Igor Sysoev, web server developer a member of a large family , not just stood at the origins of our conference. I perceive Igor as my professional teacher, a master who taught me how to work and understand high-load systems, which determined my professional path for a decade.
Naturally, I could not get past the deafening NGINX team⦠And interviewed, but not with Igor (he is still an introverted programmer), but with investors from the fund Runa Capital, who saw nginx ten years ago, built a business infrastructure around it, and now they were conducting a deal unprecedented in size for the Russian market.
The purpose of the article under the cut is to confirm once again that everything is possible! Try!
Head of the HighLoad++ Program Committee Oleg Bunin: Congratulations on a successful deal! As far as I can tell, you managed to preserve and support Igor's desire to continue working as a programmer and at the same time build the entire business infrastructure around him - this is just a dream of any developer. So right?
My interlocutor is the managing partner of Runa Capital Dmitry Chikhachev: This is true. This is a great merit of Igor himself and his co-founders Maxim and Andrey (Maxim Konovalov and Andrey Alekseev), because they were initially ready for this infrastructure to be built around them. Not all startups so adequately assess their own strengths and capabilities. Many want to lead or manage the whole process.
- That is, the NGINX team, by and large, itself pulled away from the business part, or what?
Dmitriy: No, they have not moved away from the business part, why not? Maxim managed the operational part as an operations director. Andrey was engaged in BizDev, Igor continued to develop - what he likes.
Everyone was doing what he was strong and what he likes.
But they all understood that building a multimillion-dollar business in the United States required a person of a different caliber, with a different background. Therefore, even in the first round of negotiations, there was an agreement with investors that such a person would be found. They became Gus Robertson, he fits all these criteria.
- That is, it was originally planned to enter the American market?
Dmitriy: NGINX is a b2b business. Moreover, it is not very widely known to users, since it works at the infrastructure level, we can say middleware. The main b2b market is the USA - 40% of the world market is concentrated there.
Success in the US market determines the success of any startup.
Therefore, the logical plan is to go to the USA, immediately hire a person who will head an American company, develop the business and attract American investors. If you want to sell infrastructure software in the USA, then it is important that you have American investors behind you as well.
- Who came to whom: you to nginx, nginx to you?
Dmitriy: We had many different points of contact. Probably, we showed great initiative, because even then nginx was noticeable. Although it was not yet a company and the market share was relatively small (6%), investor interest was already strong. The deal was competitive, so of course we were active.
What condition was the product in? There was no company, but were there any outlines of a commercial enterprise version?
Dmitriy: There was an open source nginx web server. It had users - 6% of the global market. In fact, there are millions, even tens of millions of websites. But, nevertheless, there was no company, there was no business model. And since there was no company, there was no team: there was Igor Sysoev, an nginx developer and a small community around.
This is a very interesting story. Igor started writing nginx quite a long time ago - in 2002, and released it in 2004. Real interest in it appeared only in 2008, in 2011 he raised money. Few people wonder why so much time has passed. Actually there is a logical technical explanation for this.
In 2002, Igor worked at Rambler, and there was one problem that he, as a system administrator, solved - the so-called C10k problem, that is, providing the server with more than ten thousand simultaneous requests at peak load. Then this problem only appeared, because large loads on the Internet were just coming into use. Only a few sites encountered it - such as Rambler, Yandex, Mail.ru. For most websites, this was irrelevant. When there are 100-200 requests per day, no nginx is needed, Apache will do just fine.
As the internet has become more popular, the number of sites that have experienced the C10k problem has grown. More and more sites began to require a faster web server for processing requests - such as nginx.
But the real explosion of load occurred in 2008-2010 with the advent of smartphones.
It is easy to imagine how much the number of requests to the servers immediately increased. Firstly, the time of using the Internet has increased, because it has become possible to click on links anywhere and everywhere, and not just sitting at the computer. Secondly, the behavior of the user itself has also changed - with the touch screen, link transitions have become more chaotic. You can also add social networks here.
