It is reported that San Francisco-based startup Upwind has completed a $400 million Series C financing round by using AI to protect its cloud infrastructure, raising its valuation to $3.8 billion. This round of financing was led by Bessemer Ventures, with existing investors such as Greylock Partners and Craft Ventures also participating.

This round of financing came just nine months after the previous round of financing on Upwind. At that time, the company completed a financing of $250 million and was valued at $1.5 billion.

According to informed sources, this new financing, which had been in preparation for several months, almost fell through because Datadog attempted to acquire the company. Datadog is a publicly traded company that sells tools used to monitor the operation of software, namely so-called observability products. The source stated that Datadog did not offer a premium on the basis of a valuation of $3.8 billion, and therefore Upwind decided to remain independent.

This four-year-old company has grown rapidly amid the rising cybersecurity threats driven by AI. People familiar with the matter say that Upwind generates an annualized recurring revenue of $20 million to $30 million per quarter, and it is expected to reach around $90 million by the end of this year. This means that venture capital and Datadog have valued this startup at more than 40 times its expected ARR, which is a common benchmark for valuing software companies.

However, this multiple is still lower than the 80x valuation that investors gave to another high-growth cybersecurity startup, Cyera, earlier this year. As previously reported by TechCrunch, Cyera's valuation multiple also reached 80x at one point.

Theory Ventures General Partner Tomasz Tunguz recently wrote in his widely read blog that network security is poised to become the third major wave of AI software that businesses are willing to pay for, following AI programming tools and customer support.

Upwind's decision to abandon the acquisition bid clearly indicates that the company believes its ultimate value will be higher than the $3.8 billion that Datadog is willing to pay. However, considering that there have been very few cybersecurity companies going public in recent years, it is still possible that the startup will ultimately be sold.

Insiders say that Upwind continues to attract interest from potential acquirers.

Upwind was founded by Amiram Shachar, who previously sold his cloud expenditure management startup, Spot.io, to NetApp for $450 million. Upwind refers to their method of preventing threats as "runtime" security, which involves real-time alerts and repairs for attacks and vulnerabilities in running services.

TechCrunch has contacted Upwind and Datadog to solicit their comments.