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<ul class="summary-list"><li>A data center somewhere is powering your online shopping and binge watching.</li><li>Data centers run 24/7 and consume vast amounts of energy and water.</li></ul>Sending emails. Shopping online. Scrolling social media. Streaming Netflix.These activities seem like innocuous ways to kill a few hours. Though we may never think about how much data we're using, or the cloud it's stored on, <a target="_blank" href="https://l.businessinsider.com/a/click?_t=c8e10479a20f45bba5aad6c5f6fbb009&amp;_m=08a31e55edbf46709f3ecf7b76cd4a22&amp;_e=AAWmNX6lvfNseQk9FArnnMcWwDWne3_6EExrx3b69h1Ery_kjQ6oisk61NlbFQow8FuGiQxpJ52ouGI94ugBrIc_fsPB35HfJk8v0RtzkTBCdhdTtb7RA3LQnNC7Lnpo7PnrIZ0bYzB0xinXNNCApp2TUhA9Kg6ICtSFRRctD-WcTaVzWW_Y1j1QjsAXlKHJDES_ZKrlWsG8RTZDy2S-XJjGIPyVF1f175xUg8SHlD-Xz1ljBkzPEUUMzHxDzhRYPXcEalLX7kfJKJvP_K5hVqAJMz8bXP5O-BX8A9PHjLkpfF_zAItYk45f64Zobr3K1---mdARaX5z4EGdjNZP5UcYai86ECXzdRs4aRrzWR2NpUbM4JJEs11lNn8Odq-2kleUn7jOZ8SWAQg2tLMS0LWYVBNlATPRHG2NHsafuw2O0sbszARLYaYqkXRmh8EFcwRMlxEbjvB9FNAHKV5-ow%3D%3D">there's an environmental toll</a>. Our cloud usage is powered by a growing network of data centers in buildings filled with rows and rows of routers and servers. Demand is only expected to grow as companies lean on data analytics to make decisions <a target="_blank" href="https://l.businessinsider.com/a/click?_t=c8e10479a20f45bba5aad6c5f6fbb009&amp;_m=08a31e55edbf46709f3ecf7b76cd4a22&amp;_e=AAWmNX6lvfNseQk9FArnnMcWwDWne3_6EExrx3b69h0AEFBpI-6azLICztnzcbzTu2Dntfxe44dJqskVhENDXpiywuoZtGccR40fh_zuG2KUZr9EUuwgyVkIY71fFG-0MF15f8q2HK9qZ5whPXRSWJjMlQs8bdN_3Q-QMsDni13Jo-_-H0JMgV-xMFlRPi49XrAjN89_B7rFiO3ZySaKwOxIuDSRifeO0g8uSzaQV3GrrKcCuLD9Es3MuT9f_2MgE8zubGVdg-sVzaCBMRDNu0rv7TDC-YrUBCX_hnvst7qCIJkPHHfpbdijk9oaiO322qOCFSrqTXVqd8rhOhgmRn5SyjrJb8QLCrAw4Ru3JbuxxUCIyoSebClQpmOG1qbONyGEVS4dZiA0DCI4j6RiLOtI7VUI3CjDkYEBISHzTdmccZr1O_b05sXzEa-dAL9pm4EsUTPoImNV6L-UFvXxQVQV51AJJsJWMVOsBXbkFHk%3D">and increasingly use AI</a>. Data centers run 24/7 and consume vast amounts of energy and water, partly because of the giant fans and evaporative cooling required to keep temperatures low. In states including Virginia, Arizona, and Nebraska, utilities <a target="_blank" href="https://l.businessinsider.com/a/click?_t=c8e10479a20f45bba5aad6c5f6fbb009&amp;_m=08a31e55edbf46709f3ecf7b76cd4a22&amp;_e=AAWmNX6lvfNseQk9FArnnMcWwDWne3_6EExrx3b69h3JG_qPXZrA3mZ8vn1mJPQADuUNJ5NUKwtfCv2hN11-Ilgsv12KmQd6appAOVoWKiSGsfEGXwjym0Ut2IrxJtJe6kOdK4W1Es9FaKpj8PmyCdPXbAfP51wIKNqzOkHKLJNz5UBHhc1Sdj4O3UPY1pLbvzccVyfBQOpTxctJGn1BhSIBoOCJ2oDje1tgWtfPuG-8DCorfJUg94IxzmDbg_eKgr38fksF_5Az5kPyqQ0-Ke54ADdBqUbWB4mb5LwfOhaNuOoELHsk0MbreE9etwNYuF3cEAKfMlCQxTQksUnUsKdm_CgAKhrw0xWljf85MZbsfdQWuSEdhSuGrQT2p8_ZQtBfbukrxPShujeS5VnqSgBK-6orMFeT3o8o4P7ZPg20L8j9Ffra9vxhUznhHBZz_qjr27fy2CT3VA7R4R12LQ%3D%3D">are