H2O.ai – a startup that has developed an open source framework as well as proprietary apps that make it easier for companies of all kinds to create and operate artificial intelligence-based services – has seen strong interest compared to AI applications that are more ubiquitous and businesses beyond tech companies want to join the action. Now it has raised $ 100 million to fuel its growth, a round of funding that values H2O.ai at $ 1.7 billion after the money ($ 1.6 billion before the money).
This is a Series E round led by a strategic backer, Commonwealth Bank of Australia (CBA), who was a client of the startup and will use the support to build a deeper partnership between the two to build new ones Services. Others in the round are Goldman Sachs, Pivot Investment Partners, Crane Venture Partners, and Celesta Capital. Additional funding plans include developing more products for H2O.ai overall and hiring more talent to further expand the company’s H2O AI hybrid cloud platform.
This isn’t the first time a client has topped a round as a strategic funder: In 2019, Goldman Sachs led the company’s Series D for $ 72.5 million. As a sign of the company’s growth and general appetite for what it does, H2O’s valuation has been skipped since it was last round when it was valued at $ 400 million, according to PitchBook data. Mountain View-based H2O.ai has raised $ 246.5 million to date.
The fact that the last two rounds were led by large banks, which are also customers of H2O.ai, speaks a lot about where the opportunity lay for the startup. Sri Ambati, the founder and CEO (who was also previously co-founder of Platfora, which was acquired by Workday), emailed me that about 40% of the company’s revenue currently comes from the very vast and all-encompassing world of financial services.
“Retail banking, credit cards, payments – almost every payment system from PayPal to MasterCard are customers of H2O,” he said. On the equity side, companies using H2O’s technology provide fixed income, asset management and mortgage-backed securities services, with MarketAxess, Franklin Templeton and BNY Mellon also being “strong” clients, he said.
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Business from other industries is growing as well, he added: Unilever, Reckitt P&G are among the companies in the consumer goods sector; UPS is one of its users in logistics and delivery; Chipotle is one of those in the hospitality industry; and he said AT&T is “one of our biggest customers.”
Covid-19 also plays a role here.
“Manufacturing has become a rapidly growing industry due to supply chain disruptions and demand tracking,” he said of the pandemic. “We introduced H2O AI Health to help our hospitals and providers, payers like Aetna and pharmaceutical customers.”
In particular, H2O.ai is now breaking new ground to collaborate more with other technology companies that want to incorporate more AI into their own workflows in order to offer services to their own customers. “Our recent successes are vertical clouds and SaaS ISVs,” said Ambati.
The company has offered its services an open source component from the start, which it simply calls H2O, and which is now used by over 20,000 companies. One reason for this is its flexibility: H2O.ai says that its open source framework works on the existing big data infrastructure, on bare metal or on existing Hadoop, Spark or Kubernetes clusters and can ingest data directly from HDFS, Spark, S3, Azure Data Lake or any other data source to the distributed key-value store in memory.
“Our open source platform gives customers the freedom and opportunity to build their own AI competence and excellence centers,” said Ambati of the open source tools. “We are like the Tenzing Sherpas of the AI mountains who help our customers to cross and conquer AI peaks.”
This framework can be used by engineers to build custom applications, while H2O.ai’s proprietary tools provide richer applications in areas such as fraud detection, churn prediction, anomaly detection, price optimization, and credit scoring – areas that are massive from the inclusion. Amounts of data can benefit to better insights into what might happen next: these either serve as a complement to what human analysts and data scientists can potentially unearth, or in some cases, as a substitute for the more fundamental work they do could find do. There are currently around 45 applications in total.
The plan, Ambati said, is to build more of these over time, which will be in “app stores” in specific industries, offering a range of their proprietary, pre-built tools specifically tailored to the needs of each one of them .
The trend that is driving the growth of H2O.ai has been gaining momentum for several years.
Artificial intelligence holds great promise for the world of corporate IT: When used properly, tools such as machine learning, natural language processing and computer vision can accelerate productivity or even open up completely new opportunities for a company. Over time, this can save companies billions in operating and other costs.
One big problem, however, is that in many cases, organizations may not have the in-house teams to create or run projects that use AI. Technology touches everything in a business these days, but not every business is a technology company.
H2O.ai isn’t the first or only startup that has set itself the goal of closing this niche in the market, although it appears to have done its job a little more successfully than others.
In particular, Canada’s Element.AI was built on the back of a large amount of funding and acquisitions from big tech companies like Microsoft and Nvidia to also address the idea of democratizing AI for the wider world of businesses that may lack the resources to make AI Developing and running tools yourself could, however, benefit greatly before their companies are simply cannibalized by the many AI-powered technology companies that are moving into their areas. It had a strong focus on integration (it was a bit like Accenture for AI services) but never made a big enough leap from concept to business and was eventually acquired by ServiceNow in 2020 to add to its own tool development efforts complement for companies.
Ambati said only about 10% of H2O.ai’s business is in services and the remainder, 90%, on its products, explaining why one startup’s approach worked and another didn’t.
“It’s easy to be drawn to data science and AI services,” he said. “Remaining true to our product manufacturer culture and still building a deep customer empathy and listening is crucial for success. Customers experience our manufacturing culture and become manufacturers themselves. We are continuously making our software simpler (democratize) low-code, reusable recipes and automation through AI Cloud and building data pipelines, AI app stores and providing AI as a service that our customers can use to improve their customer experiences, brands and communities.
“The big difference – we grow a forest, not just a tree. H2O AI Cloud, H2O Wave our low-code application development, H2O AI AppStores, Marketplace and H2O-3 Open Source ML are at the heart of AI applications and software already and we work with customers and their ecosystem of partners and developers. “
This is a game and a business that is also well received by investors,
“The Commonwealth Bank has a significant advantage with the millions of data points that are collected every day. AI has already helped us improve our customer experience, but we know there is untapped potential, “said Matt Comyn, CEO of CBA, in a statement.” Investing in and strategic partnership with H2O.ai expands our leadership position in artificial intelligence and ultimately strengthens the bank’s ability to offer leading digital offerings and redesigned products and services to its customers. “Dr. Andrew McMullan, Chief Data and Analytics Officer at CBA, will join the H2O.ai board of directors.
