Much Of Intel’s $740M Cloudera Investment Likely Went To Existing Shareholders

Update: Alan Saldich, Cloudera’s VP of marketing informed TechCrunch in a tweet that a “majority” of Intel’s money did in fact go to the company. We don’t know the exact percentage yet, but when the Form D is released, I’ll dig into it. 

Yesterday’s blockbuster news that Intel had invested $740 million in Hadoop-focused Cloudera was a surprise. The market hadn’t expected Intel’s investment to be so large.

The deal was so large that industry watchers like TechCrunch and VC Experts ticked through Cloudera’s seventh amended and restated certificate of incorporation, and tried to square the firm’s Series F Preferred Stock with the investment size.

Things didn’t add up: Either Intel paid a much higher per-share price for Cloudera than did its recent investors like Google Ventures, or it bought from sources outside the company.

The former might be true, but the latter certainly is. Intel and Cloudera both confirmed with TechCrunch that Intel purchased shares from entities outside of Cloudera itself. This means that Intel did in fact spend $740 million to buy 18 percent of Cloudera, but that those dollars did not all go to Cloudera itself.

In fact, it is feasible that none of them did. When asked, Intel declined to comment on whether it had purchased any shares directly from Cloudera. It would be sensible that it did, however. The $160 million Series F round of funding that Google Ventures took part in would only encompass most of the Series F Preferred shares that Cloudera authorized. So, Intel could have picked up the remaining 3 million shares or so at the stated $14.56 per share for around $44 million.

Cloudera declined to comment on whether Intel directly purchased shares as well, instead referring TechCrunch to the forthcoming Form D that will make the issue clear.

This matters as the media generally reported — I failed here as well — that Intel had invested $740 million into Cloudera. That’s technically true, but mostly false: Intel definitely invested $740 million of its own dollars purchasing shares of Cloudera. But those shares appear to have come from various sources, at least some of which were outside the company. This paints a picture that is quite different from Intel investing that full dollar amount directly in the firm. Cloudera did not get 740 million Intel dollars. This means its cash hoard is far smaller than many think.

How did we get here? Cloudera’s statement yesterday was accurate, but occluded, and the press skipped over the nuance (again, I am guilty of this). Here’s Cloudera on the money:

Cloudera, the leader in enterprise analytic data management powered by Apache Hadoop™, today announced a $900 million round of financing with participation by top tier institutional and strategic investors. This financing round includes the previously-announced $160 million of funding from T. Rowe Price and three other top-tier public market investors, Google Ventures, and an affiliate of MSD Capital, L.P., the private investment arm of Michael Dell and his family, and a significant equity investment by Intel that gives them an 18% share of Cloudera.

Did you miss it? The $900 million is called a “round of financing,” while the $160 million is called “funding.” That’s the difference. When the media generally reported that Intel had invested $740 million directly, the companies were mum. That irks me slightly, but I must commit most of the opprobrium onto myself for being wrong.

Here’s an Intel spokesperson on the deal:

Intel wanted to acquire a meaningful share in the company given the importance of big data in the data center. This required Intel’s buy out of some existing stakes to reach the strategic level that we intended.

Cloudera, via email, echoed Intel’s comments. The company’s CFO, Jim Frankola, told TechCrunch the following [Bolding: TechCrunch]:

The terms for this transaction were different. The terms of the deal
(including price) reflect the deep and rich collaboration between the
two companies that extends from a commercial partnership, to joint R&D
roadmap to a board seat.”

Existing shareholders sold in this round. We do not disclose
specifics with respect to either names or amounts. Our existing
investors did not want to sell. However, the company and investors
wanted to give Intel a significant ownership interest without diluting
the company too much. The only way to make that happen was for the
existing shareholders to sell a relatively small portion of their
shares. Which they did do, since the opportunity to collaborate with
Intel was so compelling.”

Existing shareholders did not invest in this round. They stood aside
to allow Intel and the other new investors in without adding too much
dilution to the company.”

It isn’t clear if Intel invested any money directly into Cloudera. That said, we are still looking into the matter. What we know now is that 740 million Intel dollars did not land in Cloudera’s bank account.