Arik Hesseldahl

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Okta’s $27 Million Series D Comes as Europe and Asia Embrace the Cloud

todd_mckinnon_380Last week, Okta, the fast-growing identity management company, raised a $27.5 million Series D round of venture capital funding led by Sequoia Capital.

The round — in which prior investors Andreessen Horowitz, Greylock Partners and Khosla Ventures all participated — brought Okta’s total capital raised to north of $80 million, and comes in rapid succession behind its $25 million Series C announced in December.

Beyond that, one of Okta’s rivals, Ping Identity, raised a $44 million F round in July ahead of an expected IPO next year.

It seemed a good time to check in with CEO Todd McKinnon (pictured), and to visit Okta’s headquarters off San Francisco’s South Park.

Business is accelerating a lot faster than McKinnon had expected. The new funding, he said, will go toward expanding Okta’s international footprint, first in Europe, then in Asia. First up is a new office in London, followed by an office in Australia to service accounts in Asia, and another in Japan.

“Generally what we see is that Europe is about one to two years behind North America in adopting cloud technologies, and companies in Asia are another year or more behind that,” he said.

That creates a pretty good base to grow Okta’s business. Its specialty is to help companies manage the sign-on credentials of all their employees as they adopt cloud computing services like Salesforce.com, Workday and Marketo. But it also works with on-premise products. The idea is to create a single identity for every kind of software that a business might use, and thus make it easy to manage access, enabling it when a new employee joins, adding access to different things when their job changes, and cutting their access in one easy go when they leave.

McKinnon said the company is well ahead of its financial plan. “After we raised our series C, our plan had always been to raise about $35 million more. But what has happened since then is that we’ve been crushing our plan,” he said. Bookings — a key metric for cloud computing companies — and revenue are accelerating.

He wouldn’t tell me how much revenue the company brings in, but he said that Okta is less than 24 months away from breaking even. And as he thinks about a potential IPO, McKinnon sees the company doing a lot better than what the conventional wisdom suggests is the minimum. “Before an IPO, you’re generally expected to have $100 million in revenue, and to be growing your recurring revenue at 20 percent annually. Ours will be higher than that.”

There are a few other barometers suggesting the size of the opportunity for cloud services in Europe and Asia. Box, the fast-growing cloud storage and collaboration company, mounted its invasion of Europe last year, despite the ongoing economic downturn on the continent. As its CEO, Aaron Levie, put it at the time, cloud computing saves money, and at European companies these days, saving money is in.

Earlier this year, Salesforce.com, by far the biggest and most visible pure-play cloud software company, said that its biggest customer was the government of Japan.

The recent earthquake and tsunami disaster in Japan did a lot to shake public confidence in computing infrastructure, McKinnon said. That has made the cloud seem like a more viable alternative to companies looking to make sure their systems don’t go down in the wake of a disaster.

What hasn’t materialized is a promised identity-manager product from Salesforce.com itself. Last year, Salesforce CEO Marc Benioff raised eyebrows by announcing plans for a new product focused on user identities. At the time, McKinnon took it as validation that the identity business was a hot one. But nearly a year later, there’s no sign of a product from Salesforce. “They’ve been promising it, but they haven’t delivered it yet,” McKinnon said. More often, Okta is competing for business against Ping Identity, he said. (It’s worth noting here that McKinnon is a former Salesforce exec.)

Another barometer is a recent deal with MGM Resorts, the giant hotel and hospitality company. Okta beat out CA to win the deployment, which was for more than 60,000 users. “We were live with the first 50,000 in about four to five weeks,” McKinnon said.

There’s also potential business coming from mobile devices. The iPhone’s new fingerprint scanner, once developers can start working with it, will open up a whole new area of possibilities for mobile enterprise applications, McKinnon said. “Companies are going to start thinking more about new apps they can create.” And practically all of them will need some kind identity connector. “We love having lots of stuff to connect to,” he said.


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— Author Tim Kreider on not getting paid for one’s work