considering or planning</a> more gas-fired power plants to keep up with the continuous electricity demand. Hyperscaling data centers puts tech giants like Microsoft, Amazon, and Google in a tough spot when it comes to their goals of drastically slashing greenhouse-gas emissions this decade.The problem has led to a hunt for greener data-center technologies. Among them is liquid cooling, which directly cools the tiny microchips central to electronic devices. <a target="_blank" href="https://l.businessinsider.com/u/click?_t=c8e10479a20f45bba5aad6c5f6fbb009&amp;_m=08a31e55edbf46709f3ecf7b76cd4a22&amp;_e=AAWmNX6lvfNseQk9FArnnM0UMdyJzQJfcsyo_KbzoKBprvStCIQbh2AeJKUXl5p1eLvkieymUlZCrY8d-aKYkIlvd137G5LHId_OOPIhJSBBXoFGUHN9eo7-CvyQOKRdOOfxtMrKy9B3ts0qGRcUe7LroDc6yxsSUhmo21wx7DXvsTt1tgegFEyZtdASQcJu4Ahs9xpygdVMIG7ybpvkmZ938wqXu_V2r0u18SLKcuE86y5BytWaonrcdVE7x5NrGweFT2XjZixrhrXkeTKWnE1CnogT5dky9GnWe1stduTUGM_clrd3p5KQrb83g-m8AUdtmix9N1lY3IVKx_DNX9yBf_X1M6Ev731GYUWo7xaB9PTdj6MT3_d9Jwbpq-a8b02xTN1sMQfVDhzWgXUhsVsrvOakCQvicNyKzguDj3KtA7VLraGfjXq5cEK4La_ZAVg3JPCLJb6pPOID_jgvMHfAzc0H0trrpSKssu1mwj3COuf6sAZ2d0aIa7gd7uzsLGUZWe3gPenmyJXlb90QtpHIw4NMieupbC6sYBHuBr8OTGhLZJYWcklrb2wjOsjK2npAe8dGqfjQFMhLFGYbySUJ7RVHOTgh0oc9swuC12kwIYn6bmI5j0FzoWpYH6r2HmbDYQ3iV6ZfuzmT99np-UrGCjQsSGvjwTTGgUTN0EPC3OIQ5ehNHOEKItZ69TndeePxE-xmr-YCWHxaRVWyjw%3D%3D">Persistence Market Research</a> has predicted that the industry's valuation — estimated at about $2 billion in 2021 — will surge to $31 billion by 2032."We think to solve the biggest problem, you have to focus on the smallest pieces," Bernie Malouin, the founder and CEO of the liquid-cooling startup JetCool, told Business Insider. Malouin spent eight years at MIT developing metal plates with hundreds of jets that push through a water-based coolant. These solutions, known as SmartPlates, sit on top of the microchips in computer servers to "surgically remove" the hot spots, he said. Water is a lot more efficient at absorbing heat than air.Data centers have thousands of servers — just imagine how hot a room with thousands of microwaves would get, Malouin said.JetCool's technology could save data centers up to 15% of their overall power consumption, based on internal tests, the company said. A partnership with Sabey Data Centers last year <a target="_blank" href="https://l.businessinsider.com/u/click?