When is a startup not a startup? When it’s a public firm with 1,300 workers and $2.5 billion in capital. If that didn’t conjure a lot as a smile, that’s as a result of it’s not a joke — it’s very a lot the truth for Nebius, a fledgling AI infrastructure enterprise that has emerged from the ashes of Yandex; a multi-billion greenback juggernaut as soon as touted because the “Google of Russia.”
“It’s like a startup as a result of we’re ‘beginning up,’ but it surely’s an unusually massive one,” Arkady Volozh, Yandex co-founder and former CEO, instructed TechCrunch in an interview this week. “However what we’re making an attempt to construct will truly require much more assets, extra individuals, and far more capital.”
Volozh was pressured out of Yandex in 2022 after the European Union positioned him on a sanctions record within the wake of Russia’s Ukraine invasion. The EU eliminated Volozh from the record in March this yr, paving the way in which for his return to the fold as CEO of Yandex’s subsequent incarnation — one whose staff and knowledge facilities are completely outdoors Russia.
The Yandex implosion
The entity often called Yandex was all the time a little bit convoluted. When discussing “Yandex,” most individuals imply Yandex LLC, the Russian firm based in 1997 that constructed all the pieces from search, e-commerce and promoting merchandise, to maps, transportation, and extra. Nevertheless, whereas Yandex’s core viewers was in Russia and a smattering of neighboring markets, its mother or father was a Dutch holding group known as Yandex N.V. which went public on the Nasdaq in 2011, adopted by a secondary itemizing three years later on the Moscow Trade.
Yandex N.V. was doing comparatively properly as a public firm, hitting a peak market cap of $31 billion on the tail-end of 2021. However that every one modified with the Russia-Ukraine battle, with the Nasdaq placing a halt on buying and selling as a result of sanctions. Whereas the Nasdaq initially mentioned that it will delist Yandex completely — alongside a number of different Russian-affiliated firms — Yandex appealed, and Nasdaq agreed to take care of the corporate’s itemizing, however preserve the pause on buying and selling because the Dutch entity went by means of the arduous strategy of severing all Russian ties.
That course of entered its closing levels in February, with Yandex N.V. revealing its exit technique. The whole thing of its Russian belongings — which additionally occurred to be the lion’s share of its enterprise — could be offered at a $5.4 billion valuation to a Russian consortium, with $2.5 billion paid in money and the rest paid in its personal shares.
The transaction was one thing of a firesale, constituting half of Yandex’s market capitalization at the moment. The rationale? A Russian government-imposed rule that calls for a compulsory low cost of not less than 50% for any divestments involving mother or father firms included in international locations considered “unfriendly” by Russia. The Netherlands, being a signed up member of an EU bloc that imposed sanctions on Russia, will surely fall into that class.
Nonetheless, the transaction closed this week, and Yandex N.V. has swiftly moved to distance itself from any remnants of its previous — the obvious one being its identify. Topic to shareholder approval, Yandex N.V. is adopting the identify of one in every of its few remaining belongings, an AI cloud platform known as Nebius AI which it birthed final yr.
AI compute demand
Nebius is vying for a market that features all the main “massive tech” cloud hyperscalers, however its important competitors is arguably the swathe of devoted “GPU-as-a-service” startups which have emerged off the again of demand for AI compute. These embody the likes of U.S.-based CoreWeave, a $19 billion enterprise that pivoted from cryptocurrency mining, and which is presently increasing its personal infrastructure into Europe. There may be additionally not less than one home various within the type of Flex AI, a French startup which lately exited stealth with $30 million in seed funding to lease GPU compute out to AI firms.
Nevertheless, Nebius finds itself in one thing of a novel place. Technically talking it’s not a startup, but it surely’s having to begin afresh with the few belongings it has left, which is basically the results of pure probability — it’s simply what occurred to exist outdoors of Russian territory when the battle began two years in the past. This contains an autonomous automobile firm known as Avride, based mostly in Texas; a generative AI and LLM firm known as Toloka AI; edtech platform TripleTen; and, most notably by way of this new route, a Finnish knowledge heart and AI cloud platform known as Nebius AI.
Accordingly, the corporate is now positioning itself as a full-stack AI infrastructure firm with plans for a large-scale community of GPUs (graphics processing models) en path to changing into a number one participant in Europe. That is enabled by its knowledge heart in Finland and an current partnership with Nvidia which works again a while.
“We launched Nebius lower than a yr in the past, and we now have 1000’s of GPUs,” Volozh mentioned. “We’ve an amazing cloud associate in Nvidia, they’ve identified us for ages as a result of we had been one in every of its largest shoppers in Europe — so actually, it’s simply the identical individuals speaking to the identical individuals. They know us, they usually know what we will do. Thankfully, one of many knowledge facilities of Yandex was constructed outdoors of Russia, and that is what we inherited are actually now quickly rising its capability.”
Volozh says that Nebius is trying to triple the capability at its present owned facility in Finland, with plans to get it to nearly 100 megawatts. Nevertheless, it’s additionally trying to begin constructing out further knowledge facilities throughout Europe within the coming years.
“We produce the total stack — knowledge facilities, motherboards, servers, racks, connectivity — all the pieces is our personal,” Volozh mentioned. “We are actually negotiating for a number of greenfields [data center built from scratch] in a number of international locations, which we are going to signal very quickly. However this can take time. And earlier than that point, we will probably be renting at co-location amenities.”
Public vs personal
Volozh confirmed that the corporate intends to regain its full unfettered public standing now that it’s untethered from its Russian belongings, and is actively working with each the Securities and Trade Fee (SEC) and Nasdaq to attain that.
