Connecting the dots - why we invested in Neo4j

Lightrock is proud to participate in the $325m Series F investment in Neo4j, the global leader in graph technology. The round was led by Eurazeo and GV (formerly Google Ventures) with participation from existing investors One Peak Partners, Creandum, and Greenbridge Partners, and new investor DTCP (formerly Deutsche Telekom Capital Partners).

For Lightrock, the opportunity is both an exciting commercial opportunity and a thought-provoking impact case. In the article below, our investment team provides an overview of why we are so excited to work with Emil and the fantastic company he has built.

Although 15 years old and slightly cliched, the famous soundbite about data being the new oil is a reminder that its value stems from what is refined from the raw material. However, unlike the products of oil, which remain relatively constant no matter the volume, the quality and quantity of data-driven insights have grown rapidly with the volume of data collected. As the need to ask increasingly complex questions across increasingly complex datasets has grown, the technology and techniques enabling these advances have also significantly evolved, and over the past 10 years, the emergence of graph technologies has been a notable development. Emil Eifrem – who, as CEO and Co-Founder of Neo4j, invented the graph database and helped build the category from scratch – has played a pivotal role in this emergence.

As the world becomes even more connected and new data sources grow exponentially, graph techniques are expected to play a major role in producing previously unforeseen insights. Gartner suggests that “by 2025, graph technologies will be used in 80% of data and analytics innovations, up from 10% in 2021, facilitating rapid decision making across the enterprise”. Although graph databases and graph technologies are not synonymous, we believe that as the requirements for functionality and performance proliferate, graph databases will continue to grow their share of a global database market expected to be worth over $100bn by 2025. Within the graph space, Neo4J is the clear market leader, and has an attractive opportunity to capitalize on this position over the coming years.

For those knowledgeable of the space, the commercial rationale summarized above is both well-publicized and not particularly ground-breaking. However, as an investor focused on impact, we believe Neo4j is also incredibly compelling. Indeed, a big reason the industry is expected to grow is because graph technologies enable society to tackle some of its most complex challenges. Discovering cures for previously untreatable illnesses, optimizing global supply chains, monitoring and predicting climate change, tracking the spread of global disease, and increasing financial transparency are just some of the solutions that Neo4j is already enabling. As an investor whose ambition is to back companies tackling the world’s biggest challenges, the breadth and depth of impact that Neo4j enables is very attractive.

However, to stop there in our justification would at best be lazy and, at worst, disingenuous. Indeed, for those who think more deeply about impact than a passing headline, it is clearly more complex to implement the traditional tools of impact investing here than it is with more direct solutions. How do you judge the purpose of a product that is ultimately a tool? How do you measure the impact of that tool when it is used across such a wide range of applications? How do you think about your responsibility for those applications? How do you account for the open source nature of much of the company’s technology?

These are questions not limited to Neo4j and have gained traction across a broader swathe of cutting-edge technology companies in recent years. Attempts to address them have produced some early successes as well as some spectacular failures, and as such, it would be foolish to pretend that at Lightrock we have all the answers. However, both despite and because of these failures, we think there is an exciting chance for a company like Neo4j to lead the way, and in turn, to help create more successes across the industry. Although the process of arriving at this end goal is paved with at least some risk, we believe the potential reward in the case of Neo4j is more than worth it for the following key reasons.

Firstly, the depth and breadth of impact that Neo4j enables will be enormous.

Neo4j is the market leader in a space that will form a critical part of the world’s tech infrastructure going forward. In fact, it is already influencing a huge part of society today, with over 76% of Fortune 100 companies either using or piloting Neo4j across over 20 different industry sectors. As a result, we believe the total impact that Neo4j creates will be significant. A lot of this impact will be clearly positive (per examples referenced earlier), a lot will be neutral, and some might be negative. Today we believe that, on balance, this impact is strongly net-positive and would likely remain so with or without our investment. However, given the scale and scope of applications, if the company can consider, codify, and communicate impact, sustainability, and ethics into its ordinary course of business at this early stage, the potential long-term effects could be very meaningful. On the other hand, the opportunity cost of not attempting to do this is arguably as, if not more, significant.

Secondly, in Emil (CEO and Co-Founder), we have a partner who is strongly aligned with these goals.

Alignment of key stakeholders is critical to making any progress on the above. Emil is not only a brilliant technological mind and visionary CEO but also deeply passionate about addressing these issues. Importantly, Emil is also aligned with our core thesis that these topics are not a sideshow or distraction to the commercial success of a company, but rather long-term creators of shareholder value. Whether it be through attracting the best talent in a competitive market where purpose is a core selling point, introducing sustainable business practices that lead to long-term financial outperformance, or building long-term relationships with the type of clients who are most likely to succeed in an era of responsible capitalism, positive impact is more aligned with long-term commercial value creation than it has ever been. Emil gets that, and we are thrilled to work with him on it.

At Lightrock, we are super excited about exploring impact investing not only where there are obvious and easy solutions, but also where there are hard questions that can potentially unlock significant value. Neo4j is one of those opportunities, and we are excited to do whatever we can to help the company succeed. We look forward to sharing our learnings along the way.