In a significant development that highlights the growing importance of database technology, Neon, a startup building an open-source alternative to AWS Aurora Postgres, has announced that Microsoft’s venture arm, M12, has led a $25 million strategic investment in its business. This move is seen as a major coup for Neon, which aims to provide a more cost-effective and flexible solution for database management.
Background
Neon was founded in 2021 by Nikita Shamgunov, a seasoned entrepreneur with a background in database technology. Prior to starting Neon, Shamgunov was the CTO and CEO of MemSQL (now SingleStore), where he developed an appreciation for the potential of Postgres, a relational database management system that has gained massive popularity over the past few years.
Postgres: The Rise of a Database Giant
According to a 2023 Stack Overflow survey, more than 45% of developers use Postgres, making it one of the most widely used databases in the industry. This growth can be attributed to its flexibility, scalability, and open-source nature, which have made it an attractive choice for developers.
Neon: A Postgres Database Company
Neon’s managed cloud-based database platform is designed to help developers build applications more efficiently by providing a free tier as well as paid plans with usage-based pricing. The platform allows developers to clone databases for development environments and preview changes before they go to production, reducing the risk of errors and improving development velocity.
Why Neon Matters
Neon’s growth can be attributed to its ability to manage fleets of Postgres without overhead, increasing development velocity and productivity. This is particularly important for scale-ups and enterprises that require fast development cycles and high-quality applications.
The Generative AI Boom: A Catalyst for Growth
The generative AI boom has fueled the demand for databases to power AI apps, with Neon benefiting from this trend. Shamgunov notes that hundreds of thousands of developers are using the company’s free tier, and thousands of startups and small- and medium-sized businesses are paying for Neon’s premium services.
Microsoft Partnership: A Strategic Move
The $25 million investment from M12 is seen as a strategic move by Microsoft to strengthen its relationship with Neon and Azure. The partnership will enable Neon to expand its capabilities on the Microsoft Azure platform, further solidifying its position in the market.
Neon’s Future Plans
With this significant funding, Neon plans to grow its 100-person workforce to 120 by the end of the year, investing predominantly in engineering. Shamgunov notes that the company has "many years" of runway, thanks to its $130.6 million total in the bank.
Industry Reaction
The investment from M12 is seen as a vote of confidence in Neon’s technology and business model. It highlights the growing importance of database technology and the need for more cost-effective and flexible solutions for database management.
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