
PagerDuty (YC S10) Raises $90M at a $1.3B Valuation - romanhn
https://www.forbes.com/sites/alexkonrad/2018/09/06/pagerduty-funding-billion-dollar-valuation/#68e79889411d
======
IronWolve
We just consolidated all our remote offices into a global corporate account,
we all had pagerduty setups for our alarming systems, solarwinds, nagios,
email, etc.

I've been using pagerduty for years, and I've been getting other admins to
switch from private emails to it, so no more single point of failures. They
just had to be shown how simple it was to configure and use.

I won't wake up in the middle of the night to a text, but a phone call, wakes
me up. I don't even answer, I refuse the call then open the pagerduty app.
Love it.

~~~
Cpoll
> I don't even answer

Now if only I could get it to not leave a message.

~~~
verelo
Yeah, this kind of sound a like a UX bug. Ideally the behaviour could be
changed to match the way you’re using it, which is more of a wake up call than
a call based notification system.

~~~
dan0-
I feel like the core product is pretty easily replicated with Freeswitch and
tailored with a little configuration. Eg: Ring a phone for 30 seconds (so as
not to leave a message accidentally), if answered read back the issue (using
text to speech), otherwise send the phone a text and <insert whatever else you
want to do>.

Having set systems like this up for numerous clients, the latter bit is
usually a case of waiting a few minutes for the on call person to either
accept the alert, or failing that move onto whoever the fallback is for that
person.

~~~
verelo
The core feature of Pagerduty here is resilience imo. As in, i expect
whatever’s issue I’m having that they will not be having. I imagine if an AWS
zone is down, large scale network issue, etc, any home rolled solution is
likely to be impacted too.

~~~
dan0-
While I get the point, two servers running Freeswitch combined with a bit of
python and a regular rsyncing of the user data would give one pretty good
uptime for monitoring.

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holstvoogd
plz stop.. PD should be a cash cow, stop 'innovating' and 'growing', just
deliver what it says on the tin. Over the past few years I've been using PD it
is becoming worse and worse, it seems to me because they have to keep their
developers busy.

They could of course just make the core product better, but thats not cool
enough i guess.

~~~
yashap
I mean, we have no idea what they’re planning to do with the money, it could
be used for acquisitions to branch out from being a “1 product” company. Or it
could be pumped into sales and marketing. There’s no guarantee that it’ll be
used for new features.

Also, I’m a pretty light user of PagerDuty, but what has been getting worse
and worse over time? From my usage it’s been reliable software, that lets me
set and modify on-call schedules, and notifies the right people when things go
wrong. I’ve been at a company that’s been using it for the past 6 years, and
the core functionality has been strong/reliable the whole time, as far as I
can tell - though again, I’m personally a light user, just on-call a few weeks
a year and doing minimal administration. What are the big regressions they’ve
had?

~~~
hunterjrj
My prediction: they'll release yet-another-ITSM tool like ServiceNow, etc.

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exclusiv
I remember these guys from the first TwilioCon in 2011. It was some sort of
group fireside chat IIRC and they were describing how their initial product
was all on Amazon with no redundancy. Of course many of their clients were on
EC2 as well so when EC2 had an outage they all had to man the phones and call
their clients and say "your site is down" haha. Happy for their growth and
success.

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benjaminwootton
Amazing how a relatively niche product like this can have such a huge
valuation. Shows how big the market is.

~~~
justboxing
> Shows how big the market is...

I think the huge valuation has more to do with how absurd startup valuations
really are[1], and less to do with showing how big the market for a niche
product is.

[1] Behind the gloss of absurdly high startup valuations
[https://42floors.com/blog/startups/absurdly-high-
valuations](https://42floors.com/blog/startups/absurdly-high-valuations)

Discussed here =>
[https://news.ycombinator.com/item?id=6874838](https://news.ycombinator.com/item?id=6874838)

~~~
moritzplassnig
10-13x ARR isn't absurdly high at all

~~~
zaroth
It depends entirely on your growth rate. In my experience, a lifestyle
business growing 20% YoY with 5% churn and 10% operating margin will sell for
around 2.5-3x ARR.

~~~
spullara
20% YoY is very low relative to most of these large SaaS startups that you see
on here. The S-1 for Elastic had it at 75% YoY or so. Most of these companies
also have absurdly high negative revenue churn. Gross margins approach 75%
which become net margins when they stop growing so fast. See the 40% SaaS
rule.

[https://saasholic.com/the-rule-of-40-for-saas-and-
subscripti...](https://saasholic.com/the-rule-of-40-for-saas-and-subscription-
business-4bc2d7bcd868)

~~~
zaroth
Exactly! Every time you double your growth rate it also approximately doubles
the Price / Revenue ratio.

20% growth will yield a 2-3x ratio. 40% growth 4-6x, and by 80% growth you’re
looking at a valuation of 8-12x ARR.

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tmaly
Sorry, but the first thing that comes to my mind when I read the headline is
that we are in another economic bubble with valuations like this.

~~~
pauldix
They passed $100M in revenue. Assuming their growth and other numbers are
good, this isn't crazy at all. The only thing that is different is that this
was a private funding rather than an IPO. Used to be that companies would go
public by the time they got here.

~~~
xchaotic
If they're really having 100MM recurring revenue, couldn't they just borrow
money from the bank without losing equity?

~~~
pauldix
Article says that it's for potential acquisitions. I'm not a banker, but I
assume they don't make loans for those kinds of operations. Also, they charge
interest. Ultimately, it's a question of what the most effective (cheapest)
way to add capital to the balance sheet is. They almost certainly could have
raised venture debt (they probably already have an agreement in place), but
this was probably deemed a more cost effective way to add capital.

