinating to take a look regardless.