IT's best friend: PagerDuty raises $27.2M Series B to help all companies manage infrastructure like Amazon

By Michael Carney , written on July 31, 2014

From The News Desk

Managing IT infrastructure, be it hardware or software, is no longer confined to just so-called technology companies. In today’s age, nearly every company in the world relies on technology to run its business. And with the rise of the cloud, virtualization, and mobile, these systems and software are more distributed, operate at greater scale, and change more frequently than ever before. The result is an increasingly complex task of managing this infrastructure.

“When an ops team is fighting a crisis, there’s only two things they want: They just want to solve the problem and go back to bed, because it’s typically two in the morning,” says Bessemer Venture Partners’ Trevor Oelschig. “Anything that makes that easier really works.”

Bessemer just made a big bet on PagerDuty, a SaaS operations performance management startup that helps organizations manage and increase the reliability of their IT systems. The firm led a $27.2 million Series B round with participation from existing investors Andreessen Horowitz*, Baseline Ventures, and Harrison Metal. Oelschig will join PagerDuty’s board of directors.

“I met [PagerDuty CEO] Alex [Solomon] several years ago and have stayed in touch with him ever since,” Oelschig says. “He’s built an absolute rocketship. He lived the problem directly at Amazon – which is something we see frequently when baking companies solving very targeted problems – and he built a product to solve this problem better.”

At its core, PagerDuty delivers phone and SMS-based alerts on network and application performance and allows IT managers to quantify how operations staff is responding crises. The result, in theory, is greater visibility across an organization, improved incident lifecycles (meaning faster response times), and data which teams can use to prevent future issues. All of this is meant to translate into greater company productivity and increased revenue.

Solomon, who was previously a Software Development Engineer at Amazon, modeled PagerDuty around the way Amazon Web Services manages its massive infrastructure, but packaged in a more accessible and easy to use format. This trend of knowledge leakage out of Amazon is relatively new but something we've been seeing more frequently of late, including with Boomerang Commerce launching recently to democratize ecommerce analytics.

PagerDuty company has followed the bottom up go-to-market strategy made popular by Yammer and others in which it makes it easy for a single, often low-level employee at a company to sign up for the product – typically paying out of their own pocket. In the majority of cases, the product then expands throughout the organization as more employees experience its value.

While PagerDuty remains secretive with the details of its revenue and customer metrics, opting instead for nebulous phrases like “unprecedented customer growth and rapid company expansion,” Oelschig’s interest and the size of the company’s latest funding round suggests that things look fairly attractive under the hood. The Y Combinator alumni company has now raised $39.8 million in total from several of Silicon Valley’s most notable investors and has amassed a who’s who of customers, including SalesForce, Box, Intuit, AirBnB, Heroku, Groupon, Evernote, and Shopify, among others. The San Francisco company has grown to more than 80 employees.

“They've got happy customers and growth has been fantastic. There really are no bottlenecks in that regard,” Oelschig says. “This round is about continuing and expanding what's already working.”

To that end, PagerDuty plans to focus more of its near-term growth initiatives around product and engineering, rather than the more traditional SaaS playbook of building out a massive sales and customer success team. Oelschig explains that the majority of growth to date has come organically, via the bottom-up, land-and-expand model, meaning that outside sales is not a priority at this stage.

“These guys have built a product that is super easy to use and doesn't require top down decision making process, which means that they’re not dealing with long sales cycle,” he says. “This bottom up approach only works when the product is easy and you’re solving an important problem.”

Five years in and PagerDuty is currently facing limited competition, although that’s not something that Oelschig expects to last. When a new market opportunity like this emerges, fast followers are inevitable, he explains, adding that it’s logical that legacy infrastructure companies like IBM, HP, and Cisco will try to buy or build their way into this space. It’s equally likely that there are a few other early stage teams in a garage or incubator somewhere tackling a similar set of problems.

“I’d say we feel good that they have a dramatic lead that's only accelerating,” Oelschig says of the competition risk. “The reason we for this round [including its size and timing] is to grab as much market share as possible. It’s hard to say at this point if they'll need to raise more growth capital in the future, but we’re absolutely building this with long term independence in mind.”

PagerDuty has proven that there’s a massive market opportunity and appears to have demonstrated an appetite for its solution. But despite the considerable momentum, the company still faces the standard execution challenges that are associated with all high-growth companies. Oelschig frames it as the tension between growth and focus, saying that there are always more attractive opportunities than bandwidth to tackle them.

“We've been all in on cloud and SaaS for a while now, and I can say confidently that I believe we have one of strongest portfolios anywhere. So we have developed a good sense of how to scale these businesses,” he says. “Ultimately comes back to founders and I have the utmost faith in them.”

With a fresh pile of venture fuel to pour on this fire, PagerDuty’s biggest challenge will likely come down to choosing its battles and continuing to do a few things very well. If the early results are any indication, Solomon and his team appear up to the challenge.

  • Disclosure: Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon are invidual investors in Pando.