As investors with a long-term, bullish outlook on generative AI, we’re excited to back early-stage companies which are scaling and innovating, often outside the limelight, as market urgency grows and companies continue to move from AI experimentation into production. Indeed, our recent “State of Enterprise Tech Spending” report, which surveyed 100 enterprise CXOs about their tech-spending plans, identified an increasing number of generative AI deployments within enterprises, but found the majority of new applications hadn’t yet been put to use.

That makes the enterprise traction of early-stage companies in our portfolio—including two which announced new, Series B funding rounds this week—even more impressive, in our view.

Take Galileo*, which this week announced it has raised $45 million in new funding. When we first spoke with Galileo more than two years ago, the company had an early product geared towards developers building applications with language models (circa May 2022!). But we fell in love with the bold vision of solving the quality-measurement problem for AI with unstructured data, and the talented technical founders who previously led AI teams at Google and Uber.

Today, Galileo helps its fast-moving, enterprise customer base, including customers like Twilio, Chegg, HP, Procter & Gamble and other Fortune 50 enterprises move from experimentation to production with gen AI products. The company’s “evaluation intelligence” platform helps customers monitor, debug and evaluate increasingly complex generative AI systems at scale.

As we do with many of our early-stage investments, we helped Galileo get its first products out the door and also assisted the company with customer introductions, marketing and making key hires.  This is an early-stage playbook we continue to execute as we search for standout generative-AI companies that are just getting started, often by former executives and developers from big-tech players. We continue to believe in the power of innovation at the infrastructure and application layers, where we think there’s a huge opportunity for value creation

Along those lines, three years ago, we helped lead the seed round for Neuron7*, a generative AI startup that that was little more than a concept at the time. Niken Patel, the CEO, had what we considered a bold and innovative thesis: Customer service in industries with complex, high-stakes products—like medical devices, industrial equipment and telecommunications—often faces significant bottlenecks. This is because the necessary knowledge to resolve customer issues is often scattered across disparate sources, such as lengthy product manuals, troubleshooting databases and the minds of expert technicians. Neuron7 aimed to solve this by leveraging large language models (LLMs) and cutting-edge generative AI to create a single system of intelligence. This approach consolidated vast, fragmented knowledge across thousands of interactions, people and data points, offering, in our view, a new level of insight and speed to resolve customer queries.

To help accelerate Neuron7’s journey, we augmented the expertise of the company’s product team with Bill Binch, a Battery operating partner with over three decades of enterprise sales experience. Within just 12 months, Neuron7 made impressive strides, securing top tier customers, including publicly listed companies that are high-profile players in sectors like healthcare and high-tech, where customer service is mission critical.

Some customers also have since expanded their usage of Neuron7 products, purchasing additional product modules to improve the efficiency and effectiveness of their support teams. Recognizing the company’s momentum, we doubled down on our investment, leading a $10M Series A round within a year of our seed investment. Today, Neuron7 continues to grow its presence across service-desk, call-center, and field-service operations and boasts an expanding global footprint. Most notably, Neuron7’s success caught the attention of ServiceNow, which through its ServiceNow Ventures arm made a strategic investment in the company this past March, further validating the company’s transformative potential.

And today, Neuron7 announced a $44 million Series B fundraising round led by Keith Block, the former Salesforce co-CEO, now at Smith Point Capital.

Another early-stage AI company we’re excited about is Orkes*, a microservice orchestration engine whose founders previously worked at Netflix, for developers to create durable workflows across distributed systems. We seed-funded the company and then doubled down to participate in the company’s $20 million Series A fundraising round earlier this year alongside Nexus Venture Partners and Vertex Ventures. This round, in our view, is a testament to Orkes’ significant growth and the continued importance of the Conductor open-source community, upon which Orkes’ technology is based. Orkes has become an important part of the critical application infrastructure underpinning digital companies in many industries.

As AI applications and services mature and more enterprises adopt them, we’re excited to keep backing the next generation of AI startups leading this charge. These companies span sectors from databases to software development to customer service to government contracting and more. We’d love to talk to you if you’re building in this area.

The post From Idea to Reality: Our Early-Stage Playbook for Generative AI Companies Serving the Enterprise appeared first on Battery Ventures.