_t=c8e10479a20f45bba5aad6c5f6fbb009&amp;_m=08a31e55edbf46709f3ecf7b76cd4a22&amp;_e=AAWmNX6lvfNseQk9FArnnPl6bVAdMRiunCqnq8U4sQIWmshbkxhPebTUNaWACWtMeHkHcSuxo7OApKOPZVUUXyOJLeuI_ewUei9R50utdI46MH4wTz2-qo2AjbO50-pRRQYfhDfm6joHHWR-vSQTiEsgohFWFXcNQxsLCOJWDqSO0cls00R8-lUAHPi92Z38EfMpCzGZpFwxt5fXRYHmah5dpam3JXrEKRjqHWFAScoigFEYAbicBiT3B1T4eiVig3UClQiVkBFKY9QaG2cFZS1bdIi5QaiXzWjGDwh0PZCE9mbXcz7-TK1Vbtlv4CwfYkJImGdH6Id1yOX_wSr1W4GSZlN_ydoDXuqDRE8SpxikZpzFiGs_Xu9T22marzSzbFxExcn4mWEpXds6kPFKWHneH_ngHlpG8dx9x1Q09SqLYW5oQ996eGh8iGQDEhoMpjJYb8V9tMejYzI_f9JvUViMN5uL0V_LUlSfgLLfUCoKko41b7tbFewFo7bnhUkn5kFZy3idcQuvBOR0NcJAVrfU1X5hdVPga_3XCKqegViuEGX3FKKa7ifQugd9WzUV">demonstrated a 13.5% reduction</a> in power use. It'd be expensive for existing data centers to implement a new cooling strategy, and Malouin said JetCool's technology is better suited for new builds. <a target="_blank" href="https://l.businessinsider.com/u/click?_t=c8e10479a20f45bba5aad6c5f6fbb009&amp;_m=08a31e55edbf46709f3ecf7b76cd4a22&amp;_e=AAWmNX6lvfNseQk9FArnnC_5u2wOnNcmjMcTAsIYEgbyQbzWI0NmxF7osvxokyyQ_QEA4pROpKLxmulpgZCST273ReLWo0Ktrc9GX4P2-qH5FKXy47E2N5YazDTyhVGtFZ8jngBlMWcRmAWEGF5l7i_g6Gjd-pfHcFX135GBF8PMEBO77nsBXSHwPy06UXc4_RQ749Q4Q5rfmfcwc0_5YA4ZL85LmkHz0eFKd9xVLWmLH4AvuGyGkO99xxnDooaI9oM3qkEK3pjLMLGW7Br2I2-4RUCCoZ1adtlngzu_C3hGCBs3NbtpR7tOJbWKQwWqCBchhwx1iAupzPonXdNYKWx81ALCOMhU_RFoKBr_mk4dySUhcsLkLxOZPvd_8lGsoXG85XLgzwOQo_WFXgns495LRFLPyLBupRr3GjtQZFrqwn8SV9Hk8Qv_0KPy4tKxI1uKR3PH1crp0BvcBL6xiVxvX_cG-K25BTyOfObdtg13pBHdKrUCJDMzYtCfz-zTmigBj_PT0xpU5lgI3O65T1q9xo47xKif9zdCQ2aS3NY%3D">Bloomberg reported</a> in December that Microsoft was exploring liquid cooling for the future, especially because of AI's massive computing requirements.Malouin said JetCool was working with hyperscalers on data-center hubs for AI but declined to disclose which companies. Last year Dell launched servers with JetCool's technology and the startup closed a $17 million fundraising round. Malouin said he sees a lot of potential in Europe, which <a target="_blank" href="https://l.businessinsider.com/u/click?_t=c8e10479a20f45bba5aad6c5f6fbb009&amp;_m=08a31e55edbf46709f3ecf7b76cd4a22&amp;_e=AAWmNX6lvfNseQk9FArnnJEtIPxg4XiIiWH3MwmHl7cqWQ9NToEuJ39exKhGcpIB8zlJJv5BjfRr7ChMAjf4iPOO5omD5WU5SNJiID-M0TD5y120x4dc0jgcaUVBi7fdZb6mM5BWXiVW90i0oLQ_-nLxZVMSpij9EP91TxxmpD_nPdljGsjvoMlmFnSsk85jZLQIif8UR3bh4IStUCzBqO2qlQ2S_TcRczOHLMAER-MLTZWerpaK0Ez7QdJiASuA_i0CExzUjdE4Bz58h5cdEFRTm4_WT71KaNizpGVw0SlLmx-WVzZea2aV8QZKqiNC5UV0WJ-gdcxTLmR5MMCuPha2t4lUVO2Cz1DUa2C-V5hjNiqr5vMVZjlvehbhgcqHBmafAzGclk5sXIQy7KBhEyrtkdaHNjg1oiFq9ed7idUUdhlJojWlapLE4YGkzy3dgydy7GZcunSNHDBXjJ1G8tYjspLbJ-iUOGtNz5tkm7uhFjx5jGsazgJTyJnjAiJU8armcaRi0oqEkOhbiLiTmiLlPeqOsup5koEOyUla5w8%3D">recently updated its energy-efficiency law</a> to encourage large data centers to limit their power and water use.This article is part of Business Insider's weekly newsletter on sustainability. <a target="_blank" rel="noopener noreferrer" class="c-link" href="https://www.businessinsider.com/subscription/newsletter/insider-sustainability">Sign up here</a>.

