Seattle’s ExtraHop expects $100M ARR in 2020, IPO the following year

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re continuing our series on companies that have reached the $100 million annual recurring revenue (ARR) threshold, or are about to. ExtraHop is the company of the day, a Seattle-based firm that deals with cloud analytics and a portion of the security world called “network detection and response.”

ExtraHop is interesting because of its scale, its IPO plans and its history of capital efficiency. Regular readers will recall that we’ve praised Braze and Egnyte in this series, noting that, compared to some unicorns and other members of the $100 million ARR club, they had raised modest sums. Both have raised a multiple of ExtraHop’s own known capital tally.

TechCrunch got on the phone yesterday with ExtraHop’s CEO Arif Kareem and CFO Bill Ruckelshaus to dig in more. Here’s what we learned.

Growth

In conjunction with its ARR and IPO notes that we’ll deal with shortly, ExtraHop announced a number of financial metrics this morning, including: more than $150 million in bookings in 2019, up from over $100 million in 2018; and, revenue growth of “more than” 40% in 2019, a threshold it also cleared in 2018.

Continuing, ExtraHop is “on pace to exceed $100M ARR in 2020,” according to the company. The firm also told TechCrunch that it is “well-positioned for IPO by 2021.” Best of all, ExtraHop hasn’t raised known capital since May of 2014, when it closed a $41 million Series C, according to Crunchbase data.

The company has raised a total of $61.6 million in publicly known external funding, a small result for a company of its scale. While upstarts like GitLab have raised over $400 million to reach $100 million ARR, ExtraHop should manage the feat with about 15% of that total. How? That’s what I wanted to find out.

A security push

ExtraHop’s recent growth spurt is connected to its push into security. After starting life in the analytics space, the company’s customers asked it to bring its “foundational” analytics engine technology into the security space, it told TechCrunch in an interview. ExtraHop’s CEO Kareem detailed the move, saying that his company was “using that engine to address application performance issues [that] IT people had. But over a period of time, our customers pulled us into using this analytics platform to look at anomalous behavior in data and applications. And that’s how we started moving towards security.”

The company went even further a few years ago, when ExtraHop “doubled down in security,” according to Kareem. It was a good choice. Security products have “really taken off,” according to the CEO.

You can see that history in the company’s press releases. Here’s ExtraHop announcing “the general availability” of its “new security analytics product” in January of 2018. And, here’s ExtraHop one year later in January of 2019, announcing $100 million in bookings for the preceding year, powered by “10x growth in cybersecurity in the second half of the year.”

Today, the company announced $150 million in bookings for 2019, boosted by “nearly tenfold increase in security bookings.” Security products have been big for the company’s growth curve.

Part of ExtraHop’s ability to grow without burning oceans of capital is predicated on its product connecting with the market. But there’s a bit more to how the company has managed to not need more capital. Namely its perspective on responsible growth.

Keeping profit nearby

According to Kareem, “all technology companies need to have a line of sight on profitability.” That’s an idea that is popular today, but wasn’t a few years ago. The idea, however, doesn’t meant that ExtraHop isn’t spending money to grow. Kareem explained to TechCrunch that he balances growth powered by the quality of his company’s revenue (“high margins allowed us to also invest in [fueling] growth,” he said, putting money to work in ExtraHop’s “commercial footprint [and] sales capacity, both domestic and international”) while keeping an eye on “profitability and becoming cash[flow] neutral and cash[flow] positive.”

That balance has not only helped ExtraHop not need to sell more of its shares to grow, but also helped it attract talent. The company’s CFO said in the same interview that ExtraHop’s “track record” of “financial stewardship” was one of the reasons he opted to join the firm last year. (Ruckelshaus has experience with private and public companies, unsurprisingly; he’s probably around to help ExtraHop get an S-1 ready when it’s time.)

ExtraHop is doing fine with less and will probably be public before 2021 wraps. I expect the company will reach out when it reaches $100 million ARR this year. We’ll be back with more then.