Deal focus: China big data player goes global

Having tracked a paradigm shift in enterprise big data for the past decade, Ju Zhang, a partner specializing in cloud computing and IT architecture at Eight Roads China, has reached at least two fundamental conclusions. First, data usage has evolved from a function of recordkeeping toward a way of achieving strategic insights. Second, the need to put those insights to use in a timely fashion requires ever greater automation.

"There's been a gradual shift from decision support to decision making," he explains. "The problem with that is making quick decisions with higher volumes of high-dimensional, multi-factor datasets is now beyond the scope of what any human can do. The traditional way of pre-processing data to enable decision making is no longer working."

Herein lies much of the thinking behind a $70 million Series D round this week for China's Kyligence, which saw Eight Roads join the likes of SPDB International, CICC, Redpoint Ventures China, and Shunwei Capital. It follows a $25 million Series C in 2019 and brings total funding to date to around $120 million.

Kyligence specializes in enabling timely data-based enterprise decision making through offerings such as a "unified semantic layer" and an augmented artificial intelligence engine. The former simplifies the organization of complex datasets generated by multiple business systems, while the latter facilitates predictive, self-learning computational models that automatically snowball in efficiency.

Since the Series C, there has been a strong focus on developing cloud-native products, which has brought in the company's first major customers. Financial services companies, including banks looking to update legacy systems, are the main revenue drivers. In the past two years, the staff has more than doubled to 260, 70% of whom are technically focused. Revenue has also more than doubled.

"Previously we sold to our customers based on data volume and yearly subscriptions, but we're starting to address new markets, especially on the monetization of SaaS [software-as-a-service] data," says Luke Han, co-founder and CEO. "Eventually, every software company will become a SaaS company, and the SaaS companies will be looking for ways to build DaaS [data-as-a-service] layers into high-concurrency analytics systems. We can automate that and help create totally new business models."

Accessing America

Much of the growth spurt has overlapped with COVID-19, but the pandemic's well understood business digitalization incentives were not a major factor. Instead, Han cites gradual improvements in technology, reputation, awareness, and positioning, as well as new traction in the US.

Kyligence entered the US in 2017 but initially struggled with its go-to-market strategy. Since embracing a cloud-native approach in 2019, the company has seen its business in the country grow 10x. It now accounts for about 30% of total revenue, with most of the rest coming from China. The Series D plan is to hire more sales and technical professionals in the US and Europe, building up Western markets to as much as 60% of revenue in three years.

Scaling success in the US so far has been largely attributed to the use of open source software, which inspires more trust in Chinese analytics companies among global customers. This phenomenon hints at yet another aspect of the enterprise software paradigm shift in recent years: Who owns the code is now less important that who can use the code to provide the best service.

"Kyligence is probably the most complete and most mature open source-based project in the world – and it benefits from a very advantageous development environment in China," Zhang says. "From a data volume point of view, there's no market like China. Not only is the variety of data unparalleled, but customer demand is more diversified in terms of use-cases and real product scenarios. There are also labor cost benefits."

Bridging China's big data depth to the US may prove one of Kyligence's biggest challenges as geopolitical tensions continue to fester. Talent is the universal expansion bottleneck in this space, and more funding will be required to buy up the necessary skills. But it is not yet clear how confident investors will be about the idea that data services providers are not at risk of being sanctioned on security grounds.

"Who owns and can access data is hugely important for data security and privacy, but the technology to process and analyze data really shouldn't be mixed in with that," Zhang says. "If the processing happens in a trusted environment, the processing technology itself is not a threat. We expect the market to be more rational about this in the future, but perception-wise, there needs to be some more education."

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• Topics
• Greater China
• Technology
• Expansion
• China
• Eight Roads
• CICC
• Redpoint China Ventures
• Shunwei Capital Partners
• enterprise software
• artificial intelligence
• SaaS