Meet a startup trying to keep your screen time from destroying the planet

They're building <a target="_blank" href="https://www.businessinsider.com/data-centers-ai-artificial-intelligence-farmland-power-2023-7">data centers</a> pretty much everywhere these days. The<a target="_blank" href="https://www.businessinsider.com/prologis-warehouse-compass-data-centers-industrial-real-estate-2024-3"> sprawling, windowless buildings</a> are the physical engines of the internet and the cloud; more are now <a target="_blank" href="https://www.businessinsider.com/microsoft-invest-billions-into-japan-ai-data-centers-2024-4">under construction</a> than ever before, and the<a target="_blank" href="https://www.businessinsider.com/ai-data-energy-centers-water-energy-land-2023-10"> new breed is bigger and hungrier</a>. A typical center used to consume 10 megawatts of electricity; now they're being built to suck up 10 times that much. Last year all the data centers in the world had room for <a target="_blank" href="https://www.businessinsider.com/how-scientist-invented-new-units-measurement-ronna-quetta-2023-1">10.1 zettabytes</a> of information — roughly 456 billion Wikipedias. And with the rise of artificial intelligence, which requires vast quantities of data and power, <a target="_blank" href="https://www.us.jll.com/en/trends-and-insights/research/data-center-outlook">the global capacity of data centers is expected to double</a> by 2027. If you don't live <a target="_blank" href="https://www.businessinsider.com/virginia-data-center-boom-power-grid-utility-2023-11">near a data center</a>, <a target="_blank" href="https://www.businessinsider.com/viral-tiktok-anger-data-centers-northern-virginia-2024-3">you will soon</a>.But cloud computing and AI aren't the only things driving the push for "<a target="_blank" href="https://www.businessinsider.com/top-stocks-to-buy-for-ai-data-centers-power-demand-2024-5">hyperscaled</a>" data centers. About 65% of the capacity in global centers is <a target="_blank" href="https://www.srgresearch.com/articles/quarterly-cloud-market-once-again-grows-by-10-billion-from-2022-meanwhile-little-change-at-the-top">owned by just three companies</a>: Amazon, Google, and Microsoft. Like the railroad magnates of old, they're racing to control the market, because they understand something that has eluded the rest of us. Data centers are more than just vast digital warehouses. They're the <a target="_blank" href="https://www.businessinsider.com/data-centers-electricity-consumers-discounts-utilities-2024-4">essential infrastructural technology</a> on which pretty much every other company in the world must run. When companies need pretty much any computing service these days — networking, security, data processing, platforms, you name it — it's easier and cheaper to <a target="_blank" href="https://www.businessinsider.com/aws">just rent it</a> from Amazon Web Services, Google Cloud, or Microsoft Azure. The more data centers those companies have, the more of those services they can offer, and the more storage and number-crunching capacity they can provide. By trying to corner the market on data centers, they're not just creating bigger warehouses for data — they're aiming to be a one-stop shop for all of the tech a company needs.That's even more true of AI startups. When an innovative newcomer needs access to the large language models that are required to train and run generative AI, they pretty much have to go through Big Tech to get them. And now the tech giants are making venture investments in those startups by offering them "credits" for using the company's cloud. That's how Microsoft made a <a target="_blank" href="https://www.semafor.com/article/11/18/2023/openai-has-received-just-a-fraction-of-microsofts-10-billion-investment">chunk of its investment in OpenAI</a>, for example — by giving the startup access to its data centers. It's a lucrative inducement to join a proprietary ecosystem."This is where the real business is," says Cecilia Rikap, an economist who is the author of <a target="_blank" href="https://www.common-wealth.org/publications/dynamics-of-corporate-governance-beyond-ownership-in-ai">a new report</a> called "Dynamics of Corporate Governance Beyond Ownership in AI." "The more AI is consumed, there's