Through big bets, Todd McKinnon’s cloud security company, Octa, grew into a $ 27 billion company. Now the greatest opportunity of his career has landed in his lap: a worldwide pandemic.
Todd McKinnon sits in front of his green screen, with a youthful face but weary eyes, talking about his guilt. More than 10% of the country is unemployed, 178,000 Americans have died from the pandemic, and California is literally on fire, yet McKinnon’s cloud security company, Octa, is on a downpour, and he is now officially a billionaire. “The world has all these problems, but I sit at my computer all day,” says McKinnon, 48. “I feel guilty about that.”
Talk about guilt: Okta is not only succeeding in the midst of the pandemic. The success is driven by the pandemic. The company’s services – which help organizations verify the identities of employees and users by sending a custom code to their mobile phones, including security measures – have become directly critical for businesses, universities and governments that need to remotely to work. Okta has enrolled 1,000 new customers since March, bringing the total count to 8,950, and many existing clients have expanded their use.
In May, FedEx converted more than 85,000 employees to Octa in 36 hours. Western Union uses the platform to monitor transactions in the absence of face-to-face contact, MGM uses it for contactless check-ins, plus there are new partnerships with the Australian Red Cross, LVMH, Equifax, and dozens more. “It’s like a tsunami coming,” McKinnon says.
Octa generated $ 200 million in revenue last quarter, up 43% from a year earlier. The stock has risen 70% in the last six months, and more than 1,200% since it went public in 2017. Suddenly, the shaky company that McKinnon founded in 2009 is worth $ 27 billion, and McKinnon, which has 4%, is valued at $ 1.7 billion. “This horrible thing is so messy, but the company benefits from it,” he says.
As he navigates his conscience, McKinnon will also have to navigate the fragmented landscape of cloud security – Microsoft, Ping, IBM, Oracle – and answer questions about whether Okta deserves its sky-high market value. “We believe the valuation may have been skewed,” claims Mark Cash, a long-term bullish stock analyst at Morningstar.
Okta’s co-founders, Frederic Kerrest (left) and Todd McKinnon.
Okta
For McKinnon, Okta’s selling point is simple. Unlike its larger competitors, which often package their security tools with their own cloud software, Okta can work with any platform, from Office 365 to G Suite. “We check who you are, we log you in, and then we store user information about you,” he says. That’s it.
Born in Fremont, California, just outside San Jose, McKinnon grew up living a “charming life.” His father worked as a director of human resources while his mother stayed at home. Earlier, McKinnon developed an affinity for computers. His parents had not one, but a friend whose father worked as a data scientist. The scheme brought additional benefits. ‘I would go to his house, and I was a good writer. That I would dictate to us in principle [school] papers, ”says McKinnon. “What brought him to the deal was he had a PC and he could type.”
Although he dreamed of becoming a field player for the Oakland Athletics, McKinnon eventually acknowledged that “talent was lacking”, and enrolled at Brigham Young University in 1989 to study instead. From there, he earned his master’s degree in computer science from California Polytechnic State University in 1995, just as the dot-com era was heating up.
McKinnon spent nearly a decade as a developer at the software company PeopleSoft, then jumped to Salesforce, where he eventually studied engineering. In 2009, he observed the development of cloud computing and decided to start his own business. First, his wife came to convince. In a now-famous story, McKinnon made a Powerpoint presentation to convince her that opportunity justifies risk. The best case scenario, he predicted: an IPO of $ 100 million. They signed the plan.
McKinnon named the company with the panache you would expect from a coder: SaaSure. A salesforce colleague, Frederic Kerrest, soon approached him, and she thought of her first concept: software that would help companies measure the reliability of their cloud-based applications. “Like constant ECG of all these important metrics for your servers,” Kerrest says.
“Our product was not even good enough. We missed our numbers a mile. ”
But it turned out that no one cared enough about cloud reliability. “[Customers] would say, ‘Yeah, well, that’s an interesting problem. But that’s problem number four, ” Kerrest says. The real problem: companies could not manage their users safely. “That’s the way we are going.”
Cue a new name, Okta, a term pilots use to measure cloud coverage. Aided by a $ 10 million round of funding led by Andreessen Horowitz, who had also invested in her seed round, the couple got back to work.
Even with their better idea, execution was still lagging behind. The largest companies, which had a much greater need for octa security tools, such as two-factor authentication, had never heard of the company and would not meet with the founders. “Our product was not even good enough,” says Kerrest; the software was too buggy and slow for large-scale implementation. In 2011, “we missed our numbers a mile,” Kerrest says. They raised less than $ 1 million in revenue.
Somehow, Khosla Ventures and Greylock saw enough potential in the company to participate in a $ 16.5 million Series B in the summer of 2011. From there came slow traction. As the software became more reliable, mid-sized companies began to register with Octa, and eventually larger companies came along as well. McKinnon and Kerrest reached their sales target for the first time in the fourth quarter of 2011, raising just over $ 600,000. Annual revenue jumped to $ 41 million by 2015.
Octa went public in 2017 and immediately attracted interest from investors, in part because its technology was easy to understand. “There’s a lot of technology in cyber security,” says Joshua Tilton, an analyst at Berenberg Capital Markets. “[Okta] is very easy to understand. It’s one set of references that give me access to all my applications when I’m at work. ”
Then came COVID-19. Because of mandatory work-from-home policies, Wall Street analysts began using secure online products such as Octa. “Overnight, they approach the drivers of the security market of the future,” says Tilton. “[Okta] had been a favorite stock for COVID, and it has been an even more beloved stock ever since. ”
Even McKinnon admits he has been beaten, despite his self-proclaimed guilt. “When I look at stock performance, like my own net worth, I think it’s satisfying that the company is successful,” he says. ‘I started this business, and I really stayed with it. I put my money where my mouth is. ”
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