New Relic Gets Another $10M, Proves SaaS Profitability

SaaS startup New Relic has received an additional $10 million in venture capital for its application performance management (APM) offering that targets both data centers and the cloud. Tenaya Capital and Allen & Co. led the Series C round, with existing investors Benchmark Capital and Trinity Ventures also chipping in. The round brings New Relic’s total investment to $20 million, proving the importance of management and monitoring as companies adopt cloud computing, as well as the power of the SaaS 2.0 model.

What separates New Relic from other APM providers is that its RPM service monitors live software from the inside instead of simply monitoring external web application metrics. RPM comes in five editions, ranging from the free Lite version, which gives basic monitoring capabilities, up to the Enterprise version, which provides a range of capabilities to discover and cure performance issues. According to founder Lew Cirne, the internal view helps customers identify problems early and avoid “the thorniest issues,” citing the recent Foursquare outage as a problem that might have been avoided if the company could have been proactive in addressing the problem.

Formerly, New Relic supported only Java (s orcl) and Ruby web applications, but as of today, it also supports .NET and PHP applications. This is nothing new for cloud-based services, which tend to start with a focused offering and expand their customer bases as they grow by adding additional language support. Even larger companies like Google (s goog) and (s crm) took this approach with their cloud offerings. More applications mean more money, after all.

New Relic’s already-expansive footprint would seem to underscore the value of its service and of the SaaS model. The company counts just about every cloud provider as a technology partner (Joyent and Heroku offer it as an add-on in their offerings), and the company has experienced 200 percent growth annually since launching in 2008. Cirne says the company presently has 5,600 customers running the service in production, with 900 of them paying New Relic directly. Among them are large enterprises running New Relic within their data centers.

Perhaps more important than the product, however, is how the economics of New Relic underscore the power of the SaaS model –- specifically, the freemium model prevalent among SaaS 2.0 vendors. Nine hundred paying customers is no small feat when you consider that the company just increased its sales force to three from two a couple of weeks ago.  Cirne contrasts New Relic’s approach to that of, which customers can’t start using without speaking with multiple salespeople, as well as to the last company Cirne founded, Wily (an on-premise APM vendor), which he sold to CA (s CA) for $375 million.

When CA bought Wily, Cirne says it had 500 customers, 270 employees (about 150 of them in sales) and had raised $45 million. Keep in mind, New Relic just closed its latest round. Most of what it has accomplished was with about $10 million. Cirne says $20 million is way more than New Relic needs to achieve profitability, but it’s good to have some extra cash to capture opportunities in what he thinks will be a billion-dollar business.

Image courtesy of Wikipedia Commons user KlausFoehl.

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