Just as Levi Strauss made his fortune selling blue jeans to miners, a new generation of entrepreneurs is finding gold selling tools to the developers and software engineers who are themselves building the next big thing in tech.
Developer-focused startups have seen a wave of interest from Silicon Valley investors in recent months as they pursue their dreams of cashing out in a deal as massive as Microsoft’s $7.5 billion acquisition of the developer platform GitHub in June. To wit, GitHub earned investors at Andreessen Horowitz a 10X return on their $100 million check; investors want in on that.
“Anytime a valuation is set on a DevOps company, you see an increase in interest,” said Sid Sijbrandij, GitLab’s CEO. “That was the case when Atlassian IPO’d, and that was the case when GitHub got acquired.”
Sijbrandij is referring to development and operations, or DevOps, a term that means a lot of things to a lot of different people in Silicon Valley and beyond. Generally, it refers to any set of tools and practices that helps developers deliver more code, faster. GitLab, a Google-backed code-repository tool for helping developers collaborate on software projects, is one of the best-known companies in the space — and a longtime rival to GitHub, which has a similar sales pitch.
Indeed, beyond just DevOps, there’s plenty of interest in any company helping to make developers’ lives easier.
Jim Clark, the cofounder and chief architect of Atomist, said he thought the GitHub acquisition was “predictive of a lot of growth” in the sector. Atomist, a development-automation platform started in 2015, raised a $22 million Series A round in November.
“A lot of VCs are out there checking their portfolios to see how much are they leveraging this change,” Clark said. “To me, it’s a validation that developers are actually playing a larger role in the speed with which software needs to get to market.”
Edith Harbaugh, the CEO and cofounder of LaunchDarkly, which lets developers test and manage how new features get deployed to an app’s users, said this wasn’t always the case. Though LaunchDarkly has had “dozens” of inbound requests from investors more recently, she said, things didn’t go so well in 2014 when she first tried to raise seed capital for the company.
“It was awful. I got laughed at,” Harbaugh told Business Insider. “People walked out of meetings — investors. I got walked out on in at least three separate meetings that I can think of.”
LaunchDarkly has gone on to raise nearly $35 million and is valued at about $90 million, according to PitchBook. Today, the startup has 500 customers — including Atlassian, the $20 billion publicly traded Australian software giant, a DevOps player itself — and has tripled its customers and revenue annually, according to Harbaugh.
“Now what I hear from a lot of investors is: ‘This seems really obvious. I was really stupid to miss this,'” Harbaugh said. “Looking back, we were a new category, and that’s always hard for people to see.”
Valuations in DevOps are growing
Even in the months before the GitHub deal, venture capitalists were eyeing investments in the developer space.
A wave of big funding announcements has flooded the coffers of many a startup since the start of the year, and more are expected in the coming months as the aftermath of GitHub fully shakes out.
PagerDuty, an incident-response platform that alerts IT departments when something goes wrong, has near-term plans to announce a new round of funding that values it at over $1 billion, Business Insider has learned. According to another source, funding round is also expected soon from Netlify, a tool for front-end web developers that last year raised $12 million in a Series A round led by Andreessen Horowitz. Netlify did not immediately respond to a request for comment.
In late June, weeks after Microsoft’s acquisition announcement, the Jenkins platform CloudBees, based in San Jose, California, announced $62 million in funding from Delta-v Capital and Golub Capital, and the software-automation company Puppet Labs, based in Portland, Oregon, announced a $42 million round led by Cisco Investments.
There were several other late-stage rounds earlier in the year as well. In March, the IT-operations startup Moogsoft raised $40 million at a $220 million valuation. In February, the software company XebiaLabs raised $100 million. And in January, CircleCI, an integration-and-delivery platform, raised $31 million at a $141 million valuation.
Developer love will be the key to success
Despite the big rounds and upticks in valuation this year, Ethan Kurzweil, a partner at Bessemer Venture Partners, said the key change was that now people are paying attention.
“This trend’s been happening for a while,” Kurzweil said.
He sees larger companies like Twilio, which is valued at $7.8 billion on the public markets, and Stripe, which was last valued at $9.2 billion in a private funding round, as the first startups to benefit from something affecting growth in the space: the sway that developers have over corporate purchasing decisions.
“All of the specialized skill sets in the enterprise are being disrupted by cloud software and an increasing realization that the people using the product should be the ones to decide what to use,” Kurzweil said.
In the old world, the IT department would decide which technology to buy and which to keep on the shelf. Now, though, the rise of the web and the app store has made it super simple for anyone to decide which tools they want to use, whether or not they’re officially supported by corporate policy.
To that end, it’s fairly common for startups in this space to spend only a little on marketing or a traditional sales force, looking to word of mouth and developer communities to build traction. In fact, Atlassian famously doesn’t employ a sales force at all, relying entirely on inbound sales via its website and apps to power its business.
Now the only thing to do is wait for the next GitHub to materialize. But if you want clues about which company that will be, there’s only one question to ask: What do developers really like to use?