Skyflow raises $30M more as AI boosts demand for its privacy business | Tech Crunch

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This morning Skyflow announced it had raised a $30 million Series B round led by Khosla Ventures. The deal is interesting in several respects, including the structure of the round and how Skyflow has been affected by the growth of AI.

The new capital comes after Skyflow last year expanded its data privacy business to support new AI technologies. In an interview with TechCrunch, Skyflow cofounder and CEO Anshu Sharma said its AI-related software offerings are rapidly becoming a material part of its overall business.

The startup recently saw its revenues from large language model-related usage rise from 0% to nearly 30%, indicating that the company's growth rate has been fueled by the market need for data-management services stemming from the data voraciousness of LLMs.

Skyflow's business began life as an API that stored personally identifiable information, or PII, on behalf of customers. AI has broadened the data it can hold. In the current age of data accretion – Databricks and Snowflake aren't household names in tech today by accident – ​​and the desire to put that data to work using AI models ensures that only data approved by the LLM and the person prompting it is used. Little permissions and no governance work.

It's no big shock that the startup is now raising more capital. After raising a $45 million Series B round in 2021, the company told TechCrunch that it will deploy a portion of that capital to build out its regional footprint to better support data residency rules, regulations that are critical for companies to get right. (In its latest news dump, Skyflow said it expanded its support to China and the market's specific data rules.) A few years down the line is not an odd time to raise more capital, but the round came up short, and by extension, caught our attention.

Asked why the Skyflow round is being called an extension instead of a Series C when it was raised at a slightly different valuation, Sharma said his firm and its customers don't really care what the round is called. “Money is money to us,” he said. More importantly, in his words, his company “saw very little dilution and (was) able to raise capital to grow even faster.” enough

However, there's a little more to the name of the round that's worth our time. Sharma said he learned from talking to venture capitalists for this latest round that late-stage investors are pulling back on how much they're investing, while investors he puts in the “early growth” tag are more active. So, by calling the round a Series B extension, he can fine-tune his fundraising process. Sharma asserted that Khosla Ventures has made several AI investments by informing the organization about the importance of data privacy and security in corporate LLM usage.

“The need for trust and privacy infrastructure is critical to protecting sensitive data,” Vinod Khosla said in a canned statement, adding that making a tool to ensure that data is not leaked under any circumstances is “vital for every enterprise business”. Hence the Skyflow deal.

In terms of broader growth, Skyflow doubled in size last year, expanding its revenues by 110%. Sharma declined to be specific as to which type of annual recurring revenue or trailing revenue or similar revenue is linked. But the company is now in the double-digit million revenue arena, he says.

This Skyflow round slot fits nicely into a number of trends we've noticed recently. Startups that hit the peak of the 2021 venture froth are now seeking more modest capital follow-on rounds. The explosive growth of AI is creating healthy businesses for LLM infrastructure and support companies. And, finally, companies that offer their tools via API are still doing well, even though usage-based pricing has taken a bit of a hit in recent years.

It provides a window into how quickly AI-related data privacy work has become a key revenue plank for Skyflow, how quickly enterprise demand for LLMs will expand, and how much money you can make selling digital picks and shovels. The latest software gold rush.

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