Octopus Deploy has been operating at a profit for the best part of a decade, has turned down a $100,000 acquisition bid, and has never made a pitch to investors.
Now, the bootstrapped software startup has secured a mammoth US$172.5 million ($223 million) investment from US venture capital firm Insight Partners.
Octopus Deploy provides software to support software developers. Software teams are constantly working on new code for updates and bug fixes, founder Paul Stovell explains to SmartCompany.
At some point, that code has to be deployed to the systems. Historically, it’s been pasted into a document and deployed manually, step-by-step.
Octopus is designed to automate that process to minimise the risk of errors and allow changes to be deployed more quickly — reducing down-time from a matter of hours to only two to three minutes.
A software developer himself, Stovell first started tinkering with the code that would become Octopus Deploy back in 2011. It wasn’t long before he was approached with an offer to sell the fledgling, pre-revenue business for $100,000.
At the time, “I thought that was a great deal”, Stovell says.
And he would have taken it, if it wasn’t for his wife Sonia Stovell — now chief financial officer — who reminded him he had always dreamed of heading up a software company, and predicted he would regret a sale.
“Having turned down that money … we thought we’d better give this a go.”
Stovell won’t be drawn on the valuation of the business today. But, Octopus software is now in use in some 25,000 organisations, including the likes of NASA, Disney and Microsoft. And, it’s been profitable and growing since 2012.
So far, the startup has been entirely bootstrapped, meaning this is the first external capital it has accepted, and the first significant chunk of equity it has sold.
For the most part, that’s simply because the team didn’t have any real reason to raise venture funding.
“Software is not naturally a capital intensive business,” Stovell notes.
When startups go down the venture capital route early, they’re bound to it, he explains.
They raise a lot of money and grow very fast, but they’re very rarely profitable.
“If they don’t get that next round of funding there is no opportunity to stay in business.”
From 2012 onwards, Octopus was bringing in enough money to replace both the Stovell couple’s wages.
And, up until last year Stovell has been turning interested VCs away. Even now, he’s never put a pitch deck together.
It was Insight Partners that approached him.
The investor had heard of Octopus through several of its existing portfolio companies, which were clients of the Aussie startup.
Insight made “a really compelling pitch”, Stovell says.
The business’ largest segment is enterprise customers. And, while the business doesn’t need the capital, bringing on an investor who knows this segment and can help fuel more sales and marketing within it started to look like a good idea.
The funding will be used to continue Octopus’ growth strategy, particularly in the North American region, which already accounts for more than 50% of its customer base.
Octopus Deploy, the North Star
This is far from the typical startup story. But Stovell says he’s never had that ‘typical’ startup founder mindset either.
Part of the reason the business has flown under the radar so far is that it’s made up of very technically-minded people, without much marketing nous.
But, it’s also indicative of where Stovell’s priorities lie.
“Because we weren’t focused on pitching to anyone else, our permission to stay in business came from customers only.”
That’s led the team to be “intently focused” on how to improve the customer experience and make the product as valuable as possible.
“That’s probably a really good North Star for all companies to follow.”
There’s a lot more buzz around venture-backed businesses, Stovell notes, and it can feel that that’s the default best way to go for tech startups.
He suggests it should be the other way around. If a business is bootstrapped and profitable, it has longevity, he notes.
It’s about weighing up whether you want to build a $10 million business over time, or whether you want to shoot for a $1 billion valuation with a lower chance of success.
If Stovell’s own experience is anything to go by, it appears the two may not be mutually exclusive.