Microsoft’s M12 Leads $25M Investment in Neon to Boost Postgres Alternative and Azure Integration

Neon, a startup developing an open-source alternative to AWS Aurora Postgres, announced on Wednesday that Microsoft’s venture arm, M12, has led a $25 million strategic investment in the company.

The funding will be directed towards research and development, according to Neon’s co-founder and CEO Nikita Shamgunov. Additionally, this investment will support Neon’s expansion into Microsoft Azure and create new database features to better serve current and future customers.

“We’re not actively seeking additional funding — this is not a new funding round,” Shamgunov told TechCrunch. “We are well-capitalized with over $100 million in funding. However, partnering with Microsoft presents a unique opportunity to strengthen our relationship with Azure, which is becoming increasingly pivotal in the developer tools landscape.”

Andrew Smyth, M12’s managing partner, added:

Postgres is rapidly becoming the preferred database for developers, and our investment underscores our commitment to integrating Neon deeply into Azure. Neon stands out as a leading Postgres platform, and this strategic move highlights our focus on supporting this ecosystem.

Andrew Smyth, M12’s managing partner

Neon’s Growth Fueled by Rising Postgres Popularity and Generative AI Demand

Shamgunov co-founded Neon in 2021 with software engineers Heikki Linnakangas and Stas Kelvich. Before Neon, Shamgunov founded MemSQL, now known as SingleStore, where he served as CTO and later CEO.

During his time at SingleStore, Shamgunov recognized Postgres’ growing prominence and saw an opportunity to offer an alternative to AWS Aurora, aiming to counteract AWS’s dominance in the market.

Postgres has seen significant growth in popularity in recent years. A 2023 Stack Overflow survey revealed that just over 45% of developers now use Postgres, surpassing MySQL and SQLite, which previously led the field.

Neon is a Postgres database company. We disassemble Postgres’s internal components to create a platform that supports a range of users, from individual developers to large enterprises, in building their applications.

Co-founded Neon, Shamgunov

Neon Plans Workforce Expansion 

Neon’s managed cloud-based database platform offers a free tier and paid plans with usage-based pricing. It enables developers to clone databases for development and preview changes before they go live, automatically scaling resources as needed and reducing the need for manual adjustments.

“Engineering teams at scale-ups and enterprises often choose Neon for two main reasons: managing Postgres fleets efficiently and accelerating development,” Shamgunov noted. “Because migrating a production database can be risky, scale-ups may only transition non-production work to Neon to benefit from its database branching workflow and enhanced developer productivity.”

Neon has benefited from the surge in generative AI, which has increased demand for databases capable of supporting AI applications. Shamgunov reported that hundreds of thousands of developers use the free tier, and thousands of startups and SMBs subscribe to Neon’s premium services.

More than 3,000 projects are started on Neon daily. As technology spending evolves, every business, SaaS product, application, mobile app, and AI tool requires a database. Neon anticipates continued growth as software and AI increasingly dominate the industry.

Co-founded Neon Shamgunov

Contributions from Major Venture Firms

With a total of $130.6 million in funding, Neon now has a significant runway and plans to expand its 100-person team to 120 by the end of the year, focusing primarily on engineering.

The strategic round also saw investment from Abstract Ventures, General Catalyst, Menlo Ventures, and Notable Capital.