As reported on TechCrunch.
by Ingrid Lunden
Puppet Labs, whose IT automation software is used by the likes of Google, Twitter, Salesforce and AT&T among 18,000 others, is today announcing another $40 million in venture backing, money that it will be investing in “engineering, product and international expansion,” CEO and founder Luke Kanies tells TechCrunch.
The funding, which comes from Puppet Labs’ existing top-shelf and strategic investors — specifically Cisco, Google Ventures, Kleiner Perkins Caufield & Byers, Triangle Venture Capital Group, True Ventures and VMware – may not be as big as what some enterprise startups are picking up at the moment as strategic investments. But it is a significant round for Puppet Labs nonetheless, nearly doubling the money that the company has raised to date. Prior to the Series E round announced today, Puppet Labs had raised around $46 million.
It’s also a significant round in another sense. Puppet Labs, founded in 2005, is based on open source architecture and as such didn’t generate much in the way of revenue in its early years, and in fact only introduced commercial features three years ago.
“This is the first round that we’ve raised where we are doing more in sales than we are raising money,” Kanies tells me. “Relative to our sales, the $40 million is smaller by quite a bit.”
Today he says the company has around 500 paying enterprise users.
Puppet Labs has come a long way since first opening for business in 2005, in Tennessee, where Kanies’ wife was attending graduate school (it’s now headquartered in Portland, Oregon, where it moved in 2009).
Puppet Labs started out as a self-funded operation at a time when seed funding was not as commonplace as it is today, even less so outside of the tech-venture-friendly avenues of Silicon Valley.
“For the first three years it was just me doing everything from sales and marketing to product. I was ‘ramen profitable,’” he says. Eventually he was “completely tapped out” from his bootstrapping ways and admits he may have limited the company’s growth as a result. So he brought in two more people, and in 2009 took its first funding, from True Ventures. “It was small but enough to hire a revenue head,” he says.
Puppet Labs’ growth, and the subsequent venture and strategic interest in the company, comes at the meeting of a couple of different trends. On top of the most obvious of these — the growth of networked companies and the need to better control how software is distributed among them – there is how the product itself was conceived.
“Originally my idea was to build software that engineers and systems administrators like to use, rather than targeting the CIO,” Kanies recalls. And on that front, it complements the products sold by the likes of VMWare and Cisco, while at the same time giving Puppet Labs access to millions of potential customers through co-marketing via its investors’ sales channels. More direct competitors of its features — which include being able to generate a script that lets you automate repeatable tasks across an IT infrastructure — Ansible and Chef.
As a product built out of his own needs, Puppet Labs was a one-man band for quite some time. But that also helped it in another regard: the fact that it had a grass-roots appeal with the people who were directly using the product helped it spread virally, with sys admins at one company suggesting it to others. Kanies says that this remains a large part of how the company grows, aided through its own events extending that concept. An average between 30-50% of attendees at a typical PuppetConf are brand new to Puppet Labs.
The other trend is around the rising tide for enterprise companies.
“There is no question that enterprise got a lot more interesting after the Facebook IPO,” he says, pointing out that the turn to financing enterprise startups them is in part due to their fundamentally different business models. “The theory of instant money and ability to turn viewers into money is harder in practice than it looks.”
It’s not clear when or whether Puppet Labs’ economics will eventually lead the company to a public offering, but Kanies says the intention is very much to remain an independent company.
On the international front, he says that EMEA is actually already going strong, accounting for between 20-30% of current revenues, but this has been with relatively little effort. New hires in Europe as well as in Australia, he says, will be driving a more proactive approach in the months ahead.
On the product side, he says the next aim will be to “work heavily on getting our app every device in data centre managed by us.”
“We know customers are thinking of infrastructure between nodes and the application as a whole,” he says. “We’re moving up the stack.” This is an area where Puppet Labs has already made at least one strategic acquisition, and is likely to make more in the months ahead, Kanies says.
“We are having to ask our customers to become experts in our product and what they use in infrastructure. In 2 to 5 years we are going to begin to transition from a best of breed to a more consolidated world,” Kanies predicts. “And we may consider doing that our own services.”