Business

Tech startup Pendo has raised more than $100 million. Can it become the next Red Hat?

Todd Olson is the CEO of Pendo. Here he is pictured in 2018.
Todd Olson is the CEO of Pendo. Here he is pictured in 2018. tlong@newsobserver.com@newsobser

Five years ago, Pendo was just a tiny software startup based in Raleigh’s Warehouse District.

At first, the company even listed the address on its website as San Francisco rather than Raleigh, with the thought that maybe a Bay Area Zip code would help them land meetings with customers and investors.

“We had a (friend of a friend’s) San Francisco office listed for a while on our website,” Pendo CEO and co-founder Todd Olson said in an interview. “... But it didn’t really help us and it made us look inauthentic.”

Now the company is one of the region’s most promising startups and proudly touts Raleigh as its place of origin. Its quickly-growing headcount — and footprint inside the Wells Fargo tower on Fayetteville Street — is bolstered by an impressive amount of funding from investors across the world.

The company has now raised $106 million, including $50 million in its latest fundraising round that was announced on Wednesday. The company, which is still hiring at a fast clip, now has 228 employees worldwide and more than 160 in its Raleigh office.

Its rapid ascent from five-person company in HQ Raleigh to one of the most well-funded startups in the region has people seriously talking about the company going public in the near future and the potential of it having a Red Hat-like impact on downtown Raleigh.

Rapid ascent

Launched in 2013 by an experienced group of former Red Hat, Cisco, Google and Rally employees, Pendo has quickly grown by nearly every measurement.

Its headcount has ballooned. The company has upgraded its space twice and now occupies two and a half floors in the Wells Fargo Tower. Its revenues, which are still growing quickly, increased by 400 percent in 2017 alone. The latest fundraising round is its fourth and largest round of investment.

“It’s amazing how far they have gotten in such little time,” said Ashvin Bachireddy, a founding partner of San Francisco-based Geodesic Capital, which recently invested in Pendo.

Pendo’s cloud-based technology helps business customers improve their software by providing behavioral analytics on what features their customers are using and which ones they’re ignoring. It also sends pop-up messages to software users notifying them of features they may not know about.

It’s all meant to let companies determine how to create websites and products that their users will actually use, and it’s being used by some of the biggest companies in the country, like Metlife, to daycare chains, like Bright Horizons.

Everyone now needs an effective digital strategy, especially one that works on a smart phone, whether you are “a Catholic publisher or a daycare,” Olson said. If your business is hard to interact with online — and increasingly on a mobile phone — than you are blocking people from doing business with you, he added.

“If you’re a millennial, and you walk into a daycare, what do you expect, versus someone in a different generation?” Olson said. “You’re going to expect things to be right on your smart phone.

“That’s what we always envisioned in 2013 ... But in 2018, we’re finally starting to see (companies concentrate on their mobile interface),” Olson said. “And I think we’re just getting started. So, I think this is the early days of tapping into that market.”

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The Wells Fargo Building in downtown Raleigh is in for a remake to attract new tenants, which as of September 2017 includes the tech start-up Pendo. Sarah Shaw sshaw@newsobserver.com

What’s next

Pendo’s offices are dominated by pink walls — a color the company uses to grab customers’ attention — and meeting spaces named after regional foods. The “okra” meeting space is just down the hall from the “bagel” room.

Its 161 Raleigh employees pack the 14th floor of the Wells Fargo tower, which it moved into earlier this year, and it won’t be long before employees move into additional space on the 15th floor. The company is part of a rejuvenation of the Wells Fargo tower, which is under new ownership.

“Pendo is a great example of how a rapidly-growing company can do so within downtown. They went from a small number of people at HQ Raleigh to a renovated warehouse to a large space in a traditional office tower, all in less than five years, while growing their headcount to over 150,” said Bill King, senior vice president of economic development at the Downtown Raleigh Alliance. “They’ve brought energy and more talent to downtown, (and) they also have helped re energize the Wells Fargo Capitol Center, which had seen occupancy decline in the years prior to their lease.”

Eventually, the office could hold around 450 employees, Olson said, and one day the company might have to trade office spaces again in downtown Raleigh to keep up with its growth.

With its most recent round of money, the company is looking to expand internationally, especially in Europe and Japan and continue to hire new employees. Olson said he is constantly searching for 10 to 15 new engineers.

But that also leads to one of the company’s biggest challenges — finding enough talent to sustain its growth.

The company is recruiting heavily from the local universities and trying to recruit people from high-cost cities. The company is launching a billboard campaign in San Francisco, in part, to up its name recognition with workers there. The company also recently started an initiative to hire more diverse candidates.

“It’s hard anywhere (to find talent) for certain roles, like engineers,” Olson said. “... There’s not a lot of engineers (out there) — period.”

But, Bachireddy, the San Francisco-based investor, has been pleasantly surprised by the workforce Pendo has found so far.

“The one criticism in investing in (specific) geographies is that there is typically not enough talent,” Bachireddy said, noting that Pendo was the first North Carolina company he’s invested in.

“That was definitely not the case in Raleigh. In some cases, they have talent better than Silicon Valley, and they have been able to attract executives” from other places to North Carolina.

One thing that Olson worries might disrupt that narrative is the state’s political climate.

“I care a lot about inclusiveness, and I care a lot about if people feel uncomfortable here,” Olson said, recalling that House Bill 2 was a major concern to many Pendo recruits. “I think inclusiveness breeds better results, and if the legislature and our politics prevent me from hiring the most diverse candidate, I think it’s gonna hurt the company.”

The next Red Hat?

With revenues and capital growing so quickly, it inevitably leads to discussions about what the future of the company is.

“Ultimately, we’ve raised all this capital, which we will have to return to our investors (and) there’s several ways that we can return it,” Olson said. “One of those ways is an (initial public offering), and that’s most often the way we’ve seen successful companies that have maintained independence. And we would love to maintain independence.”

Lister Delgado, managing partner at Durham-based IDEA Fund Partners, one of Pendo’s earliest investors, hopes the company can be able to do that within the next five years.

I want this company to stick around (and) be a permanent presence in Raleigh. I think five years is a reasonable amount of time to do that.

“I want to see Pendo become the next Red Hat.”

When a company goes public, not only do investors keep returning to the region, but early employees receive injections of cash that they can use to start new companies, Delgado said.

“Think about Red Hat. Erik Troan was one of the founders of Pendo and he came out of Red Hat — a lot of companies came out of Red Hat,” Delgado said. “One of the differences between Austin and (Raleigh) is they have had more successful exits that have created seedlings of entrepreneurs.

“Austin is not New York or San Francisco — we can definitely do just as well, but we need more IPOs.”

Zachery Eanes: 919-419-6684, @zeanes
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