When Bessemer Venture Partner’s investor Ethan Kurzweil first wrote a check for PagerDuty back in 2014, there were a lot of haters.
PagerDuty, an incident response platform for IT departments, surged 58% on its first day of trading Thursday morning after a public offering Wednesday evening that valued the company at $1.76 billion. The company reported $117 million in revenue in 2019, and claims 380,000 paying users, according to its S-1.
But it wasn’t that long ago that developer-focused startups were seen as risky bets. Many companies in this space struggled to raise money because they bucked the long-standing software business model, where companies sold to executives rather than to the workers using the product.
“It’s hard to appreciate it today but this whole area, of investing in things that weren’t sold to IT decision makers, was really controversial even 5 years ago. It just didnt seem like the right way to do it,” Kurzweil told Business Insider.
“They were all hard to get started and hard to get investors to believe in,” Kurzweil said.
Read more: Investors used to balk at startups for software developers — but after Microsoft bought GitHub for $7.5 billion, they’re all in PagerDuty’s IPO is Bessemer’s fifth developer-focused exit since 2015, when Shopify went public with a $1.27 billion valuation. Bessemer was also an early investor in Twilio and SendGrid, which both went public before Twilio acquired SendGrid last year.
It’s also the firms’ 125th IPO ever — a number that will hit 126 next week when Pinterest lists in an IPO expected on April 18.
A gimmick worth millions
Eager to win the lead role in PagerDuty’s $27 million Series B funding round, Kurzweil decided to lead with a gimmick.
At the end of a pre-investment meeting, Kurzweil handed founder Alex Solomon a pager. A few hours later, Kurzweil paged Solomon with these fortune defining words: “Congrats we’d like to fund you!”
“The founders used to carry pagers when they worked at Amazon. I thought this could be a cute way of showing that I was paying attention,” Kurzweil said, noting that the founders built PagerDuty to solve some of the problems they experienced doing IT at the e-commerce giant.
Considering it was 2014, it took the team at Bessemer some time and effort to actually find a pager and figure out how to work it. (If you’re in the market, look into third-party healthcare IT firms in New Jersey)
Bessemer won the lead role, and now owns 10.8% of the company. The stake for which Bessemer paid $29.8 million, was worth around $189 million at the IPO valuation, a 6X return.
They’re not the only firm in Silicon Valley to win big. Andreessen Horowitz, which led PagerDuty’s Series A round, owns 16.2% of the company, or around $283 million. Accel, which led its Series C, owns 10.8% of the company, or around $189 million.
If the company’s stock maintains the gains its first day trading gains, those stakes will be worth even more.
It’s a unicorn, but not like the others
In a year of founder-led mega IPOs at eye-popping valuations, PagerDuty stands out as a more conventional kind of company.
PagerDuty’s growth was super-charged after CEO Jennifer Tejada joined the company in 2016. A career executive, Tejada had already run a tech company, Keynote Systems, which merged with Dynatrace during her tenure.
After a three year break in fundraising, often a death knell in the world of startups, Tejada raised two more funding rounds for PagerDuty, eventually garnering a $1.3 billion valuation in September.
Unlike Lyft, Pinterest and Zoom— some of the other big names in this year’s IPO class —PagerDuty doesn’t have a dual-class share structure giving its founders power at the expense of its shareholders.
It’s also smaller than the other unicorns. At $24 a share, PagerDuty’s IPO valuation was $1.76 billion, shy of Lyft’s $21 billion IPO valuation and Uber’s possible $100 billion valuation.
While the trend is for tech startups these days to stay private longer, Kurzweil said that as an investor and board member, he deferred to the team’s wishes on the question of timing.
“There’s no optimal time,” Kurzweil said. “We have taken the view at Bessemer of a much more long-term perspective. We used to see the IPO as the be-all-end-all, and what we’ve noticed is that if you look at those companies with this particular motion and persona, they’ve just done so well as public companies.”
Regardless of what happen on the stock-market, Kurzweil said he’s convinced that developer-focused companies have longterm potential.
“The way I like to think about it, a lot of these companies that we’ve taken public over the last three or four years have a go-to-market that works,” Kurzweil said. “The whole movement of stuff to the cloud benefits companies like Twilio and PagerDuty so much. It’s just such an accelerant for them.”
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