The proliferation of global cybercrime and data security issues has drawn the attention of global policymakers, who have responded by issuing new regulation, from the California Consumer Privacy Act to the EU’s sweeping General Data Protection Regulation (GDPR) framework. Such regulation is updated periodically, and thus, I often recommend to founders that they employ security services to update data banks at least quarterly.

As co-founder of the open-source, cybersecurity startup Bridgecrew*, I came to appreciate the force of regulation on business opportunities and the importance of diligent regulatory compliance firsthand.

Bridgecrew, a cloud-based security platform, operates within the Cloud Native Application Platforms (CNAPP) ecosystem. Many of our customers, subject to compliance requirements like SOC2 type 2, ISO 27001 and CIS benchmarks, were very eager to continually monitor systems over time, both for security and compliance.

As regulatory oversight continues to expand, it is critically important that today’s IT and cybersecurity startups recognize the gravity of compliance oversight and the importance of cooperating with regulators. And this focus shouldn’t be hidden in the fine print! An organizational focus on regulatory compliance can be a powerful, positive signal from your business to your customers.

Building on my experience as a founder, and my time as a venture-capital investor working with early-stage cybersecurity startups, here’s what I suggest founders consider.

Stay Informed: Information is Power

If there is one important takeaway for startups regarding U.S. cybersecurity compliance, it’s this: There’s no single overarching U.S. cybersecurity policy. Instead, compliance is a multi-layered approach that considers the following:

• Industry regulations: Certain industries, such as healthcare (HIPAA) or finance (PCI DSS), have specific data-security mandates. Identify yours to ensure compliance.
• Data privacy laws: Depending on the type of data your business handles, laws such as the CCPA might dictate specific data privacy and security practices.
• National Institute of Standards and Technology (NIST) frameworks: NIST provides voluntary frameworks that outline best practices for securing data. These are a good baseline for any startup.

You can find the latest NIST and ISO (International Organization for Standardization) policies and and controls for IT security in the following official resources:

• NIST is establishing a Multi-Cloud Security Public Working Group (MCSPWG) to research best practices for securing complex cloud solutions involving multiple service providers and multiple clouds. It aligns with the White House Executive Order on “Improving the Nation’s Cybersecurity,” which highlights that “the Federal Government needs to make bold changes and significant investments in order to defend the vital institutions that underpin the American way of life by focusing“ the full scope of its authorities.
• The U.S. government is heavily invested in cloud computing as a key driver of its own digital transformation. This is a direct result of President Obama’s 2009 Open Government directive to federal government agencies requiring digital transformation as needed to enable next-gen cloud-based IT. In recognition of the growing adoption of multi-cloud environments, NIST’s multi-cloud security working group is focusing on researching and developing best practices for securing complex cloud solutions that involve multiple cloud service providers and cloud environments.
• NIST Special Publication (SP) 800-53 Rev. 5: This publication provides a comprehensive catalog of security and privacy controls for information systems and organizations. It covers a wide range of threats and risks, including hostile attacks, human errors, natural disasters and privacy concerns.
• NIST SP 800-171, SP 800-171A, SP 800-172, and SP 800-172A: Protecting Controlled Unclassified Information, which refers to nonfederal systems and organizations critical to federal agencies. The suite of guidance focuses on protecting the confidentiality of CUI and recommends specific security requirements to achieve that objective. The most recent updates were published Feb. 21, 2024.
• NIST AI RMF playbook – vs NIST RMF: NIST’s new AI playbook is informative and is a reaction to the EU AI act.
• ISO/IEC 42001:2023(E): While this regulation is not able to be republished (here is a preview), we can describe it as relating to security reference controls that provide an organization with a reference for meeting organizational objectives and addressing risks related to the design and operation of AI systems.
• Model Artificial Intelligence Governance Framework: This is a privacy governance framework advocated by Singapore’s Personal Data Protection Commission and adopted across the globe.

Here are some key points for founders to consider:

• Focus on protecting your most valuable data assets. Not all regulations apply equally, so prioritize controls based on your risk profile.
• Cybersecurity shouldn’t be an afterthought. Implement strong practices from the beginning and scale them as your company grows.
• Compliance can be complex. Consider consulting cybersecurity professionals and using automation platforms to assess your risks and develop a plan.

