Neon: This Company Separated Storage And Computing For Making On-Demand Scalability Easier

By Amit Chowdhry ● Sep 19, 2023

Neon is a company that is building open-source cloud-native PostgreSQL. Our architecture separates storage from computing, allowing for stateless and Serverless Postgres. Pulse 2.0 interviewed Neon CEO Nikita Shamgunov to learn more.

Nikita Shamgunov’s Background

Shamgunov is a Partner at Khosla Ventures, focusing on deep tech, data infrastructure, and system software. Before joining Khosla Ventures, Shamgunov co-founded SingleStore – a highly successful data and analytics company valued at over $1.3 billion. Starting as the founding CTO and later becoming the CEO, Shamgunov played a pivotal role in scaling the company to generate over $40 million in annual recurring revenue (ARR) and achieve near profitability. 

In the early stages of SingleStore, Shamgunov dedicated himself to the company’s growth by coding alongside the servers, even living in the office for the first nine months. Before his entrepreneurial venture with SingleStore, Shamgunov gained valuable experience as a senior engineer at Facebook and at Microsoft before that where he contributed to the development of the SQL Server product.

At Khosla Ventures, Shamgunov is currently leading the incubation of Neon, a promising new database company focused on building serverless Postgres. The venture secured $50 million in funding through successful Seed and Series A funding rounds. 

Shamgunov holds a Ph.D. in computer science from St. Petersburg. During his college years, he achieved notable recognition by receiving a bronze medal in the ACM ICPC, an international student programming competition.

Formation Of Neon

How did the idea for Neon come together? Shamgunov said:

“The opportunity to unbundle Postgres as a service caught our attention, leading us to explore the idea further. Neon’s thesis revolved around becoming the premier choice for hosting Postgres in the cloud. They recognized that distribution posed a significant challenge in the market, making it crucial to separate storage and computing. The ability to achieve this separation would be a game-changer. They pondered why people would care about their endeavor and concluded that even from the beginning (day 0), their overarching goal was to establish themselves as a major player in the OLTP (Online Transaction Processing) industry, strategically leveraging Postgres as a starting point.”

Favorite Memory

What has been your favorite memory working for Neon so far? Shamgunov reflected:

“Two great memories. The first was when practically overnight, our GitHub repo went from 0 to 400 stars. The second was in the early days. I wasn’t happy with the copy on our website, so I opened up my editor and hacked in a bunch of new copy on the main site. Two days later, we got a massive hit on Hacker News, and we updated the content just in time. That same content is on the website today.”

Challenges Faced

What challenges have you faced in building the company, and has the current macroeconomic climate affected the company? Shamgunov acknowledged:

“On the technological front, we faced the complexity of storage in databases, particularly for individuals unfamiliar with the intricacies of this domain. Traditional database systems often employ all-or-nothing semantics, but we sought to introduce memory-like properties to storage. This involved checking data status at different points in time, which proved to be an exceptionally challenging task. To overcome this obstacle, we had to innovate and essentially invent new technology. While most engineers were accustomed to using C++, we decided to adopt Rust, a programming language that enables the development of high-performance systems. Despite initially having limited knowledge of Rust, our team dedicated themselves to mastering it, ultimately becoming leaders in the field.”

“In addition to these challenges, it is important to consider the impact of the current macroeconomic climate on our company. While it may have various effects on different aspects of our operations, we continuously adapt and navigate through any potential hurdles that arise, ensuring our continued growth and success.”

Core Products

What are Neon’s core products and features? Shamgunov explained:

“Neon’s core products and features revolve around serverless computing, auto-scaling capabilities, and leveraging the power of Postgres. The company’s primary focus lies in the continuous improvement of the architecture originally designed three to four decades ago. Neon’s innovation centers around enhancing the core technology and architecture of the Postgres project, which was initially established in a world where concepts like cloud computing, auto-scaling, and serverless computing were not significant considerations.”

“Vector Similarity Search is a popular area of research in artificial intelligence. The preferred option for Postgres has been pgvector, but a new algorithm called HNSW (Hierarchical Navigable Small Worlds) has emerged and has been shown to improve search performance by up to 20 times. This extension was released on July 11 and has attracted significant attention. We are dedicated to enhancing pg_embedding and making it accessible to a broader range of Postgres users. With pg_embedding, vector search is made more accessible, eliminating the requirement for costly proprietary solutions like Pinecone.”

“By integrating serverless functionality, Neon enables users to run applications without the need to manage or provision servers explicitly. This approach allows for greater flexibility, cost-efficiency, and scalability. Additionally, Neon’s auto-scaling capabilities automatically adjust resources based on demand, ensuring optimal performance and resource utilization.”

