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Thoughts on Okta’s Series B Funding – Why Our Investors Participated and How We Pitched Them (Part 1)

Todd McKinnon

As I’m sure you’ve seen, we announced today that we’ve closed our series B financing.  Khosla and Greylock, David and Aneel all bring invaluable experience as investors and operators to our team. Needless to say, we are excited. This investment gives us the capital we need to make our current customers more successful, broaden our product and platform, and accelerate our sales and marketing.

But you can read all about that in the press release. What I’d like to do here is share with you what we presented to potential investors while raising this round. As the tech scene continues to heat up, I thought it would be of interest to folks to understand where we see the value in what we’re doing and why our investors seem to agree with us.

It starts with Okta’s core belief:  We believe that the cloud computing model is fundamentally better than previous generations of technology.

What do we mean by cloud?  Public clouds, SaaS, platform as a service, and infrastructure as a service.

Changing IT – for the better.

How?

  • Vendors’ interests are more closely aligned with customers’ interests.  These are subscriptions services - if they don't work, the customer doesn't pay and the vendor loses out.
  • Cloud is more economical to setup, configure, run and maintain.  The customer doesn't have to focus on low level infrastructure.  They can focus on what matters - solving their business problems and easily expand or contract their deployments as needed.
  • Vendors can leverage economies of scale to deliver better product at lower prices.  They can amortize hardware and software costs over multiple customers or "tenants,” and spend their R&D dollars innovating and scaling rather porting to different systems or debugging and maintaining old releases.

Over the past 10 years, vendors have been building amazing products that are now functionally equivalent or superior in nearly every category.  CRM (Salesforce), HRMS (Taleo, Workday, Successfactors), Email (Google apps), Collaboration (Box.net, Google Docs) – just to name a few.

So now what? It’s possible for companies to build and run entire corporate IT environments in the cloud.

While only a few companies are entirely “in the cloud” - many have reached a tipping point and their IT center of gravity has shifted to cloud based.  We call them "Cloud First" organizations: buying only cloud based solutions and aggressively trying to replace their legacy on premise system with newer cloud alternatives.

Cloud is Great, but now what?

Traditionally, cloud vendors have sold to business owners – rather than IT.  Why? The thinking was since the value is business-based and there are no servers, storage or software to install, why involve IT?  But as more and more cloud solutions are implemented, it has become clear that companies need to centrally manage some key elements.

Security and Management

-       How do they make sure the right people have access to the right services and information?

-       How are users authenticated?

-       When an employee leaves the company, how is their access to services removed?  Is this process consistent and auditable?

-       How do you balance flexible access for a geographically dispersed workforce with the security risks involved?

-       How do you understand the performance and reliability of the services you're using?  How do you know if they're meeting their SLAs?

End User Productivity

-       How do you organize all the services available to users in a simple way?

-       Do users have a single password for all services?

Cost Reduction

-       How do you get a consistent centralized view of who's using what services?  Are you using what you're paying for?

Despite all the innovation around applications nobody has delivered a cross-application service that gives cloud-first IT shops this type of security and management.  We believe the lack of this service is fundamentally impeding cloud adoption.

Delivering this layer will drive cloud adoption, will make companies more efficient and effective, and make the economy and the world better.

Why is this different in the cloud?

The concepts of security, single sign on, user management and auditing are not new.  They’ve existed since the first user logged into the first mainframe.  Why is the problem different or the potential solutions better in the cloud?

  • There are more services and applications available to users within an enterprise than ever before.
  • The cost to build, deliver and sell the services is dramatically lower leading to more services available in the market.  Literally, thousands of new SaaS start ups have spawned in the last 10 years.
  • Companies aren’t limited by their ability to build infrastructure to deploy and maintain as many applications as they want.
  • In addition to more services, there are more users.  Each generation of technology, from mainframe to mini computers to client server to cloud has seen a 10X increase in the number of users.  And each of these users is accessing the services in a variety of ways.  Gone are the days of one desktop per employee.  There are desktops, laptops, virtual desktops, tablets and smart phones…
  • Finally, companies need to support a mobile workforce.  They can no longer rely on securing the physical network perimeter with a firewall and selectively permitting VPN access.  They need to have the same kind of rich authentication, authorization, auditing and logging for all their critical services.

With so many users, services and devices the identity management problem is much larger now but by using the benefits of the cloud – the problem is solvable.

When the identity management system itself is implemented as a cloud service, a single integration can be reused across millions of customers.

At Okta, we’re building a service that is the domain controller and directory for the cloud.

Tomorrow I’ll share some more on the high level business impact we see happening as a result of this shift to the cloud and more on how our investors reacted to this vision. Stay tuned.