Zendesk Snags $19M for Web-based Customer Support That Users Can Grok, and Startups Can Afford

12/7/10Follow @wroush

Three-year-old Zendesk has achieved quite a lot on just $6.5 million in venture funding. More than 5,000 companies are using Zendesk’s Web-based customer support software, 50,000 users have downloaded its iPhone app, and it’s got 70 employees—almost too many for its Townsend Street digs in SoMa.

So it’s interesting to contemplate what Zendesk might do with the $19 million it has just collected in a Series C round led by new investor Matrix Partners (Charles River Ventures and Benchmark Capital were return participants from the company’s $6 million B round in August 2009). The new cash infusion represents more money than the company initially set out to raise, and more than it really needs to keep growing, according to CEO Mikkel Svane. But “people were willing to risk quite a lot for this company at a high valuation,” Svane tells Xconomy. “We ended up saying ‘Let’s make sure we have a little extra padding for emergencies.’”

Zendesk’s overall venture pot of $25.5 million since its founding in 2007 “is actually not a lot of capital in the SaaS [software as a service] business,” says Dana Stalder, a Matrix partner who will join Zendesk’s board as a result of the funding. Stalder says Matrix was eager to chip in because Zendesk “has demonstrated an amazing product-market fit. It’s time to step on the gas and accelerate the rate of scaling of this business.”

The business at Zendesk is helping other companies track and respond to help-desk requests online. Unlike most older companies in this area, Zendesk designed its system to be extremely customer-friendly. If your Acme thingamabob blows up in your face and Acme is a Zendesk subscriber, you’ll typically have a number of easy options for submitting your complaint to the company, from tweeting to sending an e-mail to using a “dropbox” widget on Acme’s website.

If you run Acme, you don’t have to train your employees to use a complicated ticket management system—you can configure Zendesk to work with whatever internal communications system you prefer, from plain old e-mail to Salesforce’s customer relationship management system.

Zendesk’s system is entirely cloud-based, meaning users don’t have to buy or install any software to use it. That’s made it a favorite of many small consumer-oriented Web startups that need some way to serve customers, but can’t afford to spend much. “A lot of customer service solutions, historically, have only been accessible to larger companies, given the cost structure of selling software to corporations,” says Matrix’s Stalder, who formerly ran product sales and marketing at PayPal and specialized in acquiring small-business customers. “What SaaS has enabled is the ability to bring these solutions to smaller businesses and give them big-company-like capabilities.”

That said, Svane hopes to use some of the new cash to bolster Zendesk’s abilities to serve large enterprises as well as small ones. “To be completely frank, we haven’t been really good at dealing with larger customers up to now, and getting better at that requires a lot of investment,” he says. That’s partly because Zendesk has to compete with other leading companies in San Francisco and Silicon Valley for the top engineering talent, which is expensive. The company, which was born in Denmark, also wants to expand its base of international customers. In short, “We are no longer just a few guys with a product,” says Svane. “We are building an actual company, and that’s not cheap.”

At the same time as its Series C funding announcement, Zendesk said at this week’s Dreamforce 2010 event in San Francisco that it has come up with new ways to integrate its software with Salesforce. And on a more lighthearted note indicative of the company’s quirky and informal culture, Zendesk is running a 10-part series of Web videos this month entitled “Merry Holidays, Please Hold.” The viral marketing campaign takes a humorous look at the history of bad customer service, starting off with a fairly cutting parody of a TED talk.

Zendesk occupies most of a floor at PMI Properties’ office building at 410 Townsend, which is also home to Yammer and Eventbrite. All three companies are in rapid-change mode. Eventbrite collected $20 million in Series D funding in August. And just last week Yammer raised $25 million in Series C financing. So it wouldn’t be surprising to see one or more of the organizations seeking larger quarters. (Playdom, OpenDNS, Shop It To Me, and TechCrunch are also based at 410 Townsend.)

“We are all growing out of our spaces here, so we are all looking at each other to see who is going to make the first move,” says Svane. “My suggestion was to have a showdown at the OK Corral.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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