Apptio Raises $14M to Expand, “Crush the Competition” in IT Financial Management

Want to know how to raise a big round of venture funding in a recession? If you’re in the software business, talk to Sunny Gupta.

Gupta’s company, Bellevue, WA-based Apptio, is announcing a $14 million Series B financing round today. The round includes existing investors Madrona Venture Group and Greylock Partners, and also new investors Shasta Ventures and Andreessen Horowitz Fund. Apptio is not the only company Marc Andreessen and Ben Horowitz have co-invested in with Madrona; they also bet on Seattle-based ExtraHop Networks in April.

The Apptio investment is a pretty big deal, given its size and the difficulty software startups everywhere are having in securing follow-up funding. Apptio previously raised $7 million from Madrona, Greylock, Ignition Partners, and others in November 2007. Today’s announcement is a huge vote of confidence from its lead investors—and it means Apptio will be able to ramp up its expansion and sales in a major way.

“This is a big milestone for us,” says Gupta, Apptio’s CEO, who previously founded iConclude (which was acquired by Opsware and then Hewlett-Packard in 2007). “Nineteen, 20 months in, we’re executing like crazy. We’ve really delivered on the vision. We’re starting to transform the way CIOs [chief information officers] manage the business of IT by helping them understand the cost of services.”

When last we checked on Apptio, the firm had announced a slew of new, high-profile corporate customers that it helps manage and optimize the costs of IT systems like computers, mobile devices, software packages, servers, and data centers. Apptio’s software, which it provides “on-demand” as a service, helps make companies’ IT costs more transparent, allowing CIOs to “run IT like a business,” Gupta says. “Our investors believe it’s a billion dollars-plus opportunity.”

Apptio has signed up about three dozen corporate customers, small and large, including Starbucks, Alaska Airlines, SumTotal, and NYK Logistics. Because of its strong customer traction, Gupta says, Apptio was able to raise “more money than we thought we really needed. We wanted to have enough capital. We had interest from a lot of venture capital firms, so we had a lot of choices.”

The reason for taking so much money, Gupta explains, is to build up the company’s capabilities “in a drastic way.” He says Apptio is in the process of expanding its staff by 50 percent—up to about 45 people, from 30 people last fall. Most of the new positions are in sales and in product development. “We felt, ‘OK, we have the right product, the right market, the right team, and given the great interest we had on the fundraising side, we should take more capital rather than less,” Gupta says. “We’ll scale the business much faster, it will get us to cash-flow positive, and we won’t have to raise money again. We could be profitable this quarter, but we are deciding instead to take more money, and really, really accelerate the growth of the business.”

Apptio’s competitors include big companies like HP and BMC Software, though Gupta says they don’t have much in the way of comparable products out there yet. “It’s a really, really hard problem to solve from a technology perspective. Other people have tried to solve it by consulting, or within the company through spreadsheets,” he says. “What’s also special is our business model—a quick, on-demand model, where you can get started with Apptio quickly, and within a matter of weeks you get your financials under control.”

Perhaps the most interesting (and surprising) point Gupta made was about Apptio’s culture. The company’s DNA largely comes from Opsware, Mercury Interactive, and HP, he says. But its attitude comes from its chief executive. “We are paranoid,” he says. “Even though we see success in the marketplace, we are always focusing on what we can do better. Things that are not working, we want to make them better. That’s how you go from being a good company to a great company. The phrase we use is ‘glass half empty.’ It’s not a negative connotation, it’s about how do we focus on things that are not working, and how do we get better.”

It also sounds like Gupta has helped cultivate a killer instinct in his company—one that should serve it well in its battles ahead. “We are all commonly united with the common purpose of winning,” he says. “We want to win, we want to be successful, we want to get the best customers. We’re not here to show up and get a paycheck. We really want to build a very large company. If there’s competition, we want to crush the competition.”

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