Upwind Raises $400M After Declining Datadog Acquisition Bid

Upwind, a San Francisco-based startup applying artificial intelligence to cloud infrastructure security, has raised $400 million in Series C funding at a $3.8 billion valuation. Bessemer Venture Partners led the investment, joined by returning backers Greylock Partners and Craft Ventures. The round represents a steep increase from the company’s previous financing, a $250 million Series B that closed nine months earlier and valued Upwind at $1.5 billion—nearly a 2.5-fold jump in valuation over the span of less than a year.

Turning Down Datadog’s Acquisition Offer

The Acquisition Bid That Did Not Close

The Series C announcement masks a significant fork in the road: Upwind rejected an acquisition proposal from Datadog, the publicly traded observability software vendor. According to someone close to the negotiations, Datadog approached Upwind with an offer valued at $3.8 billion, precisely matching the valuation that venture investors had assigned to the Series C. The lack of a premium—an extra amount paid above the VC-set price tag—meant Upwind’s board decided that independence and continued private growth would be more advantageous than an immediate exit.

The offer demonstrates the hunger among established software vendors for capabilities in cloud security and AI-driven threat detection. Datadog sells monitoring and observability tools to enterprises, helping them track how applications perform across infrastructure. Adding Upwind’s AI-powered security capabilities would have expanded Datadog’s platform into a more comprehensive suite. Yet Upwind’s valuation trajectory and its accelerating revenue growth apparently suggested that remaining independent could unlock more value.

Founder’s Previous Success with Spot.io

Upwind’s founder, Amiram Shachar, brings relevant experience to such a decision. His previous company, Spot.io, focused on optimizing cloud spending. NetApp acquired it for $450 million, giving Shachar a track record of building high-value exits. That experience likely informed his confidence that Upwind, which he founded four years ago, could reach an even larger valuation on its own.

Revenue Acceleration Behind the Valuation

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Rapid Quarterly Expansion in Recurring Revenue

The confidence reflected in rejecting Datadog rests on compelling financial performance. According to someone familiar with Upwind’s finances, the company is adding between $20 million and $30 million in annualized recurring revenue every quarter. At that pace, Upwind is projected to reach approximately $90 million in ARR by the end of this year. That trajectory represents the kind of velocity that attracts venture capital and justifies high valuations in fast-growing software categories.

Comparing Valuation Multiples Across Cybersecurity

Upwind’s $3.8 billion valuation against its projected $90 million ARR yields a multiple of roughly 40 times annual recurring revenue. In software valuation, ARR multiples offer a common denominator for comparing companies at different growth stages and price points. Upwind’s 40-times multiple is substantial, yet it trails the multiples commanded by Cyera, another rapidly expanding cybersecurity startup. According to TechCrunch’s reporting from earlier this year, Cyera has fetched an 80-times ARR valuation from investors—twice the multiple Upwind now commands. That gap illustrates both the opportunity ahead for Upwind and the varied ways venture investors price security companies depending on their technology, market position, and growth rate.

Runtime Security: The Core Technical Differentiator

Upwind’s approach centers on what the company describes as runtime security. Unlike traditional security scanning that looks for vulnerabilities in static infrastructure, Upwind’s system monitors and responds to threats and exposures in active cloud services in real time. When a threat emerges or a vulnerability is detected in a running application or service, the system immediately alerts teams and initiates remediation. This real-time posture reflects an evolution in how enterprises approach cloud security: rather than trying to prevent all threats before they run, companies increasingly focus on catching and neutralizing threats as they execute.

Cybersecurity as the Next AI Software Wave

The funding volume and investor appetite behind Upwind reflect a broader observation about how enterprises are deploying artificial intelligence. Tomasz Tunguz, a general partner at Theory Ventures, recently noted in his widely read analysis that cybersecurity is poised to become the third major wave of AI software that companies will fund and adopt. The first two waves—AI coding tools and AI-powered customer support—have already attracted substantial venture capital and enterprise spending. Cybersecurity’s emergence as the next frontier aligns with the accelerating investments in startups like Upwind, which apply AI to detect and respond to cloud threats at scale.

The Calculation Behind Staying Independent

By walking away from Datadog’s offer, Upwind is wagering that the company will eventually reach a valuation higher than $3.8 billion. That bet carries both opportunity and risk. Cybersecurity startups have historically favored acquisition over public markets; few security companies have gone public in recent years, making a sale to a larger software platform the statistical default for venture-backed security startups at scale. Yet Upwind continues to attract acquisition interest from other potential buyers, according to someone familiar with the company, keeping the door open for future deals even as the successful Series C fundraise validates the independent strategy for now.

Source: TechCrunch