more cloud consumption, and therefore not only more money for these companies but more digital technology that is intertwined and tangled inside their infrastructure."And that entanglement is what worries many economists and legal scholars. Regulators call the problem "locking in." Changing from one data ecosystem to another isn't like moving your office to a new building; the programming interfaces between Microsoft Azure, say, don't just port over to Amazon Web Services. Getting into one is easy, but like the Hotel California, you can never leave. Once a tech giant gives a startup access to its cloud services and its large language models, it has pretty much assured itself a form of control over a fledgling firm that might one day have grown into a competitor. "Market leaders benefit from early-mover advantage coupled with network effects and high switching costs that lock-in customers," a congressional subcommittee warned in a <a target="_blank" href="https://democrats-judiciary.house.gov/issues/issue/?IssueID=14921">450-page report</a> back in 2020. The rush to build data centers is, in no small part, a move by Big Tech to secure the keys to the coming AI kingdom.In the short term, the rise of data centers has actually been a good thing for startups. "Until recently, the perception among academics was that the rise of cloud computing was great for startups and innovation," says Matthew Wansley, a law professor at Yeshiva University who studies competition and regulation. "It used to be that if you were a startup, you had to build your own servers. That's a huge, fixed up-front cost."That's not true anymore. The price of cloud-computing services has fallen every year since 2006, when Amazon opened its cloud. And it absolutely crashed in 2014, as <a target="_blank" href="https://www.nber.org/books-and-chapters/measuring-and-ac%20counting-innovation-twenty-first-century/rise-cloud-computin%20g-minding-your-ps-qs-and-ks">a team of economists noted</a>, when Microsoft and Google started advertising their competitive prices. From 2010 to 2014, AWS database prices dropped by 11%. Over the next two years, they plunged by 22%.Cloud computing also made it easier for startups to get funding. Venture capitalists adopted a <a target="_blank" href="https://doi.org/10.1016/j.jfineco.2018.03.001">"spray and pray" approach to investing</a>, meaning they placed bets on more companies but put less money into each one. They also ratcheted back their direct involvement in running the companies, trusting the marketplace to sort out the winners from the losers.The whole scene has been especially great for AI startups. "Smaller companies like us could get access to compute power and the scalability that the larger service providers offer," says Jonas Jacobi, CEO and cofounder of ValidMind, a fintech company. "You have a few large players dominating the AI space, but there are startups trying to compete with them as well. The only reason they can is because of the cloud vendors."The trick, Jacobi says, is to write code that can work with any of the three providers, so you don't get locked in to a single company. You have to stay "neutral to the tech stack," he says. Sure, one of the tech giants can always swoop in and build their own version of your software. There's data suggesting that Amazon has made it a standard operating procedure to "<a target="_blank" href="https://www.zdnet.com/article/amazon-and-commercial-open-source-in-the-cloud-its-complicated/">engulf</a>" the products of small, open-source competitors and repackage them as part of its own suite of services, as it did with the <a target="_blank" href="https://www.businessinsider.com/elastic-open-source-licenses-amazon-elasticsearch-kibana-2021-1">Elastic search engine</a>. "But that's part of the journey as a startup," Jacobi says. "It's just up to us as a company to be faster and nimbler."But over time, economists warn, nimble won't be enough. In the battle to create foundational tech — the "<a target="_blank" href="http://www.nber.org/papers/w32474">key complementary assets</a>" of the business — AI startups will inevitably lose out to the tech giants that control the data centers. "AI is a general-purpose technology," says Rikap. "It's being applied to everything. But what