SendGrid Raises $20M, Plots New Strategy for New Markets

The past two months have been busy ones for SendGrid and its new CEO Sameer Dholakia, who joined the company in September. The Boulder-based company announced today it has raised a $20 million Series C round and landed Bain Capital Ventures as a new investor.

SendGrid makes cloud-based software that customers use to deliver e-mail such as order confirmations and invoices to their customers, and it is responsible for delivering more than 435 million e-mails a day.

The new round brings the amount raised by SendGrid since it was founded in 2009 to $48 million. Along with Bain Capital Ventures, prior investors Bessemer Venture Partners and the Foundry Group also invested in the round. Prominent angel investors including Jeff Clavier, Dave McClure, and David Cohen have stakes in the company. SendGrid last raised venture capital in 2012.

With the round out of the way, Dholakia’s job now is to build on SendGrid’s growth over the past five years by developing new products and reaching new customers in new markets—all while fending off new rivals.

“We are in a far more competitive market today than we have been in the past, and I expect that to only increase,” Dholakia said. “It’s no longer the small market that SendGrid pioneered years ago. I think we have now proven there is a big market opportunity there.”

Dholakia comes to SendGrid after working as an executive at Citrix (NASDAQ: CTXS). Prior to that, he was CEO of VMLogix, which Citrix bought for an undisclosed price in 2010.

Dholakia said his plans for SendGrid and how to use the new investment are taking shape. Much of the money will be used to add new features to SendGrid’s e-mail delivery software. Dholakia said SendGrid plans to release new features starting next quarter and continuing through 2015. He declined to give details, but he said SendGrid will be pushing into what he called two new directions.

The first is to make SendGrid a better tool for marketing. While in 2013 it started offering features for e-mail marketing, for most of its history SendGrid has specialized in transactional e-mails, like order confirmations, receipts, and reminders.

Dholakia said the company has been very successful in that niche, becoming the provider for more than 180,000 customers including LinkedIn, Airbnb, Uber, and Github. SendGrid is used to send out 15 billion e-mails per month and has sent more than 300 billion total, according to the company.

But sending those kinds of messages is only part of what companies use e-mail for, and many SendGrid clients use other e-mail delivery services that are more marketing-focused when they offer promotions or run campaigns. Dholakia said recent visits with SendGrid customers revealed they wanted an e-mail delivery service that combined those capabilities and also gives them insight into customers based on other online behavior.

“Increasingly, we’re seeing our customers say they want to send more stuff through our pipes, of different types and flavors,” Dholakia said. “I think that’s where our opportunity is.”

The company backs that opinion up by citing the Radicati Group’s estimate that e-mail will be a $12 billion market this year and a $23.5 billion market by the end of 2018.

Dholakia said the second new direction will be related to big data.

“We’re sending 15 billion e-mails a month now,” he said. “There are things we can learn and insights we can glean from that massive amount of information that we can use for the benefit of our customers.”

In addition to improving the product, he said SendGrid will expand its own go-to-market team. That includes shifting from a model that primarily relies on inbound sales to one that is more aggressive about outbound marketing and sales.

Success in those areas will be critical to SendGrid’s future. By emphasizing marketing, it will come into competition with companies like MailChimp and Constant Contact. But SendGrid also is vying with competitors who want a part of the market for transactional e-mail, including Mandrill, which is part of MailChimp, and Mailgun, which is owned by Rackspace.

Dholakia is confident SendGrid will capitalize on its expertise and large existing customer base as it makes its transition. He said the company’s long-term goal to be a large publicly traded company remains the same.

“I do believe SendGrid is an IPO-bound company,” he said. “It will require a great deal of execution and hard work and smart decision-making, and everything that goes into that, but I don’t think that’s an aspirational idea as much as it is a probability.”

He said the timeline remains to be determined, but it would probably be within a few years.

While Dholakia might be plotting new directions for SendGrid, he said the company he inherited was in good shape. SendGrid no longer releases details about its revenue, but the company reportedly was approaching $50 million in annual revenue. In 2013, it reached revenue of $28.9 million, earning it a spot on the Inc. 5000.

“The team before my arrival did a great job building a great company,” he said. I did not walk into a situation where we had to make sweeping decisions to right the ship.”

Dholakia said many of the challenges SendGrid faces now are the seemingly mundane ones like internal communication and operations that can hamstring successful startups as they expand. SendGrid has grown to a 250-person company after adding about 100 people in this year, and it could grow at a similar rate next year.

In managing that growth, Dholakia said he’ll draw on lessons he learned at Trilogy, which he helped grow from a startup to a company with $300 million a year in revenue. He also guided VMLogix through its sale to Citrix, where he said he saw what it took to run a $3 billion company.

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