Business

Latest Pendo funding round brings the Raleigh startup’s value to $1 billion

Pendo, one of the Triangle’s most successful startups in recent years, has brought in another $100 million in funding, the company said Thursday.

The new round of funding — its eighth total — values the company at $1 billion, placing Pendo among an elite group of startups often referred to as “unicorns,” a term for startups reaching a valuation of at least $1 billion.

In total, the software firm — which helps businesses improve their websites and products through behavioral analytics — has now raised more than $200 million since it was started six years ago in a tiny office in HQ Raleigh’s first compound in the Warehouse District.

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Todd Olson talks about Pendo’s humble beginnings as a small start-up and the keys to their success during an interview on Friday, October 11, 2019 in Raleigh, N.C. Robert Willett rwillett@newsobserver.com

The company, which says it still has most of the $50 million it raised last year, has been on an expansion spree for the past few years.

“We still have actually a bulk of the $50 million in our bank account,” Pendo CEO Todd Olson told The News & Observer during an interview at Pendo’s office.

“But ... we were in a position where we could raise capital, and we figured it was a good time to load our bank accounts and kind of prepare the company for the next next stage of growth.”

Sapphire Ventures led the funding round, as it did last year, though the latest round also included large venture capital firms like Tiger Global and General Atlantic.

While Olson said the company doesn’t have any specific goals for where to put its new capital, he noted the company has been focused on increasing staffing and expanding geographically. In the past two years, Pendo has bought firms in England and Israel and opened up another sales office in London. More expansion in Europe could be on the way, he said.

But engineering talent will always be something the company will funnel money toward.

“We tend to think that investments in product pay back long-term dividends to the company,” he said. “And what that means is we continue to hire a lot of engineers, you know, that’s like a big thing. A big part of our investment thesis is to continue hiring engineers.”

‘Unimaginable’ rise

The contrast between where Pendo is today and where it started is stark. When he first showed his parents his company’s office in HQ Raleigh, Olson recalled, they were dismissive of it. They have come around quite a bit on his offices today, which span two and a half floors in the Wells Fargo Tower.

Soon, the Pendo name will also adorn the Raleigh skyline when it becomes the flagship tenant at the under-construction 301 Hillsborough Tower, now known as Raleigh Crossing.

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A rendering of the 301 Hillsborough tower being built in downtown Raleigh by The Fallon Co. Tech company Pendo will be leasing nearly half the office space in the tower. Courtesy of The Fallon Co.

“We had a team of about five people [when we started out] and thinking about being worth a billion dollars seemed unimaginable at that point,” Olson said.

The company now has 370 employees worldwide, 270 of them in Raleigh. Revenue and headcount have swelled in recent years — both because of demand from customers and through incentives it received from the state of North Carolina. The company promised to create nearly 600 more jobs in Raleigh in exchange a $10.7 million incentive package in 2018, The N&O reported.

Pendo ranked as the 73rd fastest-growing private company in the U.S. this year, according to Inc. Magazine. The company posted revenue of $20.9 million last year, growing 4,267% between 2015 and 2018.

Its software, which also allows businesses to communicate new features in their products or websites, has been adopted by customers across a range of industries, as businesses seek to boost their digital presence, especially on mobile phones. Pendo’s customers include some of the biggest companies in the country, including Metlife and daycare chain Bright Horizons.

Olson said the company reached its billion-dollar valuation by deliberately meeting one goal after another.

“Step by step, we got closer and closer,” he said. “It’s an incredible milestone to do it in this time frame. So that’s the part that’s kind of most exciting for the team. But frankly, it’s not an endpoint.”

Rajeev Dham, a managing director at Sapphire Ventures, said the company is “just scratching the surface” of its potential.

“I think there is a lot of room to run from here,” he said, saying every company in the world needs to figure out how to create effective digital versions of themselves.

“We see this as a very large company and we are excited about what the future holds,” he added.

The growth does present challenges as well. With so many new hires, Olson said, it can be tough to maintain a startup culture. .

More Zoom than WeWork

In North Carolina, the number of unicorn startups is small. In Charlotte, startups AvidXchange, Red Ventures and Tresata all have valuations over a billion. In the Triangle, Epic Games has become one of the largest privately held companies in the country. And in Wilmington, financial technology firm nCino is thought to have neared “unicorn” status.

Pendo’s new valuation comes at a time when many unicorns have struggled during the transition from startup to public company. Car hailing companies Uber and Lyft’s stock prices have both struggled since debuting on the stock market earlier this year. WeWork had to scrap its initial public offering plans after potential investors criticized its business model and stories appeared about its CEO’s erratic behavior.

Olson believes Pendo can withstand the increased scrutiny startups are receiving today.

“I will say in raising this round, unlike any other round, we got a lot of questions around our business that public market investors would be asking,” he said.

He said that because, unlike Uber and WeWork, Pendo is focused on selling its products to other businesses, it faces a shorter road to profitability than startups looking to attract individual customers.

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Todd Olson is the CEO of Pendo, a Raleigh software company, which has raised more than $100 million since 2013. On Monday, the state awarded it an $11.7 million incentives package. Travis Long tlong@newsobserver.com@newsobser

“A lot of the companies that are having challenges in the stock market today are [business-to-consumer] companies,” he said. “And frankly, there’s a lot of questions around their unit economics ... specifically I mean their gross margins.”

“If you look at our gross margins, we benchmark closer to the companies that are having successful IPOs,” he added, referencing the companies Datadog and Zoom. “If you compare our numbers to those numbers, we look a lot more like [them] than we do a WeWork or an Uber.”

Software firm Datadog and video conferencing company Zoom both went public this year.

Olson didn’t put a date on when Pendo might seek to go public. An IPO could provide an injection of cash in the form of public shares to employees at Pendo that many hope will flow back into the community.

Dham said the company’s strong financial performance will give it a lot of options moving forward. “They are not pigeonholed into one particular outcome,” he said.

Olson has previously remarked that an IPO would be the best way for the company to maintain independence while also returning value to its investors.

“As long as we continue ... to make improvements,” he said, “then we will be well-positioned if and when there’s an opportunity to go public.”

This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work. Learn more; go to bit.ly/newsinnovate

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Zachery Eanes is the Innovate Raleigh reporter for The News & Observer and The Herald-Sun. He covers technology, startups and main street businesses, biotechnology, and education issues related to those areas.
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