Investment Committee Memo · Bessemer Venture Partners
Investment thesis
The primary investment thesis is that PagerDuty can expand from an alerting utility into a full platform for IT operations intelligence and analytics.
The big bet is that PagerDuty can expand from being an alerting tool to a full platform for IT operations that provides cross-platform and app-specific intelligence and analytics.
Product
PagerDuty operates as a 9-1-1 dispatch system for IT operations teams, routing alerts across systems according to predefined company rules.
Think of the product as a 9-1-1 dispatch system for IT operations teams in that it connects to all systems and routes alerts to whichever employees are on call for that particular type of alert – according to pre-defined rules that companies set up in PagerDuty.
Traction
PagerDuty demonstrates strong SaaS metrics, including 136% YoY growth, 0.5% gross MRR churn, 103-104% monthly net negative churn, and high 80s gross margins.
SaaS metrics are off the charts. Most metrics are in the right column of our framework—136% YoY growth, 0.5% gross MRR churn, 103-104% monthly net negative churn with upsells, and gross margin in the high 80s%.
PagerDuty ended June with $12.6M in ARR (+137% YoY) and projects $13M in 2014 revenue and $19M in ending ARR.
PagerDuty is projecting $13m in revenue for 2014. Based on the month of June, the current ARR is $12.6m (+137% YoY) and the company is forecasting to end 2014 with $19m in ARR.
Team
PagerDuty was founded in 2009 by Alex Solomon, Andrew Miklas, and Baskar Puvanathasan, all Waterloo graduates and former Amazon infrastructure engineers.
PagerDuty was founded in 2009 by Alex Solomon (CEO), Andrew Miklas (CTO), and Baskar Puvanathasan (senior engineer), three Waterloo-grads who worked together after college as infrastructure engineers at Amazon.
Business model
PagerDuty demonstrates strong net negative churn, expanding initial cohort revenue by 75% by month 12 and 260% by month 24.
By month twelve, initial MRR across customer cohorts has grown by 75%. And by month 24, revenue has grown by 260% (see APPENDIX).
Competition
PagerDuty faces limited direct competition, primarily consisting of older on-premise solutions like xMatters and smaller startups like VictorOps.
There isn’t much in the way of meaningful direct competition besides a handful of smaller startups.
ServiceNow represents the key competitive threat to PagerDuty due to its large enterprise customer base and alerting product called Notify.
The competitor that we worry most about is ServiceNow.
Risks the investor named
Emerging competition from startups like VictorOps and established incumbents will require PagerDuty to continually innovate its product to retain leadership.
At the same time, our diligence has highlighted the risk that competition from startups like VictorOps and incumbents has finally begun to wake up to the magnitude of this opportunity and the company will have to turn its attention back to product innovation to stay ahead of the pack.
What founders can learn
- The traction evidence that carried weight: Bessemer Venture Partners wrote that PagerDuty demonstrates strong SaaS metrics, including 136% YoY growth, 0.5% gross MRR churn, 103-104% monthly net negative churn, and high 80s gross margins.
- How the team was judged: Bessemer Venture Partners wrote that PagerDuty was founded in 2009 by Alex Solomon, Andrew Miklas, and Baskar Puvanathasan, all Waterloo graduates and former Amazon infrastructure engineers.
- The risk the investor named out loud: Bessemer Venture Partners wrote that Emerging competition from startups like VictorOps and established incumbents will require PagerDuty to continually innovate its product to retain leadership.
- How the model was assessed: Bessemer Venture Partners wrote that PagerDuty demonstrates strong net negative churn, expanding initial cohort revenue by 75% by month 12 and 260% by month 24.
Source and provenance
Investment Committee Memo published by Bessemer Venture Partners on bvp.com. Read the original
