A slew of American investors have backed Canada’s newest unicorn, as Tailscale has raised $128 million CAD ($100 million USD) to begin scaling its operations by spending “a lot” on engineering, and investing “a bit” in marketing and sales.
Toronto-based Tailscale has seen increased demand due to COVID-19 and the company’s unique go-to-market approach. In an interview with BetaKit, Tailscale co-founder and CEO Avery Pennarun said that the corporate virtual private network (VPN) startup has found product-market fit and “reached the growth phase.”
“The love for this product is borderline weird.”
-Reid Christian, CRV
Some of this growth has come as a result of the pandemic-induced shift to remote work—which has highlighted the need for better, more accessible corporate VPN solutions—while much has been aided by Tailscale’s “bottom-up,” developer-focused growth strategy.
Tailscale’s all-equity, all-primary Series B financing closed in April and was led by a pair of new United States (US) investors in CRV and Insight Partners. The round also saw participation from a group of US-based existing investors in Accel, Heavybit, Uncork Capital, and undisclosed individual investors. Tailscale’s previous investors include Montréal-based Inovia Capital and Panache Ventures, which backed the startup’s 2020 seed round.
The round brings Tailscale’s total funding to nearly $148 million CAD ($115 million USD). Pennarun declined to share the startup’s valuation, but slyly hinted that Tailscale had reached a $1 billion CAD valuation. “I have heard people throwing around the term ‘Canadian unicorn,’ which I guess I won’t deny,” he said.
Tailscale was founded in 2019 by a group of former Google software engineers, including Montréal-based Pennarun, Toronto-based COO David Carney, CTO David Crawshaw, and Brad Fitzpatrick—who are both located in the US. The startup operates as a fully remote company, with employees distributed across Canada and the US.
Tailscale caters to companies and modern developer operations teams with its zero configuration VPN, which can be installed on any device within minutes, manages firewall rules for its users, and works from anywhere. One of the startup’s key selling points is its accessibility, which enables individual users and teams to securely access network services without the “long setup times of traditional VPNs.” Tailscale’s tech is based on Google’s BeyondCorp architecture and built using the WireGuard protocol, and can be launched without costly upfront hardware investments—enabling users to roll it out incrementally. Tailscale touts its solution as “strong security, without the pain.”
“We started off the company and sort of realized that a lot of people had been using fancy, complicated, super scalable infrastructure products to build what turned out to be relatively simple things,” said Pennarun. “And so there’s this whole market opportunity for what I call making the easy things easy, because other people are already making the hard things possible.”
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Pennarun said Tailscale opted to raise such a large financing round in part to ensure it had the capital to weather uncertain market conditions, which have led other high-growth companies like Vancouver-based Thinkific to lay off staff in an effort to preserve cash.
“We were a little concerned that the economy might not keep going in the direction it was going [and] we wanted to make sure that we had a nice long runway to live through any weird market corrections that might happen,” said Pennarun. “We’re not going to immediately blow all the money on growing as fast as possible. Our plan is to sort of grow cautiously, based on a natural growth rate of the product.”
To date, this strategy has served Tailscale well—the startup has experienced 1,200 percent growth year-over-year since 2019, and seen its active monthly user base increase by a rate of 20 percent. According to Pennarun, this traction has been “almost entirely organic,” and fuelled primarily by word-of-mouth recommendations.
“The love for this product is borderline weird,” CRV General Partner Reid Christian said in an interview with BetaKit. “It reflects on just how stale of a market opportunity [and] how painful existing solutions and processes are.”
Historically, security networking has been purchased from the “CIO level down,” said Christian. “The large enterprises would force software down onto the lower ranks in the end users, making it a bit of a tumultuous relationship between end users and the products they had to use at work.”
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Tailscale takes a different approach, which Pennarun describes as “bottom up,” targeting the end users of its solution—developers—which the startup plans to continue to focus on.
“People rave about this product,” said Christian. “Individuals love to use it, and they love to use it so much that they bring it to their office, they share it with their colleagues, they build it into their applications, and they’re actually the ones that are the evangelists, within the enterprise. And that’s how it’s being adopted.”
According to Christian, the success of this strategy is reflected in Tailscale’s viral coefficients. “Every user invites a handful of other users on average, and that organic spread is truly unique for a security networking product,” he said. “It’s something that we haven’t seen before.”
Initially, Pennarun said he expected Tailscale to run into problems raising capital given the state of the market, but he claimed the startup ended up facing few.
“The refrain that I’ve been using a lot is more of the same because I think what we’ve been doing has been working really well.”
Christian attributed Tailscale’s successful fundraising to the strength of its team, “impeccable timing,” and large total addressable market. “For companies that have that trifecta—why now, why this team, and how big can it become—those businesses are [still] commanding and attracting investors,” said Christian, who added that Tailscale had “many, many options on the table.”
According to Insight Partners Managing Director Rebecca Liu-Doyle, “Tailscale is ringing in a new paradigm of secure networking — one that is centered around intuitive design and pure user delight.”
Asked whether Tailscale plans to use this capital to ramp up or shift its marketing efforts, Pennarun said the company plans to stick with its existing strategy. “The refrain that I’ve been using a lot is more of the same because I think what we’ve been doing has been working really well,” he said.
At the same time, Tailscale needs to grow its sales team in order to handle demand for its product. Six months ago, the startup had zero employees in sales, and a couple months back, Tailscale had only one team member working in marketing.
“At the growth rates that we’ve been having, each month, it gets harder and harder to even just answer all the incoming emails from the people who are enjoying the product and have some questions or want to consider buying it,” said Pennarun. “So we’ve been scaling up our sales team just to be able to handle the incoming load of new leads.”
UPDATE (04/04/22): Based on information shared with BetaKit, this story originally incorrectly stated that Inovia Capital participated in Tailscale’s Series B round. This story has been updated to note that Inovia is a prior investor in Tailscale.
Feature image of Avery Pennarun, courtesy Tailscale.