However wouldn’t it’s simpler to go personal and scale the nice old school startup method — away from the pressures of the general public glare?
“I might say the alternative,” Volozh mentioned. “Constructing infrastructure is probably the most capital intensive factor. Who’s constructing it? It’s the large tech guys who’ve billions of {dollars} revenues, they usually have their very own ecosystems the place no matter you launch offers you an additional couple % of income. They’re investing like hell, and for a cause. Everyone desires to be there first.”
So the Microsofts and Googles of the worlds are all-in, as are these within the “second tier” market similar to CoreWeave, Lambda, and quite a few others which are capitalizing on their relationships with GPU kingpin Nvidia. However the capital required not solely to construct this, however develop a full system of interconnected GPUs that may talk and share knowledge and workloads dynamically, is important — which is why we’re seeing these youthful gamers increase a number of large rounds of funding in shut proximity, spanning debt and fairness.
Nebius, for its half, is beginning with a few billion {dollars} in capital, a determine that will deplete pretty shortly if a buy-back proposal to obtain dormant shares is taken up by its current shareholders. Nevertheless, Volozh reckons that it is going to be far simpler — and cheaper — to lift capital as a public firm. Furthermore, Nebius is positioned strongly because it’s working in one of many hottest areas in expertise proper now.
“It’s [AI infrastructure] in all probability the unsexiest ‘factor’ inside a really attractive market,” Volozh mentioned. “AI could be very attention-grabbing — it’s very actual, and it’s not hype just like the web wasn’t hype 20 to 30 years in the past. With infrastructure, we’re in a really candy spot. We’re beginning off with a few billion [dollars], and we are going to construct sufficient capability to scale initially.”
Furthermore, as a public firm, Nebius may serve instead choice for these searching for pores and skin within the recreation with out having to guess on the same old gamers.
“I don’t know of some other public firm in AI infrastructure outdoors of ‘massive tech’ — for those who’re an investor, and also you need publicity to this space, we’re very promising,” Volozh mentioned. “In fact, you possibly can purchase Microsoft or Google inventory, or you should buy this inventory. So that’s the reason it’s good to be public.”
Expertise pool
Whereas Nebius is just not alone in its endeavors, it has one thing different youthful gamers within the house don’t have — and that’s expertise constructing out compute infrastructure at scale. Of the corporate’s 1,300 workers, round 1,000 of them are engineers, largely transitioning over from the previous Yandex enterprise, in keeping with Volozh.
“Technologically, that is what this complete staff has been doing for the previous 15 to twenty years,” he mentioned. “They’ve constructed fairly massive infrastructure globally, with a whole bunch of megawatts of knowledge facilities. Now, we have to construct it once more, and this stuff are simpler once you’re doing it a second time.”
When Yandex N.V. was a company holding firm, Amsterdam was little greater than an handle. At this time, the Dutch capital is the corporate’s greatest hub with some 500 individuals, with the rest of its headcount cut up throughout varied different areas together with Israel, the U.S. (Austin, Texas) and Belgrade. Whereas Amsterdam will stay dwelling, its different bases will probably be fluid and evolve according to the calls for of the enterprise.
This geographical unfold has largely been all the way down to probability, a mix of the place its subsidiaries had been initially based mostly and, extra lately, which international locations have been prepared to just accept staff fleeing the battle.
“It has been fairly a journey. When the struggle broke out in February, ’22, lots of people began leaving the nation [Russia],” Volozh mentioned. “There’s a variety of households, however to maneuver a household is a courageous transfer simply to drop all the pieces and simply transfer. However they realized that they don’t wish to help it [the war]. They don’t need it to occur of their identify. Once they all began leaving, we began serving to them.”
Israel, the place Volozh himself has formally been based mostly for the perfect a part of a decade, was the primary nation to begin accepting his staff.
“As a result of it’s a visa-free nation for Russia, it was simpler for them to come back as vacationers — after which they began getting work permits fairly shortly,” Volozh mentioned. “Later in 2022, throughout Europe and particularly the Netherlands acknowledged what was happening and really invited us — they issued a whole bunch of labor permits. In order that’s why individuals began shifting to Amsterdam, and I feel it’s an enormous win for the Netherlands. It’s an enormous AI firm, and we have now well-paid, high-level engineers — all people will probably be contributing a variety of taxes right here.”
It’s tough to overstate the sheer scale of the trouble concerned in attending to the place Nebius is immediately. It’s a shadow of its former self, for certain, however very similar to the businesses that pivoted from crypto to cash-in on the AI gold rush, Nebius is repurposing the assets it has to fulfill a requirement that’s displaying little signal of waning.
“It was a variety of work to maneuver all these individuals, whereas additionally separating the corporate in parallel,” Volozh mentioned. “It has been quite a bit like a startup, in that we needed to construct the corporate from scratch, although we wanted to ensure that all of the expertise is completely separate — for instance, be certain that the identical Finnish knowledge heart doesn’t transmit something again throughout the border [to Russia]. Now the deal is completed, the cash is within the financial institution, the corporate is separated. And the individuals are right here.”
Volozh, for his half, is technically based mostly in Tel Aviv although he provides that in actuality he “lives on a airplane,” splitting his time between the assorted hubs his work takes him to. However he stays upbeat about his new enterprise’s prospects.
“I’ve by no means been so excited in regards to the future,” he mentioned. “Yandex was not my first firm, however even at Yandex we began all these enterprise models nearly yearly — Yandex grew to be far more than a search firm, and it actually was similar to launching [new] firms. So… right here’s yet one more firm to launch.”