Nginx success story, or “Everything is possible, try it!”

Igor Sysoev , a nginx web server developer , a member of the large HighLoad ++ family , did not just stand at the origins of our conference. I perceive Igor as my professional teacher, a master who taught me how to work and understand highly loaded systems, which for a decade determined my professional path.

Naturally, I could not get past the overwhelming success of the NGINX team ... And I interviewed, but not from Igor (he is still an introvert programmer), but from investors from the Runa Capital fund who saw nginx ten years ago and built a business around him infrastructure, and now conducted a deal unprecedented in size for the Russian market.

The purpose of the article under the cut is to confirm once again - everything is possible! Try it!

Head of the HighLoad ++ Program Committee Oleg Bunin: Congratulations on a successful deal! As far as I can tell, you managed to maintain and support Igor’s desire to continue working as a programmer and at the same time build the entire business infrastructure around him - this is a dream of any developer. Right?

My interlocutor, managing partner of Runa Capital Dmitry Chikhachev: This is so. This is a great merit of Igor himself and his cofounders Maxim and Andrey (Maxim Konovalov and Andrey Alekseev), because they were initially ready for this infrastructure to be built around them. Not all startups evaluate their own strengths and capabilities so adequately.Many want to lead or lead the whole process.

- That is, the NGINX team by and large itself pulled away from the business part, or what?

Dmitry: No, they did not move away from the business part, why? Maxim led the operations as an operations director. Andrey was engaged in BizDev, Igor continued to develop - what he liked. Everyone was doing what his strength was and what he liked.

More than 15 years ago, the nginx project was launched, 8 years have passed since the founding of the company.

I saw the whole story from the investor, my description of the events can be slightly simplified, grabbing only a few turning points.

But the basis of everything is the years of hard work of the team and the founders involved in the search and selection of CEO, the opening of an American office, the formation of a business model, and most importantly - in the constant development of the product.

For which we do not get tired of telling them many human thanks! Thanks to them, nginx is developing and succeeding.

But they all understood that to build a multi-million dollar business in the USA, a person of a different caliber, with a different background, was needed. Therefore, even in the first round of negotiations there was an agreement with investors that such a person would be found. Gus Robertson became him, he fits all these criteria.

The nginx value for the HighLoad community cannot be overestimated. Thank you for making our life great!

- So, was it originally planned to enter the American market?

Dmitry: NGINX is a b2b business. Moreover, it is not particularly widely known to users, since it works at the infrastructure level, we can say middleware. The main market for b2b is the United States - 40% of the world market is concentrated there.

Success in the US market determines the success of any startup.

Therefore, a logical plan: to go to the USA, immediately hire a person who will lead the American company, will develop the business and attract American investors. If you want to sell infrastructure software in the USA, it is important that American investors are behind your back.

- Who came to whom: you to nginx, nginx to you?

Dmitry: We had many different points of contact. We probably took a big initiative, because even then nginx was noticeable. Although he was not yet a company, and the market share was relatively small (6%), investor interest was already large. The deal was competitive, so we, of course, were active.

- In what condition was the product? There was no company, but were there drafts of a commercial enterprise version?

Dmitriy:There was an open source nginx web server. He had users - 6% of the global market. In fact, these are millions, even tens of millions of web sites. But, nevertheless, there was no company; there was no business model. And since there was no company, there was no team: there was Igor Sysoev - a nginx developer and a small community around.

This is a very interesting story. Igor started writing nginx quite a while ago - in 2002, and released in 2004. In reality, interest in him only appeared in 2008, in 2011 he raised money. Few people wonder why so much time has passed. In fact, there is a logical technical explanation for this.

In 2002, Igor worked at Rambler, and there was one problem that he, as a system administrator, solved - the so-called C10k problem, that is, providing the server with more than ten thousand simultaneous requests in peak load. Then this problem only appeared, because heavy loads on the Internet only came into use. Only a few sites came across it - such as Rambler, Yandex, Mail.ru. For most websites this was irrelevant. When 100-200 requests per day, no nginx is needed, Apache will do just fine.

As the Internet became more and more popular, the number of sites that encountered the C10k problem grew. More and more sites began to require a faster web server to process requests - such as nginx.

But the real load explosion occurred in 2008-2010 with the advent of smartphones.

