Neon, a relational database startup, lands $45M investment

Neon, a startup that’s building a serverless open source alternative to AWS Aurora Postgres, today announced that it raised around $45 million in a new funding round, about $30 million of which came from Menlo VC.

Bringing its total raised to $104 million, the new cash will be put toward improving Neon’s developer experience and sponsoring R&D in the AI space, CEO Nikita Shamgunov says. Neon also plans to expand its workforce from around 50 people to close to 100 by the end of the year.

Somewhat surprisingly, Shamgunov revealed that Neon, which came out of stealth last May, is still not profitable. He says that the company is focused on growing its free tier, which has “hundreds” of users, but that toward the end of this year, Neon plans to shift its efforts to monetization. (It turned on billing in March.)

“It’s important for us to invest in our free tier, making Postgres in the cloud affordable and accessible for small teams and individual developers,” Shamgunov said. “As users exceed the limits of the free tier, there’s a natural path to monetize the platform. This round will allow us to continue scaling our engineering team as well as bootstrap a go-to-market team … Building our developer relations team is one of the most important initiatives right after the raise.”

Prior to Neon, Shamgunov founded MemSQL, now SingleStore, where he was CTO and then CEO. While there, he says that he noticed just how much Postgres, the relational database management system, was out there in the world, and wanted to build an open source alternative to Aurora.

To Shamgunov’s point, Postgres has grown massively in popularity over the past several years. According to a 2023 Stack Overflow survey, just over 45% of developers said they use Postgres — ahead of MySQL and SQLite, the previous top choices.

“As we started to build, we discovered how important serverless is, and now we emphasize the serverless Postgres when talking about Neon,” Shamgunov said, referring to the development model — serverless — that allows devs to build and run applications without having to manage servers. “We also realized that software development workflows have changed in the last few years around the dev pipeline that Postgres doesn’t fit.”

What differentiates Neon, Shamgunov argues, is its architecture, which separates storage and compute to deliver a serverless multi-cloud Postgres database. It supports features like branching, which creates isolated database instances for testing and development, and point-in-time recovery, which can restore a database back to a particular time in history.

Neon can also deliver cost savings by only charging customers for the resources they use, Shamgunov contends. It pushes cold data — i.e. data that’s infrequently accessed — to the cheapest storage medium and automatically scales down to zero on inactivity.

“Tasks such as integrating storage, backups and archiving into one system would be hard to do without Neon,” Shamgunov said. “Add to that open source and cloud, and we’re noticing initial users seeing cost savings as they scale.”

There’s plenty of competition in the market for relational database platforms — from Aurora, Alloy DB, Supabase, PlanetScale, CockroachDB, ZomboDB, Heroku Postgres and Yugabyte, among others. But Shamgunov points to Neon’s growth — 130,000 databases created using the platform to date — as evidence that it’s off to a strong start, at least from a usage standpoint.

“We plan to scale gradually and double down on engineering and developer relations in the next five to six months. We strongly believe we need to scale gradually while investing in a strong culture,” Shamgunov said. “We keep our burn to have at least 28-30-months of runaway. So far, we’ve been very frugal and have multiple years of runaway.”