Some of the top names in global venture capital have invested more than $100-million in a Toronto startup named after the city of Buffalo with 18 employees, no revenue – and big plans to transform how software is developed.
Buf Technologies Inc. said last week it had raised US$93.4-million in four separate financings since its founding 22 months ago, including a US$68-million funding last month co-led by New York funds Lux Capital and Tiger Global.
Other investors include U.S. venture capital firms Amplify Partners, Lightspeed Venture Partners, Addition, Haystack Ventures, Abstraction Capital, Greenoaks Capital Partners and Canada’s Garage Capital.
It’s the fourth investment this fall in Canada led or co-led by Tiger Global, one of the world’s largest and most prolific early stage investors, known for offering big dollars at rich valuations to young, growing companies with fast closing times and no requests for board seats or other conditions usually set by VC firms.
Buf’s early success attracting money is in sharp contrast to Canada’s startup scene a decade ago, when many founders here were told by U.S. funders they would have to move south as a condition of receiving funding. Many did.
By contrast, Buf was founded and built in Toronto by an American, software engineer Peter Edge, after leaving his previous job with Uber Technologies in the city, which has seen a huge influx of global tech giants and a proliferation of startups that have flourished without having to move. “The team could have built this company anywhere,” said Mike McCauley, managing partner of Waterloo, Ont.-based Garage Capital. “But they’ve chosen to build it in Toronto … because it’s where they believe it’s the best place to attract the best global talent.”
Mr. Edge named the company as both a nod to both his hometown of Buffalo (which is technically the company’s headquarters) and also the area of software development it focuses on, known as protocol buffers (or Protobuf) built on top of open-source tools first developed by Google.
In plainer language, Buf is working to make it easier for machines and software programs to communicate with one another. Developers typically create and use software tools known as APIs (application programming interface) that enable different digital technologies to interact. While some of the largest digital companies have adopted technologies such as Protobuf to streamline the development process, much of that work is done by everyone else using less advanced open-source programming tools. It’s a laborious process that Mr. Edge said in an interview previously ate up 20 per cent of his engineering working time.
“None of us are really providing any business value” doing that, Mr. Edge said. “A lot of the industry has had a really difficult time bringing it to everyone else in an easy-to-consume way, and we think we have the world experts to actually accomplish it. If we can eliminate a large portion of that code base you need to write … it effectively reduces the amount of time your engineers need to spend on all these ancillary tasks. With every company becoming a software company, if you can give back software engineering time, you’re giving a company back one of its most valuable assets.”
The company’s head of business development, Ahron Seeman, a former management consultant, explains its approach is to build “schema driven” tools “analogous to Lego. You know what the interface between two bricks will be, so you can build a chimney before you build a roof because you know exactly how they should connect. Google and Facebook have done that for years. Buf’s value is to build software to help [other] companies do that in a more accessible way.”
Mr. Edge, who studied computer science and math at Pittsburgh-based Carnegie Mellon University, has recruited at least six of his former colleagues from the ride-sharing giant Uber. Other Buffers previously worked at prominent tech firms Stripe, GitHub, Cisco and Autodesk.
Mr. McCauley said “what intrigued us most about the story was that the team had experienced the exact problem they were going after at some of the most well-respected engineering companies … and had realized what they were building would be useful to everyone else, but no one had built it for everyone else yet.”
Guru Chahal, a partner with Silicon Valley-based Lightspeed, which led Buf’s US$3.7-million seed round in September, 2020, said when he met the company it was “very clear the potential here is huge, because there is an amount of pain every software team in the world goes through to take those open-source projects and make them usable for the team. If you solved that, you’d get paid for it.”
Buf released a free open-source program called Buf CLI last year that it says has been downloaded by more than one million developers. In recent months, it has focused on building its paid tool, called Buf Schema Registry. Several early customers are now testing it out; Mr. Seeman describes them as “major enterprises, public companies and household names” but won’t disclose their identities.
“I would expect very soon we will have our first revenue,” Mr. Edge said, though he added: “Meaningful revenues, to the point where it has a major impact on the business, isn’t our primary concern as a 2022 target.”
For now the focus is on staffing up to 100 people next year, accelerating development and building up the user base.
While the idea of giving away a product for years is foreign in many sectors, it’s commonplace in the world of software tool development; other multibillion-dollar-valued companies have deployed similar strategies, including Lightspeed-backed Grafana Labs Inc., and publicly traded Confluent Inc., Elastic NV and HashiCorp Inc.
“Our experience is, if you create and provide value to engineering teams, there’s enough budget that they’ll pay” for a version with more support and features, Mr. Chahal said.
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