AI cloud security startup Upwind raises $400M after rejecting Datadog offer

Upwind, a San Francisco startup that uses artificial intelligence to protect cloud infrastructure, has raised $400 million at a $3.8 billion valuation after turning down an acquisition approach from Datadog, according to TechCrunch. Bessemer Venture Partners led the Series C financing, with existing investors Greylock Partners and Craft Ventures also participating.

The funding follows a $250 million round completed nine months earlier at a $1.5 billion valuation, TechCrunch reported. The latest deal gives the four-year-old company a substantially higher valuation as it expands amid growing cybersecurity threats driven by AI.

Acquisition approach interrupted funding talks

The financing had been under discussion for months and nearly collapsed when Datadog sought to acquire Upwind, TechCrunch reported, citing a person familiar with the startup. Datadog, a publicly traded company, provides observability tools used to monitor the operation of software.

According to that person, Datadog did not propose paying more than the $3.8 billion valuation established by the venture investors. Upwind opted to remain independent rather than accept an acquisition at that price, the outlet reported.

The acquisition account rests on an unnamed source rather than a statement from either company. TechCrunch said it had contacted both Upwind and Datadog for comment; the supplied report contains no response from either. It also reported, citing a person familiar with Upwind, that the startup continues to attract acquisition interest.

Revenue forecast underpins valuation

Upwind has been adding between $20 million and $30 million in annualized recurring revenue each quarter, according to a person familiar with its finances cited by TechCrunch. That person projected the company would finish the year with approximately $90 million in annualized recurring revenue.

Those figures are attributed estimates, and the year-end number is a forecast rather than a completed result. TechCrunch reported that the $3.8 billion valuation represents more than 40 times the projected annualized recurring revenue, a measure used to value software businesses.

For comparison, the outlet said another rapidly growing cybersecurity startup, Cyera, had commanded a valuation equivalent to 80 times annualized recurring revenue, according to its earlier reporting. The comparison places Upwind's financing alongside another highly valued security business, although it does not establish what Upwind might fetch in a future transaction.

AI security focused on active services

Upwind describes its method as runtime security, according to TechCrunch. Its approach is designed to identify and address attacks and vulnerabilities in services while they are operating, in real time. The company was founded by Amiram Shachar, who previously sold cloud spending management startup Spot.io to NetApp for $450 million, the outlet reported.

The investment comes alongside expectations that cybersecurity will become a larger market for paid AI software. TechCrunch cited Theory Ventures general partner Tomasz Tunguz, who recently argued on his blog that cybersecurity could follow coding tools and customer support as the third major wave of AI software spending by businesses.

That outlook remains a prediction. The concrete development for Upwind is a new funding round and a decision to continue independently, with its reported revenue trajectory and acquisition interest providing the backdrop to the deal.

Sources: TechCrunch.