~~~
indigodaddy
Maybe they can buy Atlassian now.

~~~
daniel_iversen
Except Atlassians market cap is $20 billion :-)

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Waterluvian
My teammate and I got really excited about pagerduty to replace our phone
calling, slack messaging, spreadsheet reading slackbot. But at $29/user/month
there's no way in hell management will sign off on it. We are at that point of
growth where we need this service but can't justify the risk when we have
something ths clunky but basically free.

I wish there were more creative pricing models to get us in the door somehow.

The problem is that our support structure, being a smaller newer company is
that everyone grabs a paddle and rows. So for a 50 person company 30 are
support on-call staff all with small windows of operation.

~~~
spullara
Penny-wise and pound foolish. I can't imagine you are so big that $1/day/user
is meaningful and less cost effective than spending an hour on your internal
system a week.

~~~
Waterluvian
As an engineer I agree. But I try hard to keep grounded in the irrational real
world that I occupy. So I have to respect the reality that I have to work with
the irrationality, not against it.

~~~
alex_anglin
If you're bearing the costs of irrationality... then that might be something
to keep in mind.

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NickBusey
Using a very naive calculation of valuation = 5x yearly income, is PagerDuty
really pulling in $260,000,000/year? My company is currently paying them about
$90/month. or $1,080/year. We are most likely one of the smallest clients they
have, but that is still quite a leap.

~~~
pbiggar
"The company says it passed $100 million in annual recurring revenue in recent
months"

~~~
samstave
Assume 100MM/yr - if they have ~20K paying customers with an avg of $500/month
per customer, that number is easily achievable.

They will have a long-tail of free, and small clients - then a few whales and
it seems completely doable...

Pagerduty is a great service.

~~~
drb91
> Pagerduty is a great service.

Well, they're good at alerting. They're not great at incident revie/. The
interface makes it pretty difficult to look at, say, "what are all the
incidents I got paged for related to this schedule".

In general, the interface is pretty painful to use for large organizations.
This is a fairly common theme, though....

~~~
spullara
My guess is that is where they will focus their acquisition energy.

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whalesalad
I was a PD customer for 3 years at FarmLogs. There was literally zero
innovation or development on that product during the entire time there. It was
abandonware. I am shocked that they're dominating this space with such
lackluster enthusiasm about their own product.

I'm not just referring to a lack of new features... it’s a lack of improving
their core product. It's buggy and painful to use. I can’t tell you how many
times acknowledging an issue (during the crisis around the issue) failed and
caused cascading problems with other engineers being paged. That’s the _one_
thing this product should do without fail.

~~~
foodstances
What did you find it lacking?

~~~
whalesalad
Aside from the lack of innovation, it's got lots of bugs. Sometimes it will
continue to call you over and over when things have been acknowledged, or it
wont acknowledge things, or you will try to acknowledge something that has
already been acknowledged and it will error out.

~~~
rosser
So much this.

Because the things we monitor are heavily interrelated, and an outage or
degradation in one service will often affect others, it's not uncommon for us
to see multiple alerts at once.

The typical scenario goes like this:

1\. Pile of alerts goes out.

2\. I acknowledge all of them in the course of acknowledging the first.

3\. Some of the alerts will decide, despite having state-changed to yellow in
the app, that they somehow haven't been acknowledged, so the app will issue
the notification tone — for, again, _previously acknowledged alerts_.

4\. Some more alerts will decide they _still_ haven't been acknowledged, and
will play the notification tone again, to remind me that I have outstanding,
"unacknowledged" alerts.

All of this while I'm trying to _fix the broken thing_ and am being
interrupted to attend to the feels my alerting tool has about having alerts.

That is to say: PagerDuty is getting in the way of my fixing the outage. No, I
can't just ignore them. We have a global team, and whoever's secondary is
probably asleep, because we've taken care in crafting our on-call rotations
such that people shouldn't get alerted at 3am. If they sleep through the
alerts, they will escalate up my management chain. Then I'm having to explain
to my director or VP why there are "unacknowledged" alerts — while I should be
fixing the fucking fire.

It's an abhorrently crap user-experience, in a way that is antithetical to the
tool's very purpose, and I'm not the only person on my team who has either
wanted to throw, or actually has thrown, their phone through the nearest wall
because of it.

------
juliend2
Well, this announcement [https://techcrunch.com/2018/09/04/atlassian-launches-
jira-op...](https://techcrunch.com/2018/09/04/atlassian-launches-jira-ops-for-
managing-incidents/) by Jira, 2 days ago, regarding Jira Ops and their
acquisition of OpsGenie, might have helped PagerDuty (don't want to downplay
PagerDuty's value here) to get that valuation.

I think this is good news!

Edit: formatting, added more precision

~~~
Jdam
It takes more than 2 days to flesh out those deals.

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syntaxing
I'm kind of confused what they offer. Are they providing a software that is
like a IT "ERP" system?

~~~
webo
[https://www.pagerduty.com/](https://www.pagerduty.com/)

It's an on-call management system that receives events from multiple sources
and routes to the appropriate people.

~~~
syntaxing
I embarrassingly have read the main and about page a couple times and still do
not really get it. What are events? Like a critical failure on your server?

~~~
e1ven
Yeah, it’s basically a handler for nagios/sensu/etc which will open/close
issues in its DB and assign them to whomever is on-call for that day.

It can then phone/text them when it gets an alert, and escalate to the next
person in the list of it doesn’t get an answer.

It’s not super-hard to replace with some twilio scripts/etc but it’s cheap and
usually works as expected.

It’s nice to pay them to run alerting scripts, so they don’t run on the same
infrastructure as production code.

~~~
syntaxing
Interesting, thank you for the explanation!

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xmly
90M at 1.3B valuation? Means they sold more than 50% equities at this round...

~~~
hobofan
1B = 1000M

