It took Toronto-based corporate virtual private network (VPN) startup Tailscale over four years to reach 5,000 paid business customers, a milestone it achieved in March 2024.
Ten months later, Tailscale has more than doubled its corporate client base. The software unicorn recently hit 10,000 paid business customers—ranging from small firms to Fortune 500 companies—and not including its hundreds of thousands of personal users.
Tailscale co-founder and CEO Avery Pennarun said the company’s rapid product-led growth has been fuelled in part by strong demand from artificial intelligence (AI) businesses, as companies across the world have raced to take advantage of the technology. Today, Tailscale serves some of the world’s most prominent AI startups, counting Mistral, Hugging Face, and Toronto-based Cohere among its customer base, which also includes businesses like Duolingo and Instacart.
“You could say that we’re the network that powers AI.”
Avery Pennarun, Tailscale
“We’re not an AI-powered network or anything like that, but you could say that we’re the network that powers AI,” Pennarun told BetaKit in an exclusive interview. “If you want to get rich in the gold rush, don’t go searching for gold; sell shovels … Tailscale is sort of the shovel seller for the AI world, and I think that’s pretty exciting.”
Pennarun has written that AI firms have big networking problems because they must transfer immense amounts of data between many machines across multiple cloud providers. They also face plenty of access control, compliance, cryptography, identity, and privacy concerns, given the amount of personal data they process for clients and the reputational risk should something go awry. These characteristics make AI companies “an ideal use case” for Tailscale.
Pennarun said that AI businesses often use multiple cloud providers because AI chips like graphic processing units (GPUs) are expensive, and big cloud providers rarely offer the best prices. This forces AI companies to use large cloud providers for most of their work, GPU cloud providers for their GPU work, and network between them. “That’s something that Tailscale does really well,” the CEO told BetaKit.
Founded in 2019 by former Google software engineers, Tailscale caters to companies and individuals with its zero-configuration VPN, which can be installed on any device, manages firewall rules for users, and works from anywhere. One of Tailscale’s key selling points is software’s accessibility, which enables people and teams to securely access network services without the long setup times and complexity 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.” Security networking products have historically been sold to large enterprises from the C-suite down, Pennarun said. Tailscale takes a different approach, which he has described as “bottom up,” targeting the end users of its solution—developers—first.
Tailscale has raised approximately $148 million CAD in total funding to date from a group that includes CRV, Insight Partners, Accel, Heavybit, Uncork Capital, and Montréal-based Inovia Capital and Panache Ventures. This includes a $128-million Series B from May 2022, which valued the company at more than $1 billion.
The startup has grown significantly in recent years following the pandemic-era shift to remote work. Pennarun claimed that Tailscale has been growing more than 100 percent year-over-year. He declined to share Tailscale’s revenue with BetaKit but claimed that it has also been growing proportionally to its customer base.
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Tailscale also recently surpassed 500,000 weekly active users. Taking into account those who use the product less frequently than weekly, Pennarun said its active user count is in the millions, which he claimed is “quite high” in terms of usage for a network security product.
Tailscale has moved up market to larger customers since its Series B round while continuing to service smaller clients, rolling out additional security features, more refined access controls, network flow logging, and other capabilities to meet enterprise needs.
Tailscale opted to raise a lot of money in 2022 partly to ensure it had the runway to survive more difficult market conditions. According to Pennarun, the now more than 100-person company has not had to make any layoffs or pause hiring during the downturn but did hire a bit more slowly last year out of caution.
According to Pennarun, employers’ push for workers to return to the office in person has typically led to hybrid work and a continued need for the startup’s product during the times when employees are working remotely.
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Today, Pennarun said Tailscale remains well capitalized, can become cash-flow positive without additional financing, and has begun to contemplate another fundraise.
Pennarun said Tailscale has achieved not just product-market fit but go-to-market-fit and is now entering what he described as “the growth phase.”
To help it move faster, Tailscale has appointed former Cloudflare head of business operations and Asia-Pacific manager Grace Lin as senior vice-president (VP) of operations. “Grace has a lot of experience in that acceleration phase,” Pennarun said. This included helping the fellow network security company scale to its 2019 initial public offering.
“Grace has a lot of experience in that acceleration phase.”
Lin told BetaKit that she was initially drawn to Tailscale by the number of ex-Cloudflare folks at the startup, its high level of customer satisfaction, its product-led growth, and its freemium business model.
“We have this huge freemium base, we have a self-serve business that really democratizes the product, and then we’re growing out this enterprise business that’s serving some of the most important companies at the forefront of AI and other areas,” Lin said.
Lin said she sees lots of room for the company to expand more internationally. She marks the latest in a series of executive hires the company has made over the past year, including Sydney Rossman-Reich as VP of marketing, Andrew Mitchell as VP of engineering, and Travis Perkins as VP of customer experience.
Tailscale plans to grow its team in 2025 and is recruiting for engineers, sales, marketing, and operations roles, including at its London, UK office to ensure 24/7 coverage globally. The company is currently hiring for more than 20 positions.
As for the 100-plus-percent annual growth that Tailscale has been posting, Pennarun said, “I don’t know how long that’s going to be able to continue, but I’ve got my fingers crossed we should be able to do it for at least another year.”
Feature image edited by Josh Scott. Headshots courtesy Tailscale.