Why We Invested in GitLab
As an investor, I often think about what we can learn from the successful software companies of the past. The reality is that there are many complex factors that come together to create that special formula of success and over time that formula changes, making building and investing in great software companies a dynamic challenge. In almost all cases, great software companies start with a disruptive product that is significantly superior to legacy applications. But, there are lots of great product companies that never quite become successful businesses. Total Addressable Market (TAM), quality of team, timing, execution, luck, etc. all play a role in the making of a great company. Another key characteristic of a great company is a disruptive business model. It seems great software companies are often built on the foundation of a great product combined with a disruptive business model.
The disruptive business model in software over the past 15+ years has been the migration of applications to the cloud. Siebel → Salesforce, Documentum → Box, Peoplesoft → Workday, Tibco → Mulesoft, Hyperion → Anaplan, BMC (Remedy) → ServiceNow, etc. are all examples of the power of combining great products with a disruptive business model. The cloud completely changed the risk, adoption, utility, and economics of deploying enterprise software.
I am always looking for startups that are pushing the boundaries of what we thought possible and are innovating on multiple dimensions. This is why I am excited to announce August Capital’s investment in GitLab. GitLab is an open core developer collaboration platform that provides a complete workflow to create, review, and deploy code simply and effectively. GitLab started as an open source project in 2011, was subsequently incorporated in 2014, and was part of Y Combinator’s 2015 winter batch. The company is capitalizing on a few mega trends in software development: software is becoming a core capability for all enterprises, adoption of Git for source code management, adoption of Scrum and Agile development methodologies, and the need for integrated software development tools.
I had the privilege to work at two of the most successful SaaS vendors (Salesforce and Box), which strongly influenced my views on the right way to build a software company. I will probably always think SaaS-first, but I also know that great founders will continue to innovate and iterate on new business models that drive adoption and monetization of their products. I would like to highlight why I believe GitLab has the potential to build a great company.
Large Market: GitLab is in the middle of an enormous market of software solutions helping developers collaborate and create software. Over 20 million developers globally can benefit from using GitLab’s platform to translate their ideas into products. Git, the widely popular open source version control system, is still merely 30% penetrated into the enterprise market. The market is still dominated by traditional waterfall-based solutions, creating a big opportunity for GitLab to continue to penetrate the enterprise.
Disruptive Product: GitLab is a true platform company with a mission to provide a seamless and integrated product experience from an idea to the deployment of an application. GitLab provides a robust platform that delivers Git repository management with fine grained access controls, code reviews, issue tracking, issue board, activity feeds, wikis, and continuous integration. The business strategy is clear (check it out). The product strategy is well documented and public. The clarity of product roadmap and scope is impressive. And it is all documented for everybody to see and align, including the thousands of developers who are passionate about the mission of GitLab.
Disruptive Business Model: GitLab is an open core company which allows it to have a very disruptive business model. At the heart of GitLab is a robust and vibrant open source project with a free Community Edition (CE) offering that is downloaded by developers more than 350,000 times per month. The company also runs a fully-featured SaaS application for free. Not freemium, just free! The CE and SaaS application allow GitLab to reach millions of individual developers, small companies, and small teams within large enterprises with a superior product for free!
So how does GitLab make money? GitLab generates revenue from its proprietary Enterprise Edition product which allows large enterprises to run the GitLab platform in their dedicated single-tenant environment. Customers can choose to deploy the application in their datacenter or run it in the cloud at a vendor of their choice. The free CE and SaaS application allow GitLab to drive rapid adoption of the platform, which in turn allows it to enjoy best in class negative net churn rates among paying customers as they seek to expand their GitLab deployment and transition away from legacy vendors. Organizations such as NASA, CERN, Alibaba, SpaceX, O’Reilly, IBM and Expedia have deployed GitLab for their software engineering teams.
I am honored to join GitLab in its journey to build the next great software company serving the needs of developers. Investing in a single-tenant solution was initially against my instincts, but the potential of open source + a free SaaS application to drive adoption and monetization of GitLab’s paid applications was hard to ignore. The combination of a disruptive product, focused on a large market, with a very unique and disruptive business model was an opportunity I wanted to invest in.
GitLab is led by Sid Sijbrandij and his co-founder Dmitriy Zaporozhets. I have been extremely impressed with the deliberate, thoughtful, and determined approach of this team. Want to see why you should join GitLab? Just check out the Employee Handbook!