This has led to Internet peak traffic has grown exponentially. The overall load grew more or less evenly, but the peaks became more and more noticeable. It turned out that the same problem C10k has become ubiquitous. At this point, nginx took off.
- Tell us how the events developed after the meeting with Igor and his team? When did the development of infrastructure and business ideas begin?
Dmitriy: First there was a deal. I have already said that the deal was competitive, and in the end a syndicate of investors was formed. We became part of this syndicate with BV Capital (now e.ventures) and Michael Dell. First, the deal was closed, and after that they began to think about the issue of finding an American CEO.
How did you close the deal? After all, it turns out that you did not even know what business model and when it would pay off? Did you just invest in a team, in a cool product?
Dmitriy: Yes, it was a pure seed deal. We didn't think about the business model at that moment.
Our investment thesis was based on the fact that NGINX is a unique product with a significantly growing audience.
He was solving a rather serious problem for this audience. I have a favorite test, a litmus test for any investment - whether a product solves a massive and painful problem. NGINX passed this crash test with a bang: the problem was massive, the loads were growing, the sites were down. And it was painful, because there was an era when the website became what is called mission critical.
In the 90s, people reasoned like this: the site is lying - Iβll call the system administrator now, theyβll raise it in an hour - itβs fine. In the late 2000s, for many companies, 5-minute down-time became equal to actually lost money, reputation, etc. The fact that the problem was painful is one side.
The second side that we, as investors, look at is team quality. Here we were impressed by Igor and his co-founders. It was a complementary experience and a unique product that was designed by one person.
- It is clear that the team with a certain number of competencies that complement each other also played its role.
Dmitriy: It seems right to me that Igor developed the product alone, but when the time came to create a business, he rushed not alone, but with partners. Looking at 10 years of investment experience, having two co-founders certainly reduces the risks. The optimal number of cofounders is two or three. One is very little, and four is already a lot.
β And what happened next? When the deal has already taken place, but there was no developed business idea yet.
Dmitriy: A deal is concluded, a company is registered, documents are signed, money is transferred - that's it, let's run. In parallel with the development of the business part, a development team was hired, which began working on the product. Andrey Alekseev as BizDev built the first relationships with potential customers to collect feedback. All together they thought about the business model, and together they were looking for a top manager who would develop the American business and lead the company in essence.
- And how did you find it? Where? I don't even know how to do it.
Dmitriy: All investors and the board of directors were engaged in this. In the end, the choice fell on Gus Robertson. Gus worked at Red Hat, whose top manager was our investor. We contacted Red Hat because it's open source, they said we were looking for someone who was able to lead the business and grow it into a billion. They recommended Gus.
The deal with NGINX was closed in 2011, and in 2012 we already met with Gus, and we immediately liked him very much. He had a background in open source from Red Hat - at that time it was the only company with a multi-billion dollar capitalization in open source. In addition, Gus was engaged in business development and sales - what you need!
In addition to background and experience, we liked his personal qualities - he is an intelligent, insightful person with a quick mind, and, importantly, we felt that he had a good cultural fit to the team. Indeed, that is what happened. When they met, it turned out that everyone was on the same wavelength, everything was in excellent interaction.
We made Gus an offer, and at the end of 2012 he started to work. Gus also offered to invest his own money in NGINX. All investors were impressed. Thanks to Gus's high involvement, he joined the founding team and was perceived by everyone as a co-founder of the company. Subsequently, he was one of four. There is a famous photo where all four of them are wearing NGINX T-shirts.
Photo taken from Dmitry Chikhachev about the history of cooperation between NGINX and Runa Capital.
Did you manage to find a business model right away, or did it change later?
Dmitriy: We managed to find the model right away, but before that we discussed for some time how and what. But the main discussion was about whether to continue to support the open source project, whether to keep nginx free, or gradually make everyone pay.
We decided it was the right thing to use the strength of the community behind nginx, not to disappoint them, and not to abandon support for the open source project.
Therefore, we decided to keep nginx open source, but create an additional special product called NGINX Plus. This is a commercial product based on nginx, which we license to enterprise clients. Right now, NGINX's core business is selling NGINX Plus licenses.
