When is a startup not a startup? When it's a publicly traded company with 1,300 employees and $2.5 billion in capital. If that statement doesn't bring a smile to your face, it's because we're not kidding. It's the reality for Nebius, an emerging AI infrastructure company born from the ashes of Yandex, the multi-billion dollar behemoth that was once billed as “Russia's Google.”
“We're starting a business, so it's like a startup, but it's unusually big,” Yandex co-founder and former CEO Arkady Volozh told TechCrunch in an interview this week. “But what we're trying to build is actually going to require a lot more resources, a lot more talent, and a lot more capital.”
Volozh was expelled from Yandex in 2022 after the European Union placed him on a sanctions list following Russia's invasion of Ukraine. The EU removed Volozh from the list in March this year, paving the way for him to return as Yandex's next CEO, whose team and data centers are entirely outside of Russia.
The collapse of Yandex
Yandex as an organisation has always been a bit complicated: when talking about “Yandex”, most people mean Yandex LLC, a Russian company founded in 1997 that built everything from search, e-commerce and advertising products to maps, transport and more. But while Yandex’s core users were Russia and a few neighbouring markets, its parent company was Yandex NV, a Dutch holding company that went public on Nasdaq in 2011, with a secondary listing on the Moscow Stock Exchange three years later.
Yandex self-driving taxi in action Image credit:
Yandex NV did relatively well as a public company, reaching a peak market capitalization of $31 billion at the end of 2021. But the Russia-Ukraine conflict changed everything, causing Nasdaq to suspend trading due to sanctions. Nasdaq initially announced it would completely delist Yandex, along with several other Russian-owned companies, but Yandex protested, and Nasdaq agreed to keep the company listed, but kept it suspended from trading while the Dutch company went through the difficult process of severing ties with Russia.
The process entered its final stages in February, when Yandex NV revealed its exit strategy: all of the company's Russian assets (which made up the bulk of its business) would be sold to a Russian consortium for a valuation of $5.4 billion, with $2.5 billion to be paid in cash and the rest in Yandex stock.
The deal was something of a fire sale, accounting for half of Yandex's market capitalization at the time. Why? Russian government imposed rules that require a mandatory discount of at least 50% for any sale involving a parent company established in a country Russia considers “unfriendly.” The Netherlands, a member of the EU bloc that imposed sanctions on Russia, would certainly fall into this category.
Still, with the deal completed this week, Yandex NV has been quick to distance itself from vestiges of its past, most obviously in its name: Subject to shareholder approval, Yandex NV will adopt the name Nebius AI, an AI cloud platform that was one of the few assets created last year.
Demand for AI Computing
While Nebius is going after a market that includes all the major “big tech” cloud hyperscalers, its main competition is arguably a set of “GPU-as-a-service” startups that have sprung up out of the demand for AI computing. These include U.S.-based CoreWeave, a $19 billion cryptocurrency mining-turned-company that's now expanding its infrastructure to Europe, and at least one domestic alternative: French startup Flex AI, which recently came out of stealth with $30 million in seed funding to rent out GPU computing to AI companies.
But Nebius finds itself in something of a unique position: not exactly a startup, but having to start anew with what little assets it has left. This is purely by chance, as it just so happened to be located outside Russian territory when the conflict began two years ago. This includes Texas-based self-driving car company Avride, generative AI and LLM company Toloka AI, EdTech platform TripleTen, and, most notably in this new direction, Finnish data center and AI cloud platform Nebius AI.
So the company is now positioning itself as a full-stack AI infrastructure company, planning a massive GPU (graphics processing unit) network and aiming to become a major player in Europe, which it's doing with its Finnish data centers and its existing partnership with Nvidia, which it has had for a long time.
“It's been less than a year since we launched Nebius, and we now have several thousand GPUs,” Volozh says. “Nvidia is a great cloud partner. We were one of their biggest European clients, so they've known us for years. So it's just the same people talking to the same people. They know us and they know what we can do. We were fortunate that one of Yandex's data centers was built outside Russia, and we inherited it and are now rapidly expanding its capacity.”
Nevius plans to triple the capacity of its current facility in Finland to nearly 100 megawatts, Voloj said, but the company is also looking to start building new data centers across Europe in the coming years.
“We manufacture the full stack: data centers, motherboards, servers, racks, connectivity – we do it all in-house,” Voloj said. “We are currently in negotiations for some greenfields. [data center built from scratch] “We are hoping to sign agreements in some countries soon, but this will take time. Until then, we will be renting shared facilities.”
Arkady Volozh. Image courtesy of Nebius.
Public and private
Volozh confirmed that now that it is free from its Russian assets, the company intends to regain its status as a fully free public company and is actively working with both the Securities and Exchange Commission (SEC) and Nasdaq to make this happen.
