CoreWeavea NYC-based startup that began as an Ethereum mining venture has secured a large tranche of funding as it continues its transition to a general cloud computing platform.

CoreWeave announced today that it has raised $221 million in a Series B funding round led by Magnetar Capital with participation from Nvidia, former GitHub CEO Nat Friedman, and ex-Apple exec Daniel Gross. Magnetar contributed $111 million, with the remainder of the investment split between Nvidia, Friedman, and Gross. An Nvidia spokesperson said the investment represents a “deepening” of its partnership with CoreWeave.

The tranche, which values ​​CoreWeave at $2 billion pre-money and brings the company’s total amount raised to $371 million, will be used to support CoreWeave’s U.S. data center expansion with the opening of two new centers this year, CEO Mike Intrator said. . CoreWeave currently has five in North America.

CoreWeave was founded in 2017 by Intrator, Brian Venturo, and Brannin McBee to fill what they saw as “a void” in the cloud market. Venturo, a hobbyist Ethereum miner, cheaply acquired GPUs from insolvent cryptocurrency mining companies and chose Nvidia hardware for the larger memory (hence Nvidia’s investment in CoreWeave, presumably).

Initially, CoreWeave was solely focused on cryptocurrency applications. But in recent years it has revolved around general computing and generative AI technologies, such as text-generating AI models.

Fast-forward to today and CoreWeave provides access to more than a dozen SKUs of Nvidia GPUs in the cloud, including H100s, A100s, A40s, and RTX A6000s, for use cases such as AI and machine learning, visual effects and rendering, batch processing, and pixel streaming.

“Our customers include generative AI companies, such as Tarteel AI and Anlatan, the makers of NovelAI, and we have supported a range of open source AI and machine learning projects, such as EleutherAI and Stability AI’s Stable Diffusion,” Intrator told australiabusinessblog.com in an email interview. “We also work with some notable VFX and animation studios like Spire Animation, and working closely with 3D streaming and ‘metaverse’ companies like PureWeb.”

It is difficult for any cloud provider to compete with the incumbents in the space such as Google, Amazon and Microsoft. By comparison, AWS earned $80.1 billion in revenue last year, while Google Cloud and Azure earned $75.3 billion and $26.28 billion, respectively.

Those numbers, of course, are multiples above CoreWeave’s valuation, let alone the war chest.

To drive the point home, according to a Statista report as of Q4 2022, AWS had a 32% market share, Azure a 23% share, and Google Cloud a 10% share.

That’s not to say it’s impossible for a smaller player to succeed. There are success stories like Paperspace, Scaleway, and DigitalOcean (despite the ups and downs), as well as newer entrants like Clever Cloud and Vultr.

CoreWeave is also proof of that, it seems. The startup managed to secure funding even after a difficult quarter for the cloud infrastructure market. As my colleague Ron Miller wrote, companies were looking for ways to cut spending in an uncertain economy, causing the market to slow to 21% growth – a steep decline from the 36% growth the year before.

“We have more than 1,000 customers across our four core verticals: Machine Learning and AI, Batch Processing, Pixel Streaming, and Visual Effects and Rendering,” said Intrator.

CoreWeave argues that the dominant cloud providers – Google Cloud, Azure and AWS – have failed to meet the demand for generative AI, particularly with their “legacy cloud infrastructure”. They’re fighting words, no doubt, especially since AWS is launching a special service for serving text-generating models. But in Intrator’s eyes, the incumbents aren’t set up to meet the demand of thousands of new AI companies clamoring for GPUs — at least not at CoreWeave’s (apparently lower) prices.

CoreWeave claims its hardware for inference — that is, operating AI models — is industry leading and capable of “auto-scaling” in under three seconds. It also touts its newer instance products, including Nvidia’s HGX H100 server platform.

“For some time now, technology decision makers have been faced with the increasingly complex – and costly – task of deploying their highly specialized computational tasks supporting modern AI and machine learning applications to more mainstream cloud computing providers,” Intrator said. “CoreWeave recognizes that this demand requires deep investments in scalable and viable capacity for the next generation of innovative AI companies.”

In addition to infrastructure, CoreWeave is trying to differentiate itself with offerings such as the accelerator program, which started at the end of October. (Intrator says it has more than 30 members.) The accelerator — which operates on an open-ended basis, with no deadlines — offers companies compute credits in addition to rebates and other hardware resources on the CoreWeave cloud.

Intrator says the new tranche will lead to more efforts like this.

“With the emergence of CoreWeave and this new investment, it can serve more businesses with even more customized solutions that can outperform legacy cloud providers,” he added. “While large language models and deep learning technologies for image generation have been around for a while, their prominence in the public eye is leading to an intense battle to secure the processing power for increasingly powerful applications. CoreWeave recognizes that this demand requires major investments in scalable and viable capacity for the next generation of innovative AI companies.”

It will also be used to expand CoreWeave’s team. The company now employs “just over” 115 people – a 150% increase over the past 12 months – thanks in part to its acquisition of cloud viewing platform Conductor Technologies in January, and Intrator says it plans to increase “year-round hiring staff”.

The question, of course, is whether CoreWeave can maintain its impressive momentum, especially if the generative AI bubble bursts soon. For what it’s worth, Friedman and Gross seem convinced of the strategy. They sent this statement via email:

AI is the new electricity and CoreWeave is building the network for the new economy. We’ve had the pleasure of working for Apple and Microsoft; investing in breakout companies such as Stripe, Figma and Airtable; and with that, we can confidently say that the pace and pace at which CoreWeave is moving is unprecedented. Every day is a sprint to victory and it shows in the quality and quantity of their customers. The demand for AI inference is about to explode, and CoreWeave has spent years preparing the infrastructure and culture to scale right now.

There is some reason for optimism. According to according to a recent survey by ESG, 59% of companies plan to increase spending on public cloud apps by 2023, while 56% expect their spending on public cloud infrastructure services to increase.