You Can Participate in the Establishment of New Regulation

In some cases, the regulation and working committees’ recommended best practices have leapfrogged what the market’s available mainstream solutions have to offer. Those recommendations, if widely adopted, can be a launchpad for innovation by new startups that have a creative way to help enterprises to comply with the latest best practices.

This has happened in the past. Alongside government activity in the encryption space, companies such as RSA and Verisign have been part of the discussion on best practices, have grown alongside the bureau’s recommendations on encryption and have been part of the discussion that enabled a safer internet.

With cloud and container workloads booming, companies such as Twistlock (acquired by PANW) have been involved as authors in the creation of NIST’s guide for container security. Checkov (a tool I helped build at Bridgecrew) was recommended by the CISA, and as part of those activities, helped to gain mindshare via thought leadership and helped make the cloud a more secure space.

Now, with the AI revolution in place and regulations – such as NIST’s new AI playbook as a reaction to the EU AI act – creating new recommendations to handle AI workloads, cybersecurity and governance startups have a golden opportunity to participate in regulatory discussion and assist in automating some of the best practices.

We continue to see infrastructure startups within the Battery portfolio take advantage of this opportunity: from MineOS*, which has created AI governance models to assist organizations in governing and complying with the EU AI Act; to Contrast Security*, where the company’s security core team has been part of the Open Source Foundation for Application Security (OWASP) Top 10 for LLM Security; to Normalyze Security*, which assists in detecting drifts of cloud infrastructure and data repositories from compliance controls; and beyond, we are thrilled to see founders and leadership teams apply technical solutions to these challenges.

Here’s How to Get Started

From my perspective, IT and cybersecurity startup founders can very well create a future where innovation in business thrives alongside next-generation digital defenses. But the journey begins with informed awareness.

Founders can stay ahead of the pack by familiarizing themselves with cybersecurity regulations and industry standards, such as those noted above. Attending workshops and industry events focused on policy discussions is an additional step toward becoming informed and engaged.

But founders can, and should, do more than listen. Startups, often at the forefront of technological advancement, can serve as vocal advocates for policies that nurture innovation; share knowledge with policymakers on emerging threats and propose potential solutions; and participate in government initiatives, such as working groups and pilot programs.

Founders can also lead initiatives that bridge the gap between startups and cybersecurity experts by co-hosting workshops or facilitating knowledge-sharing events, creating a space where both sides can learn and grow.

The benefits of this collaboration are far-reaching. Proactive engagement with policymakers can lead to adaptable policies that keep pace with the fast-moving startup landscape. Startups, in turn, gain valuable insights into future regulatory directions, allowing them to plan their security measures strategically.

Ultimately, by sharing expertise, both sides — founders and policymakers — can contribute to building a more secure and innovative digital ecosystem for everyone involved.

The post An Alliance of Compliance: Why (and How) Founders Should Align with Policymakers appeared first on Battery Ventures.

As in previous quarters, we polled 100 CXOs who collectively represent over $35B in annual technology spending. To get up to speed on past reports, check out what we published in September 2022, March 2023 and September 2023.

A few highlights from the survey:

• After a long period of market uncertainty, we are seeing enthusiastic signals from buyers, 55% of whom plan to increase their budgets. And compared to Q3 2023, twice as many buyers plan to increase budget by 10% or more – a jump from 4 to 8%.
• There was a notable shift in spending priorities among buyers, many of whom are now intently focused on AI and data-related technologies. Survey respondents plan to deploy an estimated $1.5B on these technologies over the next five years and the vast majority of buyers – 84% – plan to increase spending on AI/ML tools.
• Beyond spending on technology, we’re seeing a more positive outlook on hiring, a potential indicator of enterprise willingness to allocate budget for projects, development and tooling. The number of organizations looking to slow down or enter a hiring freeze has dropped to 34% from 46% this time last year.
• Nearly half of enterprise buyers (45%) are interested in exploring what new vendors have to offer when it comes to AI copilot capabilities. Employee productivity and customer service are the use cases that buyers cited as most compelling for AI copilot adoption.