It is easy to imagine how immediately the number of server requests has grown. Firstly, the time for using the Internet has increased, because clicking on links has become possible everywhere and everywhere, and not just sitting at a computer. Secondly, the behavior of the user has also changed - with a touch screen, clicking on links has become more chaotic. You can add social networks here.

As a result, peak loads on the Internet began to grow exponentially . The total load grew more or less evenly, but the peaks became more and more noticeable. It turned out that the very same C10k problem became widespread. At this moment, nginx also flew.



- Tell me how events developed after the meeting with Igor and his team? When did the development of infrastructure and business ideas begin?

Dmitriy:First a deal was formed. I have already said that the transaction was competitive, and in the end a syndicate of investors formed. We became part of this syndicate with BV Capital (now e.ventures) and Michael Dell. First, the deal was closed, and after that they began to think about the issue of finding the American CEO.

How did you close the deal? After all, it turns out that you didn’t even know which business model and when it will pay off? Just invested in a team, in a cool product?

Dmitry: Yes, it was a pure sowing transaction. At that moment, we did not think about a business model.

Our investment thesis was based on the premise that NGINX is a unique product with a significantly growing audience.

He was solving a rather serious problem for this audience. I have a favorite test, a litmus test for any investment - does the product solve a massive and painful problem. NGINX this crash test passed with a bang: the problem was massive, the load grew, the sites were lying. And it was painful because an era was coming when the website was becoming what is called mission critical.

In the 90s, people reasoned like this: the site is lying - now I will call the system administrator, they will raise it in an hour - it's normal. In the late 2000s, for many companies, a 5-minute down-time became equal to really lost money, reputation, etc. The fact that the problem was painful is one side.

The second side that we as investors look at is the quality of the team. Here we were impressed by Igor and his cofounders. It was a complementary experience and a unique product that was developed by one person.

- It is clear that a team with a certain number of competencies complementing each other also played a role.

Dmitry: It seems right to me that Igor alone developed a product, but when the moment of creating a business approached, not one rushed there, but with partners. Looking at 10 years of investing experience, I can say that the presence of two co-founders, of course, reduces the risks. The optimal number of cofounders is two or three. One is very small, and four are already very many.

- What happened next? When the deal has already taken place, but there was no well-developed business idea.

Dmitriy:A deal is concluded, the company is registered, documents are signed, money is transferred - that's all, we ran. In parallel to the development of the business part, we hired a development team that began to work on the product. Andrey Alekseev as BizDev built the first relationships with potential customers in order to collect feedback. We all thought together on a business model, and all together we looked for a top manager who would develop the American business and lead the company in essence.

“And how did you find him?” Where? I have no idea how to do this.

Dmitriy:All investors and the board of directors did this. In the end, the choice fell on Gus Robertson. Gus worked at Red Hat, whose top manager was our investor. We turned to Red Hat because it is open source, we said that we are looking for a person who is able to lead the business and grow it into a billionth. They recommended Gus.

The deal with NGINX was closed in 2011, and in 2012 we already met with Gus, and we immediately liked him very much. He had an open source background from Red Hat - at that time it was the only company with multi-billion capitalization in open source. In addition, Gus was engaged in business development and sales - what you need!

In addition to the background and experience, we liked his personal qualities - he is an intelligent, insightful person with a quick mind, and, importantly, it seemed to us that he had a good cultural compliance with the team. Indeed, this is what happened. When they met, it turned out that everything was on the same wavelength, all in excellent interaction.

We made an offer to Gus, and at the end of 2012 he started to work. Gus also suggested investing his own money in NGINX. All investors were impressed. Due to the high involvement of Gus, he joined the founding team and was perceived by everyone as a co-founder of the company. Subsequently, he was one of four. There is a famous photo where all four in NGINX shirts.


Photo taken from noteDmitry Chikhachev on the history of cooperation between NGINX and Runa Capital.

- Did you immediately find the business model, or did it change later?

Dmitry: We managed to find the model right away, but before that we discussed for some time how and what. But the main discussion was whether to continue to support the open source project, whether to leave nginx free, or to gradually make everyone pay.

We decided that it would be right to use the power of the community behind nginx, not to disappoint him and not to refuse to support the open source project.

