This article is a reflection on the potential sale of MariaDB for $37 million to K1 Investment Management, which marks the end of an era filled with failed SPAC mergers. The rise of special purpose acquisition companies, or SPACs, gained momentum in the venture capital world during the last startup boom.
But what happened to all those companies that used this shortcut to go public? As it turns out, many of them faced legal issues, bankruptcy, and ultimately, significant losses for shareholders.
MariaDB was one such business, despite being considered a more serious contender. After securing over $100 million in funding over ten years, MariaDB announced a merger with Angel Pond Holdings, a SPAC. In their initial proposal, MariaDB projected an equity valuation of $973.6 million and an enterprise value of $672.1 million after the merger. However, by the time the deal was finalized, the majority of the SPAC cash was nowhere to be found. In fact, 99% of the shares held by Angel Pond were redeemed at $10 per share, reducing the deal’s value by $263 million.
What’s worse, those who chose to sell their shares at this price ended up with a better outcome than those who held on. On its first day as a public company, MariaDB’s stock plummeted, and it currently trades at $0.36 per share (better than its 52-week low of $0.16). Needless to say, MariaDB has not lived up to its investors’ expectations.
In their original SPAC proposal, MariaDB predicted an annual recurring revenue (ARR) of $53 million in FY 2022 and $72 million in FY 2023. They also projected revenue of $47 million in FY 2022 and $64 million in FY 2023. However, the company failed to meet these milestones and instead reported revenue of $53.1 million and ARR of $50.3 million in 2023. In the first quarter of FY 2024, they reported a modest increase in revenue to $13.6 million, along with a decrease in operating and net losses. However, these improvements came too late, as MariaDB’s cash reserves had significantly depleted.
In a desperate attempt to stay afloat, MariaDB issued a “senior secured promissory note” worth $26.5 million to RP Ventures in October of last year. This funding was used to fulfill the end of a term loan with the European Investment Bank. Unfortunately, the company’s deteriorating financial situation led them to go into breach of this rescue loan, leaving them with limited options.
That’s where K1 Investment Management comes in, with an offer to purchase MariaDB. Interestingly enough, this offer may depend on RP Ventures clearing the potential purchase. In short, MariaDB went public while still unprofitable and without enough funds to sustain itself. This is just about the worst-case scenario for any startup — facing increased scrutiny, cash reliance, shrinking reserves, and a conservative valuation market.
The story of MariaDB serves as a cautionary tale on two fronts. Firstly, it highlights the recklessness and overpricing of SPAC deals during a time of exuberant market behavior. Secondly, it exposes the harsh reality that not all software companies, even those with moderate annualized revenue, can maintain their growth pace as a public company.
So, let this be a reminder to beware of taking part in exotic deals during heady times, and to never assume that your future ARR growth is a sure bet — even if your company has reached critical growth thresholds.