But wouldn't it be easier to go private and scale the old-fashioned startup way, away from the pressures of public attention?
“I'd say the opposite,” Voloj said. “Building infrastructure is the most capital-intensive thing. Who's building it? It's the big tech companies with billions of dollars in revenue, who have their own ecosystems, who get a few percent extra profits on anything they launch. They're investing like crazy, and there's a reason for that: everyone wants to be there first.”
That's why global companies like Microsoft and Google are going all in. As are CoreWeave, Lambda, and many others leveraging relationships with GPU kingpin Nvidia. But the capital required not only to build this, but to develop a complete system of interconnected GPUs that can dynamically communicate and share data and workloads, is massive. That's why we're seeing these young players raise multiple large fundraising rounds across debt and equity in a short space of time.
Nevius, meanwhile, will start with billions of dollars in capital, though that amount could dry up quickly if its dormant share buyback proposal is accepted by existing shareholders. But Voloz believes it will be much easier and less costly to raise capital as a public company. Plus, Nevius is in a strong position because it operates in one of the hottest technology sectors right now.
“the [AI infrastructure] “AI is probably the least sexy 'thing' in a very sexy market,” Voloj said. “AI is very interesting. It's very real and it's not a hype in the way that the internet wasn't a hype 20-30 years ago. We're in a very good place in terms of infrastructure. We're starting with billions of dollars of investment. [dollars]And then initially we'll build enough capacity to be able to scale.”
Additionally, as a publicly listed company, Nebius could act as an alternative option for those who want to take part in the games without placing bets with regular players.
“I don't know of any companies outside of 'big tech' that are publicly listed in the AI infrastructure space. If you're an investor and you want to invest in this space, we're a very good bet,” Voloj said. “Of course, you can buy Microsoft or Google, or you can buy this stock. That's why it's a good thing to go public.”
Talent Pool
Nebius isn't working alone, but it has something other younger players in the space don't: experience building large-scale computing infrastructure. Volozh says the company has 1,300 employees, of which about 1,000 are engineers, most of whom came over from the former Yandex business.
“Technologically, this is what this team has been doing for the last 15 to 20 years,” he said. “They've built some pretty extensive infrastructure around the world, including hundreds of megawatts of data centers. Now we have to build it again, but it's easier the second time around.”
When Yandex NV was a corporate holding company, Amsterdam was just a mailing address. Today, the Dutch capital is the company's largest location, with around 500 employees. The rest of the workforce is spread across a variety of locations, including Israel, the US (Austin, Texas), and Belgrade. Amsterdam remains the company's headquarters, but the other locations are fluid and will evolve as the business demands.
This geographic spread is largely a matter of chance, a combination of where subsidiaries were originally based and, more recently, which countries have been willing to accept workers fleeing conflict.
“It was a difficult journey, the war broke out in February ’22 and many people started leaving the country. [Russia]“There are a lot of families out there, and it would be a brave act to relocate them, to leave everything behind and just relocate, but they realized they didn’t want to support that. [the war]”They don't want that to happen in their name. When they all started leaving, we started helping them.”
Israel, where Voloj himself has been officially based for nearly a decade, was the first country to begin accepting his workers.
“It was easy to come as a tourist because it's a visa-free country for Russia, and they started getting work permits right away,” Volozh said. “In the second half of 2022, the whole of Europe, and especially the Netherlands, realized what was going on and actually invited us and issued hundreds of work permits. That's why people started moving to Amsterdam. I think this is a big win for the Netherlands. This is where the big AI companies are, they have high-paid, high-level engineers. Everyone ends up paying a lot of taxes here.”
It's hard to overstate the amount of work it's taken for Nebius to get to where it is today. It's certainly a far cry from what it once was, but like the companies that pivoted from cryptocurrency to cash in on the AI gold rush, Nebius is re-purposing its resources to meet a demand that shows little sign of slowing.
“It was a lot of work to move all these people and separate the company at the same time,” Voloj said. “It was a lot like a startup in that we had to build a company from scratch, but we had to make sure that all the technology was completely separate — for example, we had to make sure that the same Finnish data center wasn't sending anything across borders.” [to Russia]”The deal is done, the money is in the bank, the company is split up, and the people are here.”
Voloz, meanwhile, is technically based in Tel Aviv but adds that he actually “lives on a plane” and splits his time between the various locations his work takes him to, but he is optimistic about the prospects for his new venture.
“I've never been more excited about the future,” he said. “Yandex wasn't my first company, but we launched these business units almost every year at Yandex. Yandex had grown into more than a search company, and it was like launching a new company. [new] So… I’m going to start another company.”