Runpod, an AI app hosting platform launched four years ago, has reached an annual revenue run rate of $120 million, founders Zhen Lu and Pardeep Singh told TechCrunch.
Their startup journey is a wild example that if you build well and your timing is lucky, they will come.
This story includes our journey to over $1 million in revenue. VC Radhika Malik, a partner at Dell Technologies Capital, raised a $20 million seed round after seeing some posts on Reddit. The company acquired another major angel investor, Hugging Face co-founder Julien Chaumont, because he used the product and reached out to the support chat, the founders told TechCrunch.
It all started in late 2021 when two friends who worked together as corporate developers at Comcast decided the hobby they were doing wasn’t fun anymore.
They had built a specialized computer setup in their respective basements in New Jersey that would be used to generate Ethereum. They said they were successful in mining some of the cryptocurrency, but not enough to repay their investment. Additionally, mining was scheduled to end after a much-hyped network upgrade known as the “merge.”
What’s more, Lu said it became “boring” after a few months.
But they estimated they had persuaded wives to spend the equivalent of $50,000 on marital hobbies. Lu and Singh knew that household harmony depended on finding a way to use these GPUs.
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The developers were working on a machine learning project at work, so they chose to convert their mining rig into an AI server. This was before ChatGPT and even before DALL-E 2.
As they repurposed their rigs, “we realized how terrible the software stack was for dealing with these GPUs,” Lu said. As developers, they found a problem they wanted to solve.
Runpod was born because “we felt that the actual experience of developing software on GPUs was just hot garbage,” Lu explains.
A few months later, in early 2022, they were ready to share what they had built. Runpod is a platform for hosting AI apps that emphasizes speed, easily configurable hardware (including a serverless option to automate configuration), and development tools such as APIs, command-line interfaces, and other integrations.
In 2021, there were only a few such integrations (such as support for the popular web app tool Jupyter notebooks). The next problem is finding beta testers.
“As first-time founders, we had no idea how to market or what to do,” Lu recalls. “So I was like, okay, I’ll post it on Reddit.”
So they posted some AI-oriented subreddits. The offer was simple: free access to the AI server in exchange for feedback. It worked. They acquired beta customers, which led to paying customers. They quit their jobs within nine months and said they had made $1 million in revenue.
Take growth into your own hands
But that created another problem. “After six months, business users were like, ‘I actually want to run real business on your platform, and I can’t do it on servers in people’s basements,'” Lu said.
The New Jersey founders never thought about raising money from VCs. Instead, it formed revenue-sharing partnerships with data centers to expand capacity. But it was stressful. The founders needed to stay three steps ahead.
“Without GPUs, market sentiment changes, user sentiment changes, because if users don’t need the capacity, they’ll go elsewhere,” Singh explained.
On the other hand, the user base has increased on Reddit and Discord, especially after the launch of ChatGPT.
VCs were also on the prowl for investment. Malik found them on Reddit and reached out for his first VC call. But Lu didn’t know how to pitch to investors. “Radhika was very kind even in our first conversation,” he said. She basically explained to him how the VC was thinking and said she would keep in touch.
Meanwhile, Lou had a business to run and had to pay for it himself. “For almost two years, we really had no money,” he said. That’s why Runpod never offered a free tier. Even if I wasn’t making a huge profit, at least I had to pay for myself. Unlike other AI cloud services that started as crypto miners, these founders said they refused to take on debt.
Our lucky decision to launch AI hosting for developers two years ago paid off as AI app craze spreads by May 2024. Their business grew to 100,000 developers, included big names like Nat Friedman and Chaumonde, and landed a $20 million seed deal co-led by Dell and Intel’s VC arm.
They haven’t raised any further funding since then, but are now making plans, armed with a business they believe should command a healthy Series A.
Today, Runpod’s customers number 500,000 developers, ranging from individuals to multi-million dollar annual Fortune 500 enterprise teams, the founders said.
The company’s cloud spans 31 regions around the world and counts customers such as Replit, Cursor, OpenAI, Perplexity, Wix, and Zillow as users.
Competition is also fierce. Developers have a choice of all major clouds (AWS, Microsoft, Google), as well as industry-specific choices such as CoreWeave and Core Scientific.
But they also see their place in the world a little differently, as a development-centric platform. They think coding will change, not go away. Programmers become creators and operators of AI agents.
“Our goal is to be the foundation upon which the next generation of software developers will grow,” Lu said.
