Observability Tech Provider Observe Snags $156M In Funding, Preps For Channel Push
‘[Observability is] one of those things that’s not an optional purchase. You can’t write a whole bunch of software and say, ‘OK, if it goes wrong, I don’t need to investigate that.’ Everybody who writes software, which increasingly is more and more companies, needs to have a strategy for how they’re going to troubleshoot when something goes wrong. So from a channel standpoint, the nice thing is, it’s a must-have product,’ says Observe CEO Jeremy Burton.
Observe is developing technology to help software-focused companies tackle one of their most vexing issues: how to drill down into applications to understand the source of performance or other software issues.
Observe is a startup in the field of observability, which is looking at the outputs of an IT or software system to understand internal states and find remedies to issues.
“We develop a product that helps people troubleshoot modern, distributed applications,” Observe CEO Jeremy Burton told CRN. “So when something goes wrong and nobody knows what it is, how do you investigate it.”
To help scale its operations to meet the observability needs of enterprises to smaller companies, San Mateo, Calif.-based Observe late last month closed its Series C round of funding, bringing in $156 million. The round was led by Sutter Hill Ventures with participation from Madrona Ventures, Alumni Ventures, Snowflake Ventures and Capital One Ventures.
Burton said the funding is aimed at helping Observe get into larger, well-known companies where it is already finding success.
“We think there’s a big opportunity at the high end, the medium to large enterprise,” he said. “And I’d say the biggest difference in our business now versus a year ago is that we’ve managed to crack into some of these, and not just large enterprises.”
The channel will be an important part of that success, Burton said.
“Everybody who writes software, which increasingly is more and more companies, needs to have a strategy for how they’re going to troubleshoot when something goes wrong,” he said. “So from a channel standpoint, the nice thing is, it’s a must-have product.”
There’s a lot going on at Observe. To learn more, read CRN’s question-and-answer session with Burton, which has been lightly edited for clarity.
How do you define Observe?
We develop a product that helps people troubleshoot modern, distributed applications. So when something goes wrong and nobody knows what it is, how do you investigate it. Observability, which is the segment we’re in, is not so much telling you that you have a problem. That’s historically been monitoring. It’s much more like, “Why did you have a problem?” So it’s all about the investigation.
What’s Observe doing differently from other observability applications?
Our whole approach is that observability is a data problem, meaning it’s hard to investigate why something broke because people have fragmented data. They’ve got some logs over here, and they’ve got some traces over there, and they’ve got some metrics over here, and the person troubleshooting is trying to stitch together this picture of what’s going on. And so our big “aha!” was, “Hey, why don’t we put all that data in one database? Then it should be much easier to pull the threads and figure out exactly what’s happening.” So that was our approach. To this day, I think it’s still very differentiated. Not only is it easier. We have taken advantage of some big changes in the way databases were architected to make it a lot less expensive. I think if you were to do an on-the-spot interview with 10 people working on observability right now, nine of them would say it’s too expensive. We very much just wanted to provide not just faster troubleshooting, but actually just make it much, much cheaper.
The big news: Observe closed a Series C round of funding worth $156 million. Who was involved in that round?
The cast of characters that have been involved for some time, although some folks have gone bigger this round. Sutter Hill Ventures and Madrona Ventures have been involved almost since the very beginning. Sutter Hill actually founded the company all those years ago. They’re sort of that old school VC (venture capital firm) that incubates, and then they tend to invest in and hold on to investments, often for decades. They invested in Nvidia about 30 years ago. And then there’s folks like Snowflake Ventures who were quite majorly involved in this round. They certainly stepped up. Capital One Ventures joined, and is one of our biggest customers with Commonwealth Bank of Australia at this point. And then some smaller VCs like Alumni Ventures joined.
With this new round, how much funding has Observe taken in?
The basic math here is, we did $26 million in a Series A, $145 million in a Series B, and now $156 million in a Series C. The interesting thing, I guess, is that it’s been over a seven-year period, and so we’re probably in the ballpark of, I think, normal for a company of our size. We don’t disclose revenue, but we’re starting to operate now at scale, and the new funding is really about scaling the business.
We’re a bit different to a lot of observability companies in that we tend to focus more on the larger companies. We think there’s a big opportunity at the high end, the medium to large enterprise. And I’d say the biggest difference in our business now versus a year ago is that we’ve managed to crack into some of these, and not just large enterprises. I mentioned Capital One and Commonwealth Bank of Australia, and some of these companies that are scaling quickly include Dialpad and Tekion. These are tech-centric companies that are growing quite rapidly, and their data volumes are not too far off what these large enterprises have.
How far is Observe away from profitability?
Observe, we’re not profitable. Whenever you go out and raise money, you always have something like a five-year plan, and certainly within those five years we have a path to profitability. So we’re still burning money at this point. But the goal here is that we can really build an enterprise customer base. And then once we’ve got that customer base, over time, the cost of servicing that customer base is less and less. And so then the path to profitability, I think, is much easier.
How does Observe work with the channel? Are you mostly direct or channel?
Mostly direct right now. I think these things are always a journey. Our channels right now are really things like the AWS marketplace or the Google Cloud Platform marketplace or the Snowflake marketplace. We’re at the point now, though, where the business is big enough that we have to start to develop a strategy so that we’re not the ones always doing the implementation. We do have some accounts that have been implemented by partners. But I think what you find is, when the product’s young and it’s got issues, then you work very closely with engineering in order to get the implementation to work and be successful until you can make the implementations repeatable. As you do more of these and the product actually does work, you don’t need to be as close to engineering. And for me, that’s the point at which the product is then ready for partners to take and do the implementation.
We are rapidly approaching that point. Today, probably, let’s say 95 percent of the implementations have been done by us. Our hope is that in the coming year that changes to be much more Observe working with a partner because we think we figured out what it takes to make the implementation repeatable and therefore a customer and a partner successful.
Is observability in general really a channel-friendly type of technology, or is it something that it’s difficult for channel partners to get into?
I don’t think it’s difficult for them to get into. I mean, it’s its own domain, right? It’s like security. It’s got its own nuances and language and practices, but I don’t think it’s a difficult one to get into. And I’d also say, if you look at the segment of observability, it’s definitely one of the biggest and fastest growing areas. It’s one of those things that’s not an optional purchase. You can’t write a whole bunch of software and say, “OK, if it goes wrong, I don’t need to investigate that.” Everybody who writes software, which increasingly is more and more companies, needs to have a strategy for how they’re going to troubleshoot when something goes wrong. So from a channel standpoint, the nice thing is, it’s a must-have product.
Number two, the software keeps changing. So as the software is updated, two years ago we would have said, OK, state of the art in building applications is cloud-native, microservice-based, Kubernetes. That is the architecture among applications. Well, if you look at companies writing software now, it’s going to be more maybe agentic AI applications. Those applications are a little bit different from the cloud-native, microservice-based applications, and so the observability is going to have to adapt to accommodate that new change in architecture. So again, for a partner, there’s repeat business there. ‘I’ve now got some cloud-native, microservice based apps, and I’ve got some of these new AI apps, and I’d like to troubleshoot both of them.’ And so to me, part of building a good business is, can I get repeat business over the years. Well, as the application architectures change, there’s a constant opportunity to go back to the customer and take them to the new architecture, or the new way of doing things.