Internet usage continues to skyrocket, with 29.3 billion network devices expected to be in use by 2023 and the growth rate currently around 10%. Today, an enterprise startup called DriveNets is announcing a more cost-effective way for service providers and other outsize connectivity users to scale to meet that demand by leveraging software and cloud innovations — not just hardware. confidence – to announce a major funding round, a sign of rising demand for its technology.
The Israeli startup, valued at more than $1 billion, provides software-based internet routing solutions to service providers to run as virtualized services over “white box” generic architecture, and today it announces $262 million in equity financing to support its technology. further expand its geographic footprint and business development. The company currently works with nearly 100 customers — major network service providers like AT&T who in turn jointly serve millions of others — and over the past year, network traffic through its cloud-based architecture has grown 1,000%.
This Series C is led by D2 Investments, a new investment fund with US and United Emirates LPs; and existing backers Bessemer Venture Partners, Pitango, D1 Capital, Atreides Management and Harel Insurance Investments & Financial Services are also participating. D1 (Daniel Sundheim’s fund, no affiliation with current lead investor despite similarity of names) led the previous round of DriveNets, a $208 million Series B last year, which catapulted the startup to its valuation of more than $1 billion. . Ido Susan, the CEO who co-founded the company with Hillel Kobrinsky, tells me that the company is not disclosing an exact valuation figure this time around, except to say that it “has risen significantly in the previous round.”
If these amounts sound very large, it’s because excessive funding is the order of the day for large enterprise startups competing against network infrastructure leviathans such as Cisco, Juniper, and Huawei. (It also kind of explains the logic behind the big rounds of funding for startups in the adjacent processor realm.) Including the company’s debut round of $110 million led by Pitango when it first came out of stealth mode in 2019, DriveNets has now raised just over $580 million.
We should point out that funding is also a measure of investor confidence in repeat successful founders. Cisco acquired a previous “self-optimizing network” startup called Intucell founded by Susan for $475 million; and AT&T acquired a (planned!) web conferencing startup that Kobrinsky founded for $121 million. “DriveNets has shown it can move the network industry forward and has gained the trust of tier 1 operators,” Adam Fisher, a partner at Bessemer Venture Partners, said in a statement. “While other solution providers face challenging headwinds, DriveNets continues to innovate and execute on its vision to change the future of the network market.”
While there are potential opportunities for DriveNets to partner with the largest enterprises building their own network systems, today service providers make up the bulk of DriveNet’s user base. While it first made a name for itself in the US, it has also expanded deeper into Asia and Europe in the past year.
“Most of our customers are tier 1 and 2 service providers, and we found that Asian operators are early adopters and open to new technologies that can accelerate growth and reduce costs,” Susan said this week. A lot of initial engagement is about cost savings.
The pitch DriveNets is making is that as the demand for more network capacity grows, service providers typically have to buy a lot of equipment (and go through the expensive and time-consuming process of putting out those tenders and negotiating deals).
Networking as it existed before DriveNets is largely focused on expensive hardware. The startup’s story is that it can replace that with its own advanced operating system, which relies on a cloud-based architecture, that can work in tandem with a cheaper and simpler system of generic networking equipment housed in a provider’s own data center. The switch (pun intended) yields an average cost saving of 40%, Susan has told me in the past.
The operating system has many different functionalities, including core, aggregation, peering, cable, data center interconnection, edge computing and cloud services, and this means, Susan said, that while customers come for the discounts, they stay for the services. “Since our model is software-based, we enable faster innovation and service implementation.”
Networking operations saw a particularly massive increase in demand over the past 18 months, he continued, given the major upheaval digital services have seen in both consumers and businesses, although that wasn’t exactly something that played into DriveNets’ favor as much as you could. . think.
“During the COVID-19 pandemic, they expanded their existing networks by simply buying more of the same to minimize the operational burden,” Susan said. In the current economic climate, this is now changing.
“Now, after the pandemic, they are starting to refresh these networks and with Cloud Hyperscalers’ growing interest in network services, operators are looking at more innovative ways to stay competitive and accelerate innovation, by building networks that are more cloud-like. . These are the big customers we see now – transformative large operators expanding the capacity of their networks and looking for newer services at scale,” he said.
The emergence of companies like DriveNets is capitalizing on broader industry trends to replicate, replace, and exceed the capabilities of legacy hardware-based systems with software and specifically cloud-based services. That meant that when DriveNets first emerged, it may have been new, but it no longer stands alone in the field.
“We’ve seen a number of established network vendors adopt our model in recent years,” Susan says. He cites the company’s “huge success” at AT&T as proof that “the model works. You can build networks like the cloud at a very high scale and reliability and both reduce network costs and accelerate the rollout of services.” Newer innovations like 5G are considered more efficient, but they don’t necessarily compensate for the greater increase in demand and usage.
“It is now not a matter of ‘if’ but of ‘when’ as incumbent suppliers have more to lose from that transition,” he added. He believes that DriveNets will nevertheless become a leader in network providers, not least because it is able to invest in further development after financing rounds like this one.
“We are investing in our current solution to ensure we stay ahead of the market, but also continue to add the expected capabilities,” said Susan. He notes that the company was the first to support Broadcom’s latest chipset and more than triple its network capacity, but also led the transition to 400Gig. “At the same time, we are already investing in complementary solutions that will bring added value to our customers and expand our TAM,” he said.
The biggest challenge is not necessarily technology, but one of talent, “recruiting quality people to support our technical efforts and our global expansion. In the end, it’s all about the people,” he says. The company has talent from the likes of Juniper and Salesforce picked up to fuel its growth.
“DriveNets has already made a big impact in the large-scale network industry and its routing solutions are used by tier 1 operators for their quality and the innovation they enable,” said Aaron Mankovski, managing partner at Pitango, in a statement. “This investment will enable DriveNets to expand its market presence and develop additional offerings.”