The main differences between the open and paid versions are:
- NGINX Plus has additional functionality for the enterprise, primarily load balancing.
- Unlike an open source product, there is user support.
- This product is easier to handle. This is not a constructor that you need to assemble yourself, but a ready-made binary package that can be deployed on your infrastructure.
β How does open source and a commercial product interact? Are some functions from a commercial product flowing into open source?
Dmitriy: The open source product continues to develop in parallel with the commercial one. Some functionality is added only to a commercial product, something both there and there. But the core of the system is obviously the same.
The important point is that nginx itself is a very small product. I think it only has about 200 lines of code. The challenge was to develop additional products. But this has already happened after the next round of investments, when several new products were launched: NGINX Amplify (2014-2015), NGINX Controller (2016) and NGINX Unit (2017-2018). The product line for the enterprise was expanding.
- How quickly did it become clear that you guessed right with the model? Have you reached the payback, or did it become clear that the business is growing and will bring money?
Dmitriy: The first year with revenue was 2014, when we earned the conditional first million dollars. At that moment, it was clear that there was demand, but the economics in terms of sales were not yet fully understood, how much the model would allow scaling.
Two years later, in 2016-2017, we already understood that the economy was good: the outflow of customers is small, there is an up-sell, and customers, having started using NGINX, buy it more and more. Then it became clear that it could be scaled further. Which in turn led to additional rounds of funding that have already gone to scale the sales organization, hiring additional people in the US and other countries. Now NGINX has sales offices in the States, Europe, Asia - all over the world.
Is NGINX a big company now?
Dmitriy: Already about 200 people.
- Basically, probably, these are sales and support?
Dmitriy: Development is still quite a big part of the company. But sales and marketing is a significant part.
β Development is mainly carried out by Russian guys who are sitting in Moscow?
Dmitriy: Development is already underway in three centers - Moscow, California, Ireland. But Igor continues to live in Moscow most of the time, go to work, program.
We followed it all the way: beginning in 2002, nginx release in 2004, growth in 2008-2009, 2010 meeting with investors, first sales in 2013, first million dollars in 2014. What about in 2019? Success?
Dmitriy: 2019 is a good release.
Is this a normal time cycle for a startup, or an exception to the rule?
Dmitriy: This is a completely normal cycle in time - depending on what to count from. When Igor wrote nginx - I told this background for a reason - nginx was not a mass product. Then, in 2008-2009, the Internet changed, and nginx became very popular.
If you count just from 2009-2010, then a 10 year cycle is perfectly normal, given that, in fact, this is the moment when the product has just begun to be in demand. If we count from the 2011 round, then 8 years from the time of the first seed investment is also a normal period.
- What can I say now, finishing the topic with NGINX, about F5, about their plans - what will happen to NGINX?
Dmitriy: I don't know - it's an F5 corporate secret. The only thing I can add is that if you google "F5 NGINX" now, the first ten links will be the news that F5 has acquired NGINX. For the same query two weeks ago, a search would first return ten links on how to migrate from F5 to NGINX.
- Do not kill a competitor!
Dmitriy: No, why? The press release outlines what they are going to do.
- Everything is fine in the press release: we will not touch anyone, everything will grow as before.
Dmitriy: I think these companies have a very good cultural match. In this sense, both of them still work in the same segment - networking and load. That's why everything will be fine.
- The last question: I am a brilliant programmer, what should I do to repeat my success?
Dmitriy: To repeat the success of Igor Sysoev, you must first figure out what problem to solve, because money is paid for the code only when it solves a massive and painful problem.
- And then to you? And then you will help.
Dmitriy: Yes with pleasure.
Thank you very much Dmitry for the interview. With Runa Capital, we will see you again soon at . In a place that, now we can say with full confidence, gathers the best developers not from Russia, but from the whole world. Who knows, maybe in a few years we will all be just as passionate about the success of one of you. In addition, now it is clear where to start - to look for a solution to an important problem!
Source: habr.com