Parabol Secures $8 Million in Series A Funding

Parabol, the company delivering retrospective meeting software for agile development teams, has announced the successful completion of an $8 million Series A funding round.

M12, the venture capital division of Microsoft, spearheaded the investment. Additional participation came from notable firms including Techstars, CRV, and Haystack.

Understanding Parabol’s Market and Growth

TechCrunch recently spoke with Parabol CEO Jordan Husney regarding this funding round and the company’s trajectory. A key question revolved around the potential size of the market Parabol addresses, and whether its focus was too narrow.

Despite being a relatively new venture, the indications suggest a robust market opportunity. This reinforces the broader observation that the software market’s overall scope may be even more expansive than previously estimated.

The Genesis of Parabol

The story of Parabol’s formation is particularly interesting. Rather than actively selecting a specific target market, the company found its niche through the needs expressed by its initial user base.

Essentially, the target market identified a need and gravitated toward Parabol’s solution. This organic growth pattern shaped the company’s current focus and future development.

The company’s origin story highlights a demand-driven approach to product development, where the market itself guides the direction of the business.

Horizontal Growth with a Vertical Focus

Having previously worked in consulting, Husney keenly understood the challenges distributed teams often face regarding communication. He explained to TechCrunch that in many large organizations with multiple locations, interaction between remote employees typically relied on email chains or scheduled meetings.

Identifying as a “recovering engineer,” Husney questioned whether a need existed within the business sector for “structured communications” – mirroring the asynchronous meeting formats favored by software developers.

Inspired by the principles of agile development, a software creation methodology emphasizing collaboration and iterative improvement over rigid processes and extensive documentation, Husney developed Parabol.

The goal was to extend agile workflows and communication techniques to business teams outside of development. If agile practices effectively enhanced developer productivity through status updates, could the same approach be successfully applied in other professional environments?

However, the market responded unexpectedly. Rather than gaining traction within the broader business landscape, Parabol encountered resistance due to the “behavior change” required – a factor often detrimental to the swift adoption of new services or products.

Interestingly, agile teams themselves began utilizing Parabol’s technology.

The startup pivoted to meet this emerging demand, and the potential proved substantial. Husney estimates the global population of agile developers to be approximately 20 million, a market that has fueled the success of companies like Atlassian.

This represents a significant and sustainable market opportunity for the company.

Considering the vastness of the software market, Parabol serves as a compelling example. It demonstrates the potential to establish a viable business by supporting a specific meeting style prevalent within the software development world; the overall market for software remains exceptionally large.

Key Takeaways

• Parabol initially aimed to improve communication in general business teams.
• The product found its niche serving agile development teams.
• The agile development market is substantial, with around 20 million developers globally.
• This highlights the potential for specialized software solutions within the broader software industry.

Expansion of Parabol

Following the decision to cater to agile software development teams, Parabol experienced rapid growth. The company’s CEO reported a monthly growth rate ranging from 20% to 40% throughout 2018 and 2019.

Husney likened his company to a “rocket,” attributing some of this success to Parabol’s freemium go-to-market strategy, a frequently employed tactic when targeting developers who typically bypass conventional sales methods.

By focusing on users already demonstrating interest, Parabol successfully identified product-market fit. Husney initially underestimated the demand for tools supporting agile workflows, believing developers had already established their preferred solutions, as he shared with TechCrunch.

However, Parabol’s offering is more than a basic tool. Its software facilitates retrospective meetings and incident post-mortems, gathering feedback from team members regarding actions to implement, discontinue, or maintain. This data is then automatically categorized by theme, followed by a voting process to prioritize changes and define actionable steps.

The outcome is a method for developer teams to maintain alignment asynchronously.

The startup secured a Seed funding round in November 2019, providing a financial buffer as the COVID-19 pandemic emerged. The swift transition to remote work significantly boosted Parabol’s user acquisition, increasing from 600 weekly new users in January 2020 to 5,000 per week by March of the same year.

Publicly available usage data illustrating this surge can be found here.

Following the $4 million Seed round, Husney considered raising additional capital based on advice from others suggesting favorable market conditions. After evaluating several options, he ultimately chose to accept funding from Microsoft.

This decision stemmed from a compelling narrative. According to Husney, Microsoft’s M12 venture fund wasn’t initially a top priority, as accepting strategic investment versus pure venture capital involves a trade-off not suitable for all startups.

However, after thorough due diligence and increased familiarity between the teams, a strong alignment became apparent. M12’s investment team consulted various Microsoft divisions – including Azure and GitHub – regarding their perspectives on Parabol, receiving overwhelmingly positive feedback.

This internal validation, coupled with the discovery that Microsoft itself was a frequent user of Parabol’s product, solidified the deal.

The $8 million investment was strategically determined. Husney explained that the company’s growth trajectory doesn’t necessitate substantial capital, as market demand is currently driving expansion. The team is also mindful of dilution, having founded the company in 2015 and delaying its Seed round until 2019.

He described those early years as “ramen days,” emphasizing the value placed on ownership earned through significant effort.

Parabol intentionally operates with a lean structure. Husney stated that his team is not pursuing the rapid scaling approach advocated by Reid Hoffman, instead prioritizing hires who offer high individual leverage.

In his opinion, building successful collaboration products doesn’t require aggressive scaling.

While the $8 million raise could theoretically provide Parabol with an extended runway, the CEO indicated it’s intended to cover approximately 24 months of operating expenses. He anticipates the company will grow to around 30 employees from its current team of 10 by the end of that period.

Parabol aims to quadruple its revenue this year and triple it again in 2022. The company also intends to expand its user base from 100,000 to 500,000 this year, ultimately reaching one million users by the end of next year. The company’s performance against these objectives will be closely monitored.