H2O.ai, a startup that developed both an open-source and proprietary framework that makes it easier for enterprises to create and operate artificial intelligence-based services, has experienced a surge in interest. This is because AI applications are becoming more common and companies beyond tech companies want to be a part of the action. It has now raised $100 million to help it grow. This round of funding values H2O.ai as $1.7 billion post-money and $1.6 billion pre-money.
This Series E round is being led by the Commonwealth Bank of Australia (CBA), a strategic backer. The bank has been a customer of the start-up and will use the backing to launch a deeper partnership between them to create new services. Celesta Capital, Crane Venture Partners, Pivot Investment Partners and Crane Venture Partners are also part of the round. Additional plans include the development of more products for H2O.ai and the hiring of more talent to expand the H2O AI Hybrid Cloud platform.
This isn't the first time a customer has led rounds as strategic backers: in 2019, Goldman Sachs was the lead for the Series D of $72.5 millions. According to PitchBook data, H2O's valuation has risen significantly since its last round in 2018, when it was valued at $400m. This is a sign that the company has grown and there is a general interest in what it does. Mountain View-based H2O.ai raised $246.5 Million to date.
It speaks volumes about the potential of the startup's opportunity. Both of the previous rounds were led by large banks that are customers of H2O.ais. Sri Ambati, founder and CEO, was previously co-founder at Platfora which was acquired later by Workday. He told me via email that approximately 40% of the company's current revenues come from the vast and diverse world of financial services.
Customers of H2O include retail banking, credit cards and payments for almost all payment systems, from PayPal to MasterCard. He said that H2Os technology is used by companies to power fixed income, asset management and mortgage-backed security services. MarketAxess and Franklin Templeton are strong customers.
He said that there is a growing number of businesses from other verticals. Unilever and Reckitt P&G are some of the companies involved in consumer goods. UPS and Chipotle are also major users of logistics and delivery. AT&T is also a big customer.
Covid-19 also had a part to play in this.
He said that manufacturing became a rapidly-growing industry because of supply chain disruptions and demand sensing. H2O AI Health was created to assist hospitals, providers, payers such as Aetna, and pharma customers.
H2O.ai has also begun to work more closely with other tech companies who want to integrate AI into their workflows in order to provide services to customers. Ambati stated that our latest successes are in vertical clouds, and SaaS ISVs.
Since its inception, H2O.ai has provided an open-source component to its services. It is known simply as H2O. H2O.ai claims that the open-source framework is flexible and can be used on top any existing infrastructure for big data. It can also be used on top of existing Hadoop Spark, Kubernetes, Hadoop, Spark or Kubernetes clusters.
Ambati spoke highly of our open-source platform, which allows customers to create their own AI centers of excellence and competence. Our customers can climb and conquer AI peaks with our help, much like Tenzing Sherpas.
Engineers can use this framework to create customized applications. H2O.ais' proprietary tools offer more complete applications in areas such as fraud detection, churn detection, anomaly detection and price optimization. These applications can also benefit from the ingestion massive amounts of data to gain better insight into what might happen next. They can either be used as an addition to the work of data scientists and human analysts, or as a substitute. There are 45 applications currently available.
Ambati stated that the plan is to build more of these over time, and they will be available in app stores in certain verticals, offering a range if its pre-built tools, tailored to each user's needs.
For several years, the trend that is fueling H2O.ais has been growing steadily.
Artificial intelligence has a lot to offer the enterprise IT world: When used properly, tools such as machine learning, natural language process and computer vision can increase productivity or open up new opportunities for organizations. It can help companies save billions of dollars in operational costs and other expenses over time.
However, there is a problem. Many organizations may not have the resources to create or execute projects using AI. This is before you consider the fact that the infrastructure will also need updating as new requirements and parameters emerge. Although technology touches all aspects of an enterprise, not every one is a tech company.
H2O.ai may not be the only startup trying to fill this market gap, but it appears to have done so more successfully than other startups.
Element.AI, a Canadian startup, was founded with a lot of funding and buy in from large tech companies like Microsoft, Nvidia, and others to address the idea that AI could be made more accessible to all businesses. Although it was focused on integration (a bit like Accenture for AI services), it never made a significant leap from concept to reality. ServiceNow acquired Element.AI in 2020 to supplement its efforts to create tools for businesses.
Ambati stated that about 10% of H2O.ais's business is in services and the rest, 90%, comes from its products. This can be explained by Ambati's explanation of why some startups work while others don't.
He said that it is easy to be lured by data science and AI services. It is crucial to be true to our product maker culture, while still building empathy with customers and listening. Customers will experience our maker culture, and then become makers. Our software is constantly being made easier by democratizing low-code, reusable recipe and automation through AI Cloud, building data pipelines, AI AppStores, and delivering AI to our customers to improve their customer experiences and brands.
We are not only planting trees, but a forest. This is the big difference. H2O AI Cloud, H2O wave our low-code App Development, H2O AI Marketplace, and H2O-3Open Source ML are the core of AI Applications. We are already partnering with customers, their ecosystem of developers, and partners.
This is a play and a business that will resonate well with investors.
The millions of data points that are collected each day by Commonwealth Bank is a valuable asset. CBA CEO Matt Comyn stated that AI has already helped to improve customer experience. However, there is still potential for more. H2O.ai's strategic partnership and investment extend our leadership in artificial Intelligence and will ultimately increase the bank's ability to offer top-quality digital propositions to customers.