Geeky tech startup OpenDNS — whose service is designed to make Internet access faster and safer — got its first 20 million users mostly by funding itself with cash flow.
Now the company is planning its first big growth push, armed with $4.5 million in new funding from two of Silicon Valley’s top venture capital firms, Sequoia Capital and Greylock Partners.
While the round is technically OpenDNS’s third, it’s really the first time the company is going to spend money on rapid growth.
OpenDNS founder and CEO David Ulevitch started the company in 2006 with $2.5 million in financing from CNET founder Halsey Minor. But since then, and until now, OpenDNS has grown entirely on cash flow from revenue, slowly adding a person at a time, Ulevitch tells us.
Sequoia and Greylock bought out Minor’s shares last year with an unspecified investment, but OpenDNS itself didn’t get any of that money. So this $4.5 million is really the first time Ulevitch has raised money since the early days.
What does OpenDNS do, anyway? The company provides “DNS” service for consumers (free) and enterprise customers (paid).
DNS is one of the most basic functions of Internet access: It’s a series of lookups that are done every time you visit a website, translating verbal addresses (“businessinsider.com”) into numerical server addresses (126.96.36.199). For a longer (but very clear) explanation, check out David Pogue’s recent positive review of the service in the New York Times — which quickly helped OpenDNS add 50,000 new users.
Mostly through word-of-mouth and a tiny sales department, OpenDNS has attracted some 20 million users — about 1% of all Internet users in the world — since 2006. It’s handling almost 30 billion DNS look-ups per day, roughly double the amount it handled a year ago.
But now the company wants to grow faster and make bigger bets, including slightly riskier ones, both in its consumer and enterprise businesses. And that’s why it just raised a pile of cash.
What’s Ulevitch going to do with the money? He tells us…
- Hire more sales people, faster, as well as more engineers and operations staff. (Right now, it has 32 employees.)
- The goal is to get the company’s enterprise revenue up to 50% of the company’s overall sales by the end of next year. It will be close this year, Ulevitch tells us, but ad revenue from the consumer version still represents the majority of OpenDNS’s sales. (The company wouldn’t specify its revenue, but we estimate it’s somewhere around $5-10 million per year.)
- More partnerships to get distribution on the consumer side. Right now, it’s built into Netgear consumer Internet routers to power the “parental controls” feature — filtering websites, basically. More deals like this could help the company grow rapidly in the consumer area.
- Full international expansion. Add datacenters in Asia, Australia, and more in Europe. Start to offer localised versions of the service in more languages. (About 40% of OpenDNS usage is international, currently.)
Why step on the gas now? One reason: Competition is likely to increase. Google got into the DNS game last year, and you never know when Cisco is going to jump in with a competing product. So it makes sense for OpenDNS to try to capture as much of the market as it can now, while it’s still in a very strong position.