In summary, there is a lot of good news for early-stage technology startups. But don’t just take our word for it—check out the full report here to learn more:

The post Survey Says: AI and Data Buoy Technology Spend Planning appeared first on Battery Ventures.

But what if the new, more-challenging macroeconomic environment, coupled with powerful new technologies like AI, means we should rethink the metrics we’ve all gotten used to – and encourage companies to reevaluate the right set of benchmarks to survive and thrive?

That’s one of the core takeaways from our 2023 OpenCloud report, which we’re releasing today as the enterprise-tech industry continues its journey out of the woods and, hopefully, spawns stronger, fitter, leaner companies.

Indeed, in the technology markets, the dust is finally beginning to settle. Growth rates for the big cloud providers are not what they were two years ago, and the IPO market has not yet rebounded. But we see the technology landscape quietly pivoting toward a horizon brimming with promise as more enterprise-tech companies revert to fundamentals, seeking to balance growth and profitability and capture new efficiencies with AI.

In many ways, this is a watershed moment for the industry, one that will change how software and technology companies are created. The implementation of AI, both in terms of companies being able to offer more AI products and leverage the technology to drive more-efficient internal operations, will allow cloud companies to generate new sources of revenue while meaningfully reducing internal costs.

As we wrote in this year’s report, “as growth returns, highly profitable, high-growth companies will return,” ushering in an era of mega-B2B software companies that will gear up for IPOs when they hit $1 billion in revenue, not just $100 million (the old standard). And as these companies evolve and scale over time, the very definition of a healthy software company will change.

Our full 2023 State of the OpenCloud report is available for download here and at the bottom of this post, where we’ll break down some of our key takeaways.

Cloud Providers Invest Ahead of the AI Curve

Pain in the market has affected every software company, public and private. The world’s largest cloud providers — AWS, Microsoft Azure and Google Cloud, which generate a collective $200B in annual revenue — are no different. These companies have seen growth slow down significantly in the past year and have been forced to cut headcount and other costs.

Importantly, however, these companies are leaning heavily into capital expenditures related to new businesses: major, long-term investments into the future of software, particularly in AI. We interpret this as a leading indicator for building customer demand, conveying a sense of optimism for the market recovery and a high-growth, high-profitability future enabled and necessitated by automation.

Redefining Healthy Software Company Metrics

As research-driven, enterprise-technology investors, we have a deep appreciation for metrics and ratios but the assumptions that guided us in years past may not hold for the next cloud generation. While valuations have come back closer to long-term historical averages, the profile of public companies today is far from average – in many ways, they are stronger than ever.

It’s also important to distinguish valuations from business fundamentals. A company generating $1 billion in revenue today might not be valued as highly as it once was, but reaching such a revenue milestone is still a monumental achievement. And we think these companies will be well positioned as we enter an era of more profitability, more efficiency, and ultimately, higher valuations over the long term.

Starting from the top line, we recommend that early-stage and growth-stage software companies focus closely on logo velocity. We know that as companies mature, they rely on expansion revenue to drive growth. However, logo velocity helps to ensure that there is a large enough customer base to fuel future growth, but also aligns sales to balance new ARR and expansion ARR from day one.

The Path Ahead for Private Unicorns

Navigating the public markets is always challenging, but the current climate is particularly unforgiving. In our 2022 State of the OpenCloud report, we predicted there was pain ahead for private companies who faced a very high bar to IPO. Cut to today, we have seen only one software IPO in the past year — Klaviyo.

While we’re not out of the woods yet, the software ecosystem at large can support a path to IPO for many private software unicorns. And, paradoxically, the tougher macro environment has created a new class of pre-IPO companies that are stronger and more resilient than those in the past.

Conclusion

While we are still in the early innings for OpenCloud, our team is more optimistic than ever about the potential for cloud and open-source companies, with AI as a new growth lever. There is a significant opportunity at hand for software leaders to recalibrate and improve their companies’ operational efficiency through automation. The implementation of AI across customer offerings and internal processes promises not only cost savings but also enhanced capabilities, paving the way for resilient and future-proofed enterprises.

For more insights, please see our full 2023 State of the OpenCloud report below.

The post OpenCloud 2023: Software’s AI-Driven Watershed Moment appeared first on Battery Ventures.