Inside Advanced Scale Challenges|Thursday, February 21, 2019
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Puppet Labs Secures Rainy Day Loan, Plans Expansion 

Global economic turmoil is prompting some IT executives to hedge their bets in the new year as they monitor China's slowdown while trying to divine whether stock markets are undergoing a "correction" or something worse.

Among those taking a cautious approach while continuing to expand is IT automation specialist Puppet Labs. The high-flying company said Wednesday (Jan. 20) its has secured a $22 million line of credit from Silicon Valley Bank while at the same time announcing lease expansion plans of its Portland, Ore., headquarters.

In an interview, Puppet Labs CEO Luke Kanies described the loan as "risk mitigation" in response to recent volatility in global financial markets. The automation software vendor would be "protected on the downside [from] market risks," added Kanies, who founded Puppet Labs in 2005.

Whether volatile global markets may be in the midst of a "correction" to adjust for an overvaluation, Kanies reasoned that the loan strategy is a "relatively inexpensive way of mitigating risks."

Puppet Labs CEO Luke Kanies

Puppet Labs has so raised about $86 million from investors that include Cisco Systems (NASDAQ: CSCO), Google Ventures (NASDAQ: GOOG), VMware (NYSE: VMW) and Silicon Valley venture capital leader Kleiner Perkins Caufield & Byers. Kanies said his company raised $40 million in its most recent funding found round, half of which is still the bank.

The company's expansion plans, which include the addition of 37,500 square feet to its corporate headquarters by 2018, is predicated on the assumption that the IT automation segment remains "recession proof," Kanies asserted, adding, "We're still in the early stages of cloud and software." Kanies is betting that customers will continue investing in productivity tools to squeeze more out of existing IT infrastructure even if they can't hire in a down economy.

Industry consolidation is expected to gain momentum during 2016, and the DevOps and IT automation markets have already seen some major acquisitions, including Red Hat's (NYSE: RHT) October 2015 deal for automation vendor Ansible Inc. Kanies declined to comment on Puppet Lab's acquisition strategy, saying only, "We work hard to keep our ear to the ground" about potential deals.

Along with the credit line and corporate headquarters, Puppet Labs also announced this week that Lou Lavigne, former chief financial officer at Genentech (NYSE: DNA) has joined its board as chairman of its audit committee.

Puppet Labs rolled out a new application software orchestration tool in October targeting deployment of IT infrastructure and distributed applications. The orchestration tool enables the modeling of distributed applications and application stacks as Puppet code as a way to speed infrastructure and application deployment.

The company released the latest version of its flagship Puppet Labs Enterprise platform last summer. Realizing they can no longer maintain infrastructure manually, a growing list of large companies like Walmart (NYSE: WMT) and Wells Fargo (NYSE: WFC) are using the enterprise platform to automate thousands of servers.

"Customers are not looking for tools, they want to 'own' the technology," Kanies said, illustrating how the IT requirements for "mature" companies are evolving beyond scaling infrastructure to embracing automation platforms.

Meanwhile, Puppet Labs also is diversifying on the security front: It announced last summer that the U.S. National Security Agency released a set of tools to the open source community based on the company's technology.

About the author: George Leopold

George Leopold has written about science and technology for more than 30 years, focusing on electronics and aerospace technology. He previously served as executive editor of Electronic Engineering Times. Leopold is the author of "Calculated Risk: The Supersonic Life and Times of Gus Grissom" (Purdue University Press, 2016).

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