type of AI we get and what type we don't get is going to be affected by the power of just three companies. It's an intellectual monopoly. What they are controlling is data and knowledge." By locking startups into their systems, Google and Amazon and Microsoft can effectively play favorites, offering better deals and cheaper services to the companies <a target="_blank" href="https://www.businessinsider.com/big-tech-sabotages-new-startups-businesses-coopting-disruption-2024-3">in which they have the largest stake</a>. Rikap has also found that their growing control of data centers also gives Big Tech an incentive to work together to share information and protect their joint interests. In a paper with Bengt-Åke Lundvall, an economist at Aalborg University in Denmark, Rikap notes that articles in technical and academic journals from researchers at Microsoft, Google, and Amazon consistently had <a target="_blank" href="https://doi.org/10.1007/978-3-030-89443-6">coauthors employed by their competitors</a>. Now, for sure, computer science is a small world. But the joint authorship, Rikap says, is "a pure way to tell they are collaborating and know what each other are doing" — a hallmark of anticompetitive behavior.For the moment, there is still reason to hope that innovation can win out over monopolization. Amazon, Google, and Microsoft are still competing on price and features, which is good for everyone. And in Europe, where regulators are taking a more aggressive approach to tech generally and <a target="_blank" href="https://techmonitor.ai/technology/cloud/is-cloud-computing-market-anti-competitive-antitrust">cloud computing in particular</a>, the Big Three are busy pointing fingers at one another. A Google Cloud exec recently <a target="_blank" href="https://finance.yahoo.com/news/exclusive-google-steps-microsoft-criticism-194847058.html">denounced Microsoft as a "monopoly"</a> and a "walled garden," and a trade group that includes Amazon <a target="_blank" href="https://www.reuters.com/technology/microsoft-talks-end-trade-bodys-cloud-computing-complaint-2024-02-07/">filed an antitrust complaint</a> over Microsoft's cloud-computing licenses. As they vie for market share, the companies aren't in lockstep yet — and that creates an opening, albeit a small one, for nimble, faster competitors.There's also a tendency, over time, for mature technology companies to shift from trying to innovate themselves to simply charging other people who innovate. Among economists, that's known as "<a target="_blank" href="http://www.nber.org/papers/w32359">rent-seeking behavior</a>," and it looks an awful lot like what Amazon, Google, and Microsoft are doing with cloud computing and data centers.So what's the best way to make sure Big Tech doesn't use data centers to short-circuit innovation? Researchers point to Google, which is offering a friendlier kind of partnership to startups. "The Google Cloud Division partners with promising database start-ups, contributes to open-source projects, and collaborates with open-source foundations," two scholars <a target="_blank" href="https://doi.org/10.1177/00323292231183806">recently observed</a>. It's an "architecture of participation," they say, that enables Google to profit while fostering the growth of new companies and ideas.Even more important, the Federal Trade Commission, aware of the threat posed by data centers, has ordered the Big Tech companies to <a target="_blank" href="https://www.ftc.gov/news-events/news/press-releases/2024/01/ftc-launches-inquiry-generative-ai-investments-partnerships">hand over information on their AI investments</a>. Just as new laws eventually caught up to the pricing practices of the railroads in the 1880s, today's regulators may well catch up to the futuristic, technological tangles of cloud computing. One reason to think so: The lead author of that 450-page House subcommittee report about Big Tech's anticompetitive behavior was a lawyer named <a target="_blank" href="https://www.businessinsider.com/ban-noncompete-agreements-approved-ftc-challenges-await-2024-4">Lina Khan</a>. Today's she's the hard-charging head of the FTC.<a target="_blank" href="https://www.businessinsider.com/author/adam-rogers">Adam Rogers</a> is a senior correspondent at Business Insider.

