h2o.ai Secures $100M Funding at $1.6B Valuation

H2O.ai Secures $100 Million to Expand AI Solutions

H2O.ai, a company specializing in open-source AI frameworks and proprietary applications, has experienced increased demand as artificial intelligence becomes more prevalent across various industries. The company has recently completed a funding round, raising $100 million to accelerate its growth trajectory.

Funding Details and Strategic Partnership

This Series E funding round was spearheaded by the Commonwealth Bank of Australia (CBA), an existing customer of H2O.ai. The investment will facilitate a strengthened partnership focused on developing innovative new services. Additional participants in the round include Goldman Sachs, Pivot Investment Partners, Crane Venture Partners, and Celesta Capital.

The funding will also be allocated towards expanding H2O.ai’s product portfolio and attracting top talent to further develop its H2O AI Hybrid Cloud platform.

Valuation and Growth Trajectory

The latest funding round values H2O.ai at $1.7 billion post-money, and $1.6 billion pre-money. This represents significant growth compared to its $400 million valuation in 2019, when Goldman Sachs led its Series D round of $72.5 million. To date, H2O.ai has raised a total of $246.5 million.

Focus on Financial Services and Beyond

H2O.ai’s founder and CEO, Sri Ambati, noted that approximately 40% of the company’s revenue currently originates from the financial services sector.

• The company serves a wide range of financial institutions, including those involved in retail banking, credit cards, and payment systems.
• Key clients include MarketAxess, Franklin Templeton, and BNY Mellon, utilizing H2O’s technology for fixed income, asset management, and mortgage-backed security services.

However, H2O.ai is also experiencing growth in other sectors, with customers like Unilever, Reckitt, UPS, Chipotle, and AT&T.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic accelerated growth in the manufacturing vertical due to disruptions in supply chains and the need for improved demand sensing. H2O.ai responded by launching H2O AI Health to support hospitals, healthcare providers, and pharmaceutical companies.

Expanding into Vertical Clouds and SaaS ISVs

H2O.ai is increasingly collaborating with other technology companies to integrate AI into their workflows and offer enhanced services to their customers. The company is seeing success in the areas of vertical clouds and SaaS ISVs.

Open Source Foundation and Flexibility

Since its inception, H2O.ai has maintained an open-source component, known as H2O, which is currently utilized by over 20,000 enterprises. This framework is designed for flexibility, operating on existing big data infrastructure, bare metal, or clusters like Hadoop, Spark, and Kubernetes.

It can directly ingest data from various sources, including HDFS, Spark, S3, and Azure Data Lake, into its in-memory distributed key-value store.

Proprietary Tools and Applications

While the open-source framework empowers engineers to build custom applications, H2O.ai’s proprietary tools offer pre-built solutions for areas such as fraud detection, churn prediction, anomaly detection, price optimization, and credit scoring. These applications leverage large datasets to provide valuable insights and potentially automate tasks traditionally performed by human analysts.

Currently, H2O.ai offers approximately 45 such applications, with plans to expand this number through “app stores” tailored to specific verticals.

The Growing Demand for Enterprise AI

The growth of H2O.ai reflects a broader trend of increasing demand for AI solutions within the enterprise IT landscape. AI technologies, including machine learning and natural language processing, can enhance productivity and unlock new opportunities for organizations.

However, many companies lack the internal expertise to develop and maintain AI projects, highlighting the need for solutions like those offered by H2O.ai.

Lessons from Past Ventures

H2O.ai’s success contrasts with the experience of Element.AI, a Canadian startup that also aimed to democratize AI for enterprises. Despite significant funding and partnerships with major tech companies, Element.AI struggled to achieve sustainable growth and was ultimately acquired by ServiceNow in 2020.

Ambati attributes H2O.ai’s success to its focus on product development, with 90% of its revenue derived from products and only 10% from services.

A "Forest, Not Just a Tree" Approach

“We are raising a forest, not just a tree,” Ambati stated, emphasizing the importance of a comprehensive ecosystem encompassing H2O AI Cloud, H2O Wave, H2O AI AppStores, and the H2O-3 Open Source ML framework.

Investor Confidence

Matt Comyn, CEO of CBA, expressed confidence in H2O.ai’s potential, stating, “AI already has helped us to improve our customer experience, however, we know there is untapped potential to do more.” Dr. Andrew McMullan, chief data and analytics officer at CBA, will join the H2O.ai board of directors.