Therefore, we decided to keep nginx in open source, but to create an additional special product called NGINX Plus. This is a commercial nginx-based product that we license to enterprise customers. Now the main business of NGINX is the sale of NGINX Plus licenses.

The main differences between the open and paid versions are:

• NGINX Plus has additional functionality for enterprise, primarily load balancing.
• In contrast to the open source product, there is user support.
• This product is easier to handle. This is not a constructor that you need to build yourself, but a ready-made binary package that you can deploy to your infrastructure.

- How does open source and commercial product interact? Do any features from a commercial product flow into open source?

Dmitry: Open source product continues to develop in parallel with the commercial one. Some functionality is added only to a commercial product, something there and there. But the core of the system is obviously the same.

The important point is that nginx itself is a very small product. In my opinion, there are only about 200 thousand lines of code in it. The challenge was to develop additional products. But this already happened after the next round of investments, when several new products were launched: NGINX Amplify (2014-2015), NGINX Controller (2016) and NGINX Unit (2017-2018). The product line for enterprise has expanded.

- How quickly it became clear that you guessed with the model? Went to payback, or it became clear that the business is growing and will bring money?

Dmitry: The first year with revenue was 2014, then we earned the conditional first million dollars. At this point, it was clear that there was a demand, but the economy was not yet fully understood in terms of sales, as far as the model would allow it to scale.

Two years later, in 2016-2017, we already realized that the economy was good: the outflow of customers is small, there is up-sell, and customers, having started using NGINX, buy it more and more. Then it became clear that this could be scaled further. Which in turn led to additional rounds of financing, which have already gone on to scale the organization of sales, hiring additional people in the USA and other countries. NGINX now has sales offices in the States, Europe, Asia - worldwide.

- Big NGINX now?

Dmitry: Already about 200 people.

- Basically, probably, these are sales and support?

Dmitry: Development is still quite a large part of the company. But sales and marketing are a big part.

- The development is mainly done by the Russian guys who are in Moscow?

Dmitry: Development is already underway in three centers - these are Moscow, California, Ireland. But Igor continues to live in Moscow most of the time, go to work, and program.

We followed the whole path: beginning in 2002, in 2004 the release of nginx, growth in 2008-2009, 2010 acquaintance with investors, in 2013 first sales, in 2014 the first million dollars. And what about 2019? Success?

Dmitry: In 2019 - a good way out.

- Is this a normal startup cycle for time, or an exception to the rule?

Dmitriy:This is a completely normal time cycle - depending on what to count from. When Igor wrote nginx - I knowingly told this backstory - nginx was not a mass product. Then, in 2008-2009, the Internet changed, and nginx became very popular.

If you count just from 2009-2010, then the 10-year cycle is completely normal , given that in fact this is the moment when the product just began to be in demand. If you count from the 2011 round, then 8 years from the time of the first seed investment is also a normal time.

- What can you tell now, completing the topic with NGINX, about F5, about their plans - what will happen to NGINX?

Dmitriy:I do not know - this is the corporate secret of F5. The only thing I can add is that if you google “F5 NGINX” now, then the first ten links will be news that F5 acquired NGINX. To the same query two weeks ago, the search would first return ten links on how to migrate from F5 to NGINX.

“They wouldn’t kill a competitor!”

Dmitry: No, why? The press release outlines what they are going to do.

- Everything is fine in the press release: we will not touch anyone, everything will grow, as before.

Dmitry: I think that these companies have a very good cultural coincidence. In this sense, they both still work in the same segment - networking and workloads. Therefore, everything will be fine .

- The last question: I am a brilliant programmer, what should I do to repeat success?

Dmitry: To repeat the success of Igor Sysoev, you first need to figure out which problem to solve, because the code is paid only when it solves a massive and painful problem.

- And then to you? And then you will help.

Dmitry: Yes, with pleasure.

Thanks a lot to Dmitry for the interview. With the Runa Capital fund, we will soon meet again at Saint HighLoad ++ . In a place that, now, we can say with full confidence, gathers the best developers not of Russia, but of the whole world. Who knows, maybe in a few years, we will all as hotly discuss the success of any of you. In addition, it is now clear where to start - to look for a solution to an important problem!

And be prepared, like the nginx team, for many years of hard work.