This morning, Skyflow announced that it has raised a $30 million Series B expansion led by Khosla Ventures. The deal is interesting on several fronts, including the structure of the round and how Skyflow has been affected by the development of artificial intelligence.
The new chapter comes after Skyflow expanded its data privacy business to support new AI technologies last year. In an interview with TechCrunch, Skyflow co-founder and CEO Anshu Sharma said that AI-related software offerings have quickly become an essential part of its overall business.
The startup has seen its revenue from using large language models grow from 0% to around 30% more recently, implying that the company’s growth rate has been fueled by market need for data management services stemming from LLMs’ gluttony of data.
Skyflow’s business began as an API that stored personally identifiable information (PII) on behalf of customers. AI has expanded the kind of data it can hold. In the current age of data accumulation – Databricks and Snowflake are no coincidence household names in technology today – and the desire to put this data to work using AI models, ensuring that only approved data is used by an LLM and the person requesting it, it is without minor licenses and duty of governance.
That the startup is raising more capital now isn’t a huge shock. After raising a $45 million round in 2021, the company told TechCrunch that it deployed a chunk of that capital to grow its regional footprint to better support data residency rules that are increasingly important pieces of legislation for companies to reach correctly. (In its most recent news release, Skyflow said it expanded its support to China and that market’s specific data rules.) A few years later is never a strange time to raise more capital, but the fact that the round got smaller , and in extension form, caught our eye.
When asked why Skyflow is calling the round an expansion instead of a Series C when it was raised at a slightly different valuation, Sharma said his company and its clients don’t really care what a round is called. “Money is money to us,” he said. What matters more, in his words, is that his company saw “very low dilution and [was] able to raise capital to grow even faster.” Fair enough.
However, there is something more to the round name that is worth our time. Sharma said he learned from talking to venture capitalists about this latest round that late-stage investors are pulling back on how much they’re investing, while investors he labeled “early-growth” have been more active. So calling the round a Series B extension could better streamline the fundraising process. Sharma also highlighted that Khosla Ventures has made a number of investments in artificial intelligence, making the company aware of the importance of data privacy and security in the context of corporate LLM use.
In a canned statement, Vinod Khosla said that as “the need for trust and privacy infrastructure is key to protecting sensitive data,” creating a tool to ensure that data is not leaked in any context is “vital to any business enterprise’. Hence the Skyflow deal.
In broader growth terms, Skyflow more than doubled in size last year, expanding its revenue by 110%. Sharma declined to elaborate on the type of revenue associated with that amount, whether it is annual recurring revenue or terminal revenue or the like. However, he said the company is now in the realm of double-digit million revenue.
This Skyflow roundup carefully breaks down various trends we’ve noticed recently. Startups that grew at the height of the 2021 entrepreneurship bubble are now looking for more moderate capital follow-up cycles. The explosive growth of artificial intelligence is creating healthy businesses for LLM infrastructure and support companies. And finally, companies that offer their tools through an API are still doing pretty well, even if usage-based pricing has taken some beating in recent years.
Given how quickly AI-related data privacy work has become a key revenue driver for Skyflow, its growth will give us a window into how quickly business demand for LLMs is expanding and how much money you can make selling digital options and spades in it. the latest gold rush software.
