JFrog IPO: How Software Is Eating The World

JFrog, which operates a platform that manages the deployment and versioning of software, launched its IPO today. The company issued 11.6 million shares at $44 each, which was well above the initial range of $33 to $37. The stock price ended the day up a sizzling 47% to $64.79, putting the market value at $6.6 billion.

Keep in mind that JFrog started as an open source project, which got immediate traction. “This was the beginning of the era when software was beginning to be modular,” said Yoav Landman, who is the co-founder and CTO of JFrog. “Managing this was very difficult. So JFrog started as a way to manage the complexity.”

And yes, the growth has continued to be robust. From 2018 to 2019, revenues shot up from $63.5 million to $104.7 million. Consider that the company has been cash flow positive for the past five years, which is a rarity among tech startups.

“We are a very efficient company,” said Jacob Shulman, who is the CFO of JFrog. “We were founded during the 2008 crisis. So efficiency is in our DNA. But uniqueness of the go-to-market strategy has been important. Adoption is bottom-up from developers and there is high velocity of customer acquisition.”

The Platform

JFrog pioneered a new category of software called Continuous Software Release Management, or CSRM. “Continuous Integration (CI) is the art of converting raw code written by software developers into artifacts,” said Ashish Kakran, who is a principal at Thomvest Ventures. “This is important because servers can only understand packaged software units called artifacts, not raw code. Continuous Delivery (CD) is the magic of delivering these artifacts to the production servers hosted across the globe in some public or private cloud. JFrog Artifactory effectively connects the CI and CD processes by building a repository where these business-critical software artifacts could be edited, tracked, and managed.”

JFrog has about 5,800 customers and they include all the top ten tech operators, eight out of ten financial services organizations, nine out of ten retail companies and eight out of the top ten healthcare firms. 

“The traditional approach of different teams developing and deploying software is time-consuming and no longer effective,” said Jai Das, who is the president and managing director at Sapphire Ventures and an investor in JFrog’s Series B round. “Frog’s DevOps platform has played a powerful role in improving the process of building, securing and deploying software in this new era of infinitely scalable cloud computing. They really changed the paradigm by encouraging collaboration and communication between software development and deployment teams, which has accelerated the pace of work, accommodated faster release schedules and improved the quality of software.”

A case study of a JFrog client is Box, which has been using the platform since 2015. The technology has allowed for a single source of truth for software packages and replication across all pipelines. In fact, during 2017 to 2018, Box was able to migrate from its waterfall-based system to a modern Docker and Kubernetes-based cloud native delivery model. The result was a 90X increase in release speed. 

The Future

“We see three main growth drivers for the company,” said Raman Khanna, who is a managing director at Dell Technologies Capital and the lead investor in JFrog’s Series B round. “First, there is the ongoing explosion in the number of programmable end-points—both IT and IoT—that need to be updated. Next, there is the need to update software continuously, which could be multiple times a day, rather than the old way of updating software packages 2-4 times a year. Finally, there is the prevalence of open-source and microservices architectures, which results in the modularization of software components that need to be tracked and updated independently.”

Now even with the strong adoption for JFrog’s platform, the market remains in the nascent stages. JFrog estimates that its addressable market is at a staggering $22 billion. 

Note: You can go here for the Zoom interview I had with Landman and Shulman.

Tom (@ttaulli) is an advisor/board member to startups and the author of Artificial Intelligence Basics: A Non-Technical Introduction and The Robotic Process Automation Handbook: A Guide to Implementing RPA Systems. He also has developed various online courses, such as for the COBOL and Python programming languages.