Skyflow raises $30M more as AI spikes demand for its privacy business

This morning, Skyflow announced that it has raised a $30 million Series B extension led by Khosla Ventures. The deal is interesting on a number of fronts, including the round’s structure and how Skyflow has been impacted by the growth of AI.

The new capital 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 its AI-related software offerings have rapidly become a material portion of its total business.

The startup saw its revenues from large language model–related usage grow from 0% to around 30% more recently, implying that the company’s growth rate was augmented by market need for data-management services stemming from the data voracity of LLMs.

Skyflow’s business began life as an API that stored personally identifying information (PII) on behalf of customers. AI has broadened the sort of data that it might contain. In the current era of data accretion — Databricks and Snowflake are not household names in tech today by accident — and desire to put that data to work using AI models, ensuring that only approved data is employed by an LLM and the person prompting it, is no small permissions and governance task.

That the startup is raising more capital now is not a massive shock. After raising a $45 million Series B back in 2021, the company told TechCrunch that it deployed a chunk of that capital to build out its regional footprint to better support data residency rules that are increasingly important pieces of regulation for companies to get right. (In its latest news dump, Skyflow said that it expanded its support of China and that market’s particular data rules.) A few years down the road is never an odd time to raise more capital, but the fact that the round came in smaller, and in the form of an extension, did catch our eye.

When asked why Skyflow is calling the round an extension instead of a Series C when it was raised at a slightly different valuation, Sharma said that his firm and its customers 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.

There’s a bit more to the round name that is worth our time, however. Sharma said that he learned from talking to venture capitalists for this latest round that late-stage investors are pulling back on how much they are investing, while investors that he put under an “early growth” tag were more active. So, by calling the round a Series B extension, he could better tune his fundraising process. Sharma also stressed that Khosla Ventures has made a number of AI investments, making the firm aware of the importance of data privacy and security inside corporate LLM usage.

In a canned statement, Vinod Khosla said that as “the need for trust and privacy infrastructure is key to protecting sensitive data,” making a tool to ensure that data doesn’t leak in any context is “vital for every enterprise business.” Hence the Skyflow deal.

In broader growth terms, Skyflow more than doubled in size last year, expanding its revenues by 110%. Sharma declined to get specific regarding what revenue type that figure was tied to, be it annual recurring revenue or trailing revenue or similar. But he did say that the firm is now in the double-digit million revenue realm.

This Skyflow round slots neatly into several trends we’ve observed recently. Startups that raised at the peak of the 2021 venture froth are now seeking more modest capital follow-on rounds. The explosive growth in AI is creating healthy businesses for LLM infrastructure and support companies. And, finally, companies that offer their tools via an API are still doing quite well, even if usage-based pricing has taken some bruising in recent years.

Given how quickly AI-related data privacy work has become a key revenue plank for Skyflow, its growth will provide us a window into how quickly enterprise demand for LLMs expands, and just how much money you can make selling digital picks and shovels in this, the latest software gold rush.