Tailscale Raises $160M to Scale AI and Enterprise Use

A zero trust network access vendor led by a longtime Google employee raised $160 million to help the company better support complex, multi-domain enterprise environments.

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Tailscale said its Series C funding will help the Toronto-based company evolve its product from a tool for small teams to an enterprise-ready platform that allows for distributed administrative domains within large organizations.

“The conditions were all really good, the valuation was really good, the amount of money was really good and the convenience factor was extremely good,” CEO Avery Pennarun told Information Security Media Group. “So, it’s pretty hard to argue with that.”

Tailscale, founded in 2019, employs 177 people and has raised more than $275 million, having previously closed a $100 million Series B funding round led by CRV and Insight Partners. The company has been led since its inception by Pennarun, who previously spent nearly eight years at Google, where he focused on Wi-Fi routers and launched the person-to-person money transfer feature.

From a Single Network to Supporting Multiple Instances

Lead Series A investor Accel led Tailscale’s Series C funding round, offering favorable terms and avoiding the need to Tailscale to add more board members. The company got a $1.45 billion valuation, double the $780 million valuation Tailscale received in May 2022 despite more favorable economic conditions. Fresh capital will give Tailscale a significantly faster route to higher revenue, according to Pennarun.

“If you want to get profitable, you’re going to have to not spend money on yourself, because you get revenues and costs in line,” Pennarun said. “And when you do that, you risk somebody else coming up from behind, spending more money on you, growing faster than you eventually did. All we have to do is privately engineer investment to make sure we capture those things faster.”

Tailscale will use the money to support decentralized control and segmentation of networks within an organization, which Pennarun said is a necessity as customer environments become more complex. By refining and expanding the capabilities of its existing tool around network segmentation, performance and flexibility, Tailscale will be able to meet the demands of larger and more complex customers.

“We don’t have any plans to launch whole new product lines or anything like that, but we do keep getting pulled in new and improved directions by bigger and bigger customers,” Pennarun said. “In the last couple months or so, we’re seeing lots of adoption by bigger and bigger enterprises.”

Tailscale plans to move from a single private network model to supporting multiple instances within organizations, which Pennarun said reflects the reality that large organizations are often decentralized with different departments or sub-departments needing independent control of their networking environments. The new architecture aims to give teams autonomy while still enabling interconnectivity.

“What we’ve noticed as we’re moving into larger and larger organizations is that not every large organization has a single IT department who can agree on everything for the entire company,” Pennarun said. “The larger the company, the more likely it is that there’s different administrative domains that need to be able to do things their way and then interconnect those different things.”

Why AI Companies Face Complex Networking Challenges

AI companies face complex networking challenges since they often work across multiple clouds and need access to distributed GPU clusters and sensitive on-prem data, Pennarun said. Tailscale’s peer-to-peer model and ease of deployment made it an ideal solution for this multi-cloud environment, which helps AI companies focus on model training and infrastructure while outsourcing their network stack.

“Many companies for a long time were just trying to avoid anything that’s multi-cloud and AI companies just can’t avoid it, so suddenly they all have to solve the multi-cloud problem,” Pennarun said.

Tailscale is tracking classic SaaS health metrics such as revenue growth, cost efficiency and gross margins, with the company aiming to double revenue without a commensurate increase in headcount through a commitment to capital efficiency and sustainable scaling. Tailscale offers free support to all users, so minimizing the support burden through high product quality is essential to the company’s cost structure, he said.

“Tailscale is a very efficient technology product in the sense that we don’t pay for your throughput,” Pennarun said. “It’s peer-to-peer connectivity. And that means we can offer the product very inexpensively to a lot of people. We have free tech support for everybody, which is considered a very unusual choice because, ‘Isn’t that expensive?’ It’s like, ‘Well, the product quality has to be really high.'”