Evolution Of Neon’s Technology

How has Neon’s technology evolved since launching? Shamgunov noted:

“Since its launch, Neon’s technology has undergone significant evolution and refinement. Initially, determining the optimal areas for optimization proved challenging due to the diverse range of applications and their unique data storage and retrieval requirements. With different applications requiring distinct approaches, Neon had to adapt its technology to cater to these varying needs.”

“One of the favorite features that has emerged during this evolution is the concept of branching, particularly in relation to data memory. This feature enhances the capability to store and manage data efficiently, providing users with enhanced control and flexibility.”

“Another notable evolution is in the realm of connectivity between the web and the database. Neon has made strides in streamlining this process, resulting in the shrinking of the backend database. This optimization has significantly improved the overall performance and responsiveness of the system.”

Significant Milestones

What have been some of Neon’s most significant milestones? Shamgunov pointed out:

“Neon has achieved several significant milestones throughout its journey. The first notable milestone was the decision to embark on building the company itself. This initial step set the foundation for all subsequent accomplishments.”

“An important turning point for Neon was when the project gained attention and recognition on GitHub, a popular platform for sharing and collaborating on software projects. This exposure helped Neon garner attention and generate interest in its offerings.”

“Following the launch of their product, Neon experienced remarkable growth, surpassing milestones such as reaching over 5,000 databases and subsequently exceeding 10,000 databases. These achievements demonstrated the increasing adoption and acceptance of Neon’s technology by a growing user base.”

Customer Success Stories

Can you share any specific customer success stories? Shamgunov cited:

“One specific customer success story revolves around Neon’s presence in the small and medium-sized business (SMB) market. In this particular case, Neon was engaged in negotiations with Vercel, a prominent company, on the eve of their product launch the following morning. The outcome of the deal was crucial, and it had a direct impact on the content and direction of Vercel’s keynote presentation. To accommodate the uncertainty surrounding the deal, Vercel prepared three different versions of the keynote speech, each tailored to the potential outcomes of the negotiations with Neon.”


Can you discuss funding and how the company generates revenue? Shamgunov revealed:

“With a total investment of $104 million to date, Neon has established itself as the leading provider of Serverless Postgres, as illustrated by its rapidly growing customer base, which has grown from 20k to 100k databases in less than six months. Reflecting a significant investment in the company’s growth and development. Looking ahead, there are plans to secure additional funding in the near future, indicating a continued focus on expanding operations and scaling the business. In terms of revenue generation, Neon follows a dual approach in the database market, targeting both the bottom-up and top-down segments. This strategic approach allows the company to tap into a wide range of customers and capitalize on various market opportunities to drive revenue and sustain financial growth.”

Total Addressable Market

What total addressable market (TAM) size is Neon pursuing? Shamgunov assessed:

“The database market can be divided into two distinct segments: OLTP (Online Transaction Processing) and OLAP (Online Analytical Processing). Neon operates within the OLTP market. These two segments mirror each other but serve different purposes. In the OLTP market, the role of database technology is to power applications, enabling efficient and reliable transaction processing.”

“On the other hand, OLAP focuses on understanding and analyzing data, with data engineers and data scientists playing key roles in this segment. As businesses increasingly recognize the value of data, it has become common for companies to have dedicated data teams. Within the OLTP market, developers are the primary users of database technology, leveraging it to build and maintain applications that power business operations.”

Differentiation From The Competition

What differentiates Neon from its competition? Shamgunov affirmed:

“Neon’s differentiation lies in its commitment to open source, its ability to deliver low latency for data transfer, and its provision of branches, catering to the needs of developers and empowering them with greater flexibility and convenience. Neon will be cloud agnostic, unlike many of the Hyper-Scaler competitors. These distinguishing factors contribute to Neon’s competitive advantage in the database-as-a-service market.”

Future Company Goals

What are some of Neon’s future company goals? Shamgunov concluded:

“Looking ahead, Neon has set ambitious company goals for the future. Over the next couple of years, their primary objective is to establish themselves as the default and dominant Postgres platform. By aiming for this position, Neon seeks to become the go-to choice for anyone using Postgres in the cloud. Their aspiration is to create a similar level of recognition and trust that Stripe has achieved in the payments industry. Just as people turn to Stripe for their payment needs, Neon envisions that when it comes to utilizing Postgres, developers and businesses will instinctively choose Neon. This goal reflects their determination to become the leading and preferred platform for Postgres, solidifying their position in the market and establishing themselves as a trusted and reliable solution for developers and organizations.”

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