The potential sale of MariaDB to K1 Investment Management for $37 million is a capstone on the failed era of SPAC mergers that gained prominence for a brief time in venture circles during the last startup boom.

Remember SPACs? Special purpose acquisition companies, also known as blank-check companies, were used heavily in 2021 and 2022 to take a number of venture-backed startups public. The myriad combinations generated lawsuits, bankruptcies, and a great sum of deleted shareholder wealth.

And while some companies that took this shortcut to the public markets were speculative, others were more serious businesses — MariaDB was one such company.

After raising nine figures over a decade, MariaDB said it had closed a $104 million Series D round alongside a merger with Angel Pond Holdings, a SPAC. In its initial pitch, MariaDB said its equity valuation after the merger would be $973.6 million, with an enterprise value of $672.1 million — the difference in valuations here was attributed to a large fundraising event that would come as part of the proposed SPAC deal.

However, by the time the merger was closed, much of the SPAC cash was nowhere to be found. Some 99% of the shares held in Angel Pond were redeemed at $10 per share, removing $263 million from the deal’s value. The investors that chose to sell their shares in this way did better than anyone who stuck around, because MariaDB’s stock tanked sharply during its first day as a public company. Today, MariaDB’s stock trades at $0.36 per share, which is somewhat better than its 52-week low of $0.16 per share on February 2.

Modest rally aside, MariaDB has not lived up to its investors’ expectations. In its SPAC pitch, the company forecast its annual recurring revenue (ARR) to reach $53 million in FY 2022, and $72 million in FY 2023. It also expected revenue of $47 million in FY 2022, and $64 million in FY 2023.

But the company was an entire year behind its projected growth curve, reporting revenue of $53.1 million and ARR of $50.3 million in 2023. In the first quarter of FY 2024, MariaDB reported revenue of $13.6 million, up from $12.8 million a year ago. In addition to that modest improvement in top line, MariaDB also managed to more than halve its operating loss to $5.6 million, and narrowed its net loss to $8.9 million from $12.8 million a year earlier. More importantly, the company dramatically reduced its cash consumption. And in the same quarter, its operating cash deficit improved to $1.4 million from $14.1 million.

But these improvements seemed to come a little too late: The combined effect of revenue increasing slowly and rapidly emptying coffers meant that MariaDB couldn’t go much longer without raising more money. It makes sense, then, that the company issued a “senior secured promissory note” to RP Ventures worth $26.5 million last October. That funding was used to satisfy the end of a term loan with the European Investment Bank. But the company went into breach of its rescue loan and now finds its options are limited.

That situation makes K1’s offer all the more interesting, since the terms of the RP note were clear regarding the limitations it set on the company. Presumably, K1 expects RP to clear a potential purchase of MariaDB.

MariaDB wound up going public while unprofitable, but without as much fuel as it might have hoped for. For any startup, this state of events is pretty much a worst-case scenario: you go public (more scrutiny) while losing money (cash reliant) against limited reserves (cash balance), coupled with a slowdown in the industry and a suddenly conservative valuation climate. You wind up cash-poor and without much equity value to throw around. Investors send your share price to effectively zero, and the value of all those years of work and roughly $50 million in annualized revenues becomes nil.

MariaDB makes for a two-part example. First, it’s a reminder of the exuberance that led to SPAC deals that were, in retrospect, too expensive and poorly timed. Second, it shows that not all software companies that reach modest scale, say annualized revenue of $25 million, are going to keep growing at a sufficient pace to sustain as a public company.

Beware exotic deals in heady times, and never count your future ARR growth as certain — even if you reach critical growth thresholds.