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Engine Yard Takes $3.5 Million Series A From Benchmark Capital

by Obie Fernandez on Jan 11, 2008 |

Pioneering Ruby on Rails-hosting company Engine Yard has taken $3.5 million Series A in a round led by the prominent VC firm Benchmark Capital. Benchmark is responsible for early stage funding of some very successful startups such as eBay, Linden Labs, Yelp and Zillow.

I recently spoke with Benchmark partner Mitch Lasky and Engine Yard's CEO Lance Walley about the deal. I was particularly interested in finding out what they plan to do with the extra money, since they have never been shy about the positive cash flow generated by their hosting business. Obviously, some big plans must be in the works.

Before we get too ahead of ourselves, it's worth mentioning that the hosting business will remain Engine Yard's core operation. To that effect, their global head-count currently numbers 32 people and will continue to grow rapidly. (They are hiring.) As for customers, in November they serviced over 250 clients (using approximately 800 slices of clustered server resources). Everyone that I spoke to agrees that the hosting business is a key component for generating cash and keeping Engine Yard's people up to date with the latest technology.

The hosting business is experiencing tremendous demand right now. Engine Yard's second cluster filled up fast, and a third is under construction, with new customers  currently being placed on a multi-week waiting list. Clusters 4 and 5 are in the works and will be located in NJ and London, versus Sacramento. While initial customers were smaller companies and individuals, newer customers include household-name corporations hosting internal-facing apps. In other words, Ruby on Rails has hit the mainstream enterprise market in stride, no matter what some critics may argue.

The best aspect of this news story for the Ruby community, is that much of the new money will be used to propel the continued progress of Rubinius and Merb, along with new and exciting Ruby-flavored open source projects. Lance told me that the cash infusion is allowing them to do interesting things faster, such as hiring the entire Rubinius team, which wouldn't have happened as fast otherwise because of the considerable payroll expense involved. Lance estimated that it might have taken 6 months or more otherwise, for cashflow reasons.

Benchmark Capital is a huge believer in open-source technology and they have been well-aware of the Ruby on Rails "space" for over a year. Mitch Lasky told me that they think of it as a "next Java", a next-generation mainstream programming technology. He shared an interesting story about how he converted a long-time PHP application to Ruby on Rails himself a year ago, after getting tired of rewriting it every year. Mitch called the experience "a revelation."

Echoing sentiments known intimately by all of us that have made the switch to Ruby, Mitch told us that "suddenly [my code] was readable", adding, "a real aesthetic engagement - that emotional reaction - that sense of elegance and fun is very important."

I asked Mitch if Benchmark hears a lot about Ruby on Rails from entrepreneurs. The answer was affirmative, "startup after startup after startup after startup are pitching us apps written in Rails" and that the situation has "not really slowed down" recently. However, many of those same startups do request help figuring out a standardized deployment story for Rails, which is where Engine Yard comes in.

In discussing the benefits of taking VC money at this time, Engine Yard CEO Lance emphasized the fact that unlike hosting, Rubinius development is a longer-term play, which along with Merb may eventually become part of a commercially-available technology stack. In this regard, they are positioning themselves to service customers that already have hundreds of servers in their datacenter and want to leverage a proven approach and software stack for deploying Ruby on Rails. Cluster Architect Jason Vantuyl is busy working on advanced virtualization technology, refinements of what Engine Yard has running on their clusters in a form available to outside organizations.

Mitch told me that Engine Yard's support for Rubinius and Merb was very appealing and made it interesting for Benchark to invest in the future of the Ruby platform, considering the way that similar early investments in MySQL and Jboss paid off considerably. He emphasized that the hosting business is a testbed that will continue to provide a way to see the problems that arise with big deployments and come up with good solutions, but the most exciting growth opportunities are in the open-source space.

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