In a sign of big tech companies' readiness and willingness to throw money at database technology, Neon, a startup developing an open-source alternative to AWS Aurora Postgres, announced Wednesday that Microsoft's venture arm M12 has made a $25 million strategic investment in the company.
Neon co-founder and CEO Nikita Shamgunov said the funding will be earmarked for research and development to fuel Neon's expansion into Microsoft Azure and the development of new database capabilities to support both existing and new customers.
“We're not looking to raise funds. This is not a new round,” Shamgunov told TechCrunch. “We've raised over $100 million and are well capitalized. But this is Microsoft. We couldn't pass up the opportunity to strengthen Neon's relationship with Microsoft and Azure, as their role in the future of developer tools is only expanding.”
Andrew Smyth, manager partner at M12, added: “Postgres is rapidly becoming the database of choice for developers and we are investing heavily in its ecosystem. Neon is the leading Postgres platform and this strategic investment underlines our commitment to deeply integrate Neon into Azure.”
Shamgunov, along with software engineers Heikki Linnakangas and Stas Kelvich, founded Neon in 2021. Prior to Neon, Shamgunov founded MemSQL (now SingleStore), where he served as CTO and later CEO.
During his time at SingleStore, Shamgunov says he noticed how pervasive the relational database management system Postgres was, and saw an opportunity to build an alternative to Aurora (if only to challenge the AWS monopoly).
Postgres has seen a surge in popularity over the past few years: According to a 2023 Stack Overflow survey, just over 45% of developers say they use Postgres, surpassing the previous top choices MySQL and SQLite.
“Neon is a Postgres database company,” Shamgunov says. “We took Postgres and broke down its internal components to create a platform designed to enable anyone, from individual developers to large enterprises, to build applications.”
Neon's managed, cloud-based database platform offers a free plan and paid plans with usage-based pricing, allowing developers to clone databases for development environments and preview changes before moving to production. The platform automatically scales processor, memory, and storage based on usage, minimizing the need for customers to scale themselves.
“Scaleups and large enterprise engineering teams typically adopt Neon for one of two reasons: they use Neon to manage lots of Postgres without the overhead, and they want to improve development velocity,” Shamgunov said. “Because migrating production databases is risky, scaleups that want to ship faster migrate only their non-production work to Neon and take advantage of the developer productivity gains that Neon's database branch workflow brings.”
Neon is benefiting from the generative AI boom that is stimulating demand for databases that power AI apps. Shamgunov said hundreds of thousands of developers are using the company's free plan, while thousands of startups and small businesses are paying for Neon's premium services.
“Today, more than 3,000 projects are created at Neon every day,” says Shamgunov. “Technology spending is constantly evolving, but every business, every SaaS product, every application, every mobile app, every AI tool needs a database. As software, and now AI, continues to take the world by storm, Neon's growth is accelerating.”
With a total of $130.6 million in the bank, Shamgunov said Neon has “many years of buffers.” The San Francisco-based company plans to grow from 100 employees to 120 by the end of the year and to invest primarily in engineering.
Abstract Ventures, General Catalyst, Menlo Ventures and Notable Capital also invested in the strategic round announced today.