The scary secret behind the boom in data centers

<div class="KonaFilter image-container display-table"><div><div class="image on-image">OakNorthSunil Chandra, OakNorth's new chief executive.</div></div></div><ul class="summary-list"><li>OakNorth is a UK bank which lends money to small- and medium-sized businesses. It is one of the few profitable, high-profile startups backed by SoftBank's $100 billion Vision Fund and worth $2.8 billion.</li><li>The startup recently appointed Sunil Chandra, and experienced executive formerly of Google and Barclays Capital, as CEO, marking a period of international expansion. </li><li>The company claims working with SoftBank has been "wonderful" even as other Vision Fund portfolio startups draw scrutiny over their business models and extreme growth. </li><li>Chandra was specifically brought in to ramp up the startup's scaling plans as it looks to strengthen its grip on an estimated $7.9 trillion market. </li><li><a href="https://www.businessinsider.com/prime?module=article&amp;area=summary">Click here for more BI Prime stories</a>.</li></ul>It's been a tricky year for SoftBank and its $100 billion Vision Fund.The fund wants to be a kingmaker, but turbulence at its most high-profile investments - Uber, WeWork - has raised questions about its investment strategy.But there is one standout in the portfolio that bucks the trend, British lender OakNorth.OakNorth loans money to small- and medium-sized businesses. It raised $390 million from the Vision Fund, as part of a wider $440 million round in 2018, one of the biggest for a UK startup. It has quietly disrupted the $7.9 trillion mid-market lending space.The firm is valued at $2.8 billion as a result. It is also profitable, making it a rarity both in the Vision Fund's portfolio and on the wider unicorn scene.In October, OakNorth hired ex-Google, McKinsey, and Barclays Capital executive Sunil Chandra as CEO to kickstart the next stage of the company's journey. Chandra takes over the job from Rishi Khosla, OakNorth's cofounder.Chandra met Khosla six months ago in New York and took over to help build what he describes as a "generational company.""When I met OakNorth it reminded me of early days of Google, you have great founders and a young team that's really focused on building a generational company," Chandra told Business Insider in an interview."I have experience from Barclays Capital and McKinsey, before Google, in Asia and China but despite different industries and geographies the scaling experience is similar and that's my background so I'm here for this hyper-scale period." While at Google, Chandra helped scale the company from 7,000 to 100,000 people.That OakNorth is switching out its CEO while it enters a growth phase is a marked difference from other SoftBank-backed founders who have, perhaps, stuck around too long in the top job.Uber's cofounder and one-time CEO Travis Kalanick was publicly ousted pre-IPO, and more recently <a href="https://www.businessinsider.com/wework-adam-neumann-said-family-control-company-300-years-january-2019-10?r=US&amp;IR=T">WeWork's Adam Neumann</a> stepped down from the top job after months of lurid stories about his own behavior and his company's business model. Both were replaced by more experienced executives.<h2>OakNorth made $44 million in pre-tax profits in 2018</h2><div class="KonaFilter image-container display-table"><div><div class="image on-image">OakNorthOakNorth cofounder Rishi Khosla has stepped down as CEO and handed the reins over.</div></div></div>OakNorth was founded in 2015 by Khosla and Joel Perlman, who sold their previous business to Moody's in 2014. The two remain involved in the running of the business.The company has a full banking license in the UK, but its focus is bespoke lending to companies around the world.Notably, OakNorth has reported profitability <a href="https://www.cityam.com/fintech-unicorn-oaknorth-more-than-trebles-profits/">claiming figures of a pre-tax profit of £33.9 million</a> ($43.6 million) last year having lent more than £2.5 billion since launch.OakNorth funds its lending through equity and deposit functions in its customer base and specializes in customized small business lending.That sector of the market generally sees loan sizes of between $1 and $25 million and OakNorth offers a variety of credit facilities to small businesses which make up some 95% of the available market worldwide. The company's own research into current and potential markets for growth estimate that the overall volume of potential loans could be $7.9 trillion globally. Mid-market loans typically include stronger covenant packages, more frequent and transparent financial reporting, and often have higher amortization payments.In basic terms, the lending conditions of these products are generally superior to other forms of corporate debt with the upshot being that OakNorth can be more stringent in its terms. This may also explain the sector's low default rates, with OakNorth claiming to have never had one so far. That could be tested in the event of an economic downturn, but for now things are rosy. "It's where the money is there to be made," Sarah Kocianski, head of research at fintech consultancy firm 11:FS, told Business Insider in an interview. "OakNorth has gone after a very specific sector of the market which has more complex needs than the usual retail banking sector and have been very successful." It's unusual for a company to be profitable so early on, particularly in an age where mega rounds and curious financial metrics are in vogue, but OakNorth has no plans of taking money for the sake of it. "Our great joy is that from nine months in onward we have been profitable and want to do that year after year and still be extremely aggressive in our growth agenda," Chandra said."We're not looking at raising more capital and we're not burning more capital. That's the business model, high growth, very disciplined execution, run it like a business that has profit and profit margins across it."