Tailscale Raises $230 Million Amid AI Boom, Valuation Hits $2 Billion

TORONTO, Canada — Tailscale Inc., a rapidly growing virtual private network provider, has raised $230 million, pushing its valuation to $2 billion amid surging demand from artificial intelligence companies.

The funding round, led by Silicon Valley’s Accel Management Co. LLC, saw participation from existing investors like CRV, Insight Partners, Heavybit, and Uncork Capital, as well as the CEOs of CrowdStrike Holdings Inc. and Squarespace Inc. This investment represents a significant increase from Tailscale’s earlier valuation of $1 billion after its last round of financing in 2022.

CEO and co-founder Avery Pennarun noted that Tailscale has sufficient funds from its previous $100 million raise and plans to invest in expanding its engineering, product, and sales teams. To date, Tailscale has raised a total of $395 million since its inception six years ago.

Accel partner Amit Kumar described the valuation as “an aggressive and generous reflection” of the company’s potential, emphasizing the oversubscription of the deal due to high interest from insiders. “Tailscale feels like one of those companies that are truly unbounded,” he said.

Unlike many recent tech financings, all $230 million raised will go directly to Tailscale, allowing the company to scale without early investors profiting from share sales. However, Mr. Pennarun indicated there may be a smaller secondary sale for employees in the future, which he will not take part in, stating, “I’m keeping my shares because they’ll be worth a lot more in a few years.”

Tailscale sets itself apart from traditional VPN systems, such as those offered by Cisco and Palo Alto Networks, by eliminating the need for expensive hardware or access restrictions for employees to connect to enterprise software. Instead, Tailscale facilitates direct, secure connections between devices, enabling companies to monitor user access without routing traffic through centralized systems.

The simplicity and lower costs of setting up Tailscale allow for quicker program performance and a less complicated administration process for companies. Founded by Pennarun, David Carney, and David Crawshaw, Tailscale has proven particularly popular among tech professionals, benefiting significantly from the need for remote connectivity during the pandemic.

The company’s exponential growth is evident, as Tailscale reports it has doubled its annual revenues consistently and now serves over 10,000 paying business customers and millions of free users. Demand from AI startups has played a pivotal role in this growth, with clients such as Cohere, Mistral, Hugging Face, Groq, and Perplexity leveraging Tailscale’s services.

AI companies require secure data transfer between numerous remote machines and cloud providers, a service Tailscale excels in providing. “AI companies use it as their network infrastructure, which is a huge discovery for us,” Mr. Pennarun said.

In addition to its growing roster of AI clients, Tailscale also counts major corporations like Telus Corp., Instacart, SAP AG, and Motorola Solutions Inc. among its customer base.