<h2>OakNorth has staved off the WeWork aftershocks</h2>Profitability appears to have made OakNorth's relationship with its main investor easier.SoftBank, after the WeWork fiasco, is reportedly doing additional due diligence on its existing portfolio to make sure there isn't a second PR and financial disaster on the same scale. One such example was car leasing company Fair, <a href="https://www.businessinsider.com/softbank-backed-fair-struggled-after-explosive-growth-say-insiders-2019-11?r=US&amp;IR=T">which saw hundreds of layoffs and a change to its business model</a> following SoftBank investigations while insurtech firm Lemonade <a href="https://www.businessinsider.com/softbank-backed-insurance-startup-lemonade-has-delayed-plans-for-2019-ipo-2019-11?r=US&amp;IR=T">delayed its IPO</a> after markets were spooked by WeWork.<div class="KonaFilter image-container display-table"><div><div class="image on-image">Michael Kovac/Getty Images for WeWorkFormer WeWork CEO Adam Neumann.</div></div></div>And there are jitters at other SoftBank firms. Oyo, the Indian hotel company, is drawing closer scrutiny thanks to its apparent similarities to WeWork. Dog-walking startup Wag just lost its latest CEO and appointed a 29-year-old to take charge.Equally, there has been greater soul-searching following the death of journalist Jamal Khashoggi at Saudi Arabian hands earlier this year. The kingdom is a major backer of SoftBank's Vision Fund.SoftBank did not respond to requests for comment. OakNorth said it not seen greater interference from SoftBank."Every company is different but SoftBank have been nothing but wonderful investors for us," Chandra added. "Really nothing has changed, we're a small part of their overall portfolio obviously and we're profitable so we have not had a change." The company has raised $1 billion to-date from investors including GIC and Clermont Group. <h2>OakNorth says it wants to grow carefully, and launched in the US this year </h2>OakNorth is planning its expansion carefully, focusing initially on the US. The startup has 35 staff in its New York office with the world's deepest lending market a massive target for the company's growth going forward. It also has some staff in India.The company's own research, seen by Business Insider, indicates that the current SME loan market in the US is around $1.6 trillion. Figures for Asia are higher, potentially $3.3 trillion, meaning there is no shortage of potential customers for the startup. Interestingly, OakNorth has been keen to utilize SoftBank's contact network both via partners, board members, and other portfolio companies to accentuate this growth. "Given our opportunities we will take all the help we can get," Chandra said. It's a common trait for Vision Fund portfolio firms to <a href="https://www.businessinsider.com/why-gympass-took-softbank-money-after-jamal-khashoggi-murder-2019-6?r=US&amp;IR=T">do business with each other</a>.The company wants to stay committed to a core plan. "There a few different things that we want to maintain as we grow: stay customer obsessed, keep a strong executive team, invest in top talent plus people and culture these serves you well when hyper-scaling and helps you maintain agility," Chandra added."I want us to stay very close to customers to ensure we know what delivers the most value to our customers."<h2>OakNorth says it is highly differentiated thanks to its financial forecasting</h2>Perhaps the key point in OakNorth's growth plan is the continued expansion of OakNorth Analytical Intelligence, its forecasting service.It helps lenders decide who to loan money to, increasingly important in an age of booming corporate debt.OakNorth explains its advantage thus: "Overall, our model is man and machine. We have a large data set and repository plus propriety information and reference data," Chandra said. "But the secret sauce on top of that is credit science which is the moniker we use for credit analysis done by really really fantastic analysts from world's top banks alongside machine learning and data to really understand which companies need which credit facilities and how they are going to do in the future."Using AI to automate much of the credit analysis process is helpful but so is licensing its solutions for third parties.In overseas markets, other financial institutions can purchase OakNorth's white-labelled software and use it within their own businesses with one notable example being a deal with Dutch lender NIBC.The company also competes on savings products by offering competitive interest rates on short term bond issues, for example. It found more customers for its products through a tie-up with fellow London unicorn Monzo. <a href="https://www.businessinsider.com/intelligence/banking?IR=T&amp;itm_source=businessinsider&amp;itm_medium=ctgr_bii&amp;itm_term=ctgr_subscription&amp;itm_content=banking&amp;itm_campaign=banking-2"></a> <div class="margin-top"> <h3>NOW WATCH: <a href="https://www.businessinsider.com/ben-horowitz-what-companies-get-wrong-about-corporate-culture-2019-11">Legendary venture capitalist Ben Horowitz on culture mistakes most companies make, diversity in leadership, and the outlook for crypto</a></h3> <div> </div> </div>

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