How the Ukrainian and Dutchman created a competitor to GitHub with investments of $45 million: history of GitLab

“In Ukraine they do not design Mercedes”

Dmytro Zaporozhets have been interested in software engineering since he was a student of Kharkiv National Automobile and Highway University, majoring in computer-aided diagnosis of motor transport. Entering this higher institution, Dmytro expected that once he would work for design bureau. However, being a third-year student, he realized that they didn’t design Mercedes in Ukraine, as well as that his career prospects are limited to car service. He enjoyed understanding the motor vehicle construction and layout, but not the prospects of lifelong career at auto services company.

At the same, time Dmytro was fascinated by computers and spent most of his spare time on games. He even thought about career of game developer. He learnt С, wrote a copy of two levels of Mario for Windows and began studying software engineering at STEP Computer Academy. Although Dmytro has not graduated the Academy, he became interested in web programming, learnt PHP and HTML, and further – Ruby. In 2011 Dmytro has already been employed by Sphere Software and often applied GitHub in his work.

Today we are all accustomed to GitHub as well as to the fact that it is all right to keep major part of business in a cloud, but at that time the attitude was a little bit different: not all clients were ready to host their products in the cloud, therefore the company applied self-hosted solutions. The problem was that the company had to deal with the 10-year-old self-hosted tools (e.g., GitWeb). They were forced to beg for allotting repository in GitHub within the organization. While working on the project Dmytro and his team encountered the same problem.

“We had no alternative, but GitHub FireWall Edition, which costed starting from $5,000 per year for 20 users. So, we came up with an idea to create an analogue of GitHub, which could be installed on our server. It should be something simple with basic functions: code review, issue tracker, project delivery, adding users with keys to the projects.” Dmytro tells us. He and his colleague Valeriy Sizov commenced working on the project on weekends and in the evenings. The first version of GitLab was released in October of 2011.

Malicious fox

At the beginning the team did not concealed that they were making something similar to GitHub. However, they selected such a name by pure accident: Dmytro and Valery were looking for cheap domains with a short name including git-part. They considered such options as GitHost, GitCode and similar names and found the domain GitLabhq.com for sale, which costed $12 (at that time the projects in the area of hq, for instance, Basecamphq.com, were popular), and the issue with the domain was solved.

GitLab was developed as open source project. Their community included a designer, who drew options for logo. The founders chose a picture with tanuki (a creature from Japanese mythology – werewolf-beast, similar to fox or raccoon, symbolizing well-being). However, in 2015 they decided to change the logo, because the users sent negative feedback stating the icon had unkind look.

“People complained: I work with GitLab 8 hours a day, and this fox on the logo angrily stares at me.” Dmytro Zaporozhets loughs. This time they have found a designer, who specialized in “fox” logos and GitLab’s logo became neutrally abstract.

Business commenced with tweet

Since 2011 a community has begun to develop around GitLab, businessmen also became their users. The Company, where Dmytro Zaporozhets worked as a developer at that time, also started using his service. Sid Sijbrandij (his name is Sitse, but when he moved to the USA, he decided that it would be easier for investors to communicate with Sid), Dutch entrepreneur, was one of the project contributors. In summer of 2012 Dmytro Zaporozhets got a letter, where Sid expressed gratitude for the review and informed that he was going to build SaaS-business based on the service on GitLab.com domain. GitLab operated according to open source license (the MIT license) and it was not contrary to its founders’ interests.

By the end of the year Dmytro Zaporozhets tried to monetize GitLab using donations, but it did not work properly: in the best month the project gathered $100. They also tried to provide support on a paid basis. Although, to earn this way it would complicate the process of installation and updates. By the end of 2012 he still worked full-time, treating GitLab as a hobby. At this moment he realized that he needed to choose: job or his project.

Dmytro tells us, “My heart was in GitLab, but I had financial problems. I wrote in Twitter that I was tired and wished to work on GitLab full time. In a certain time I got a letter from Sid, where he offered me a salary for working on GitLab and helping him with his company. In January of 2013 I started fully to devote my time to the project. Since that time I have been living between two countries: Ukraine and Netherlands.”

In 2014 GitLab has been registered as a company. By 2015 the project has increased to 10 people and by autumn of the same year, after the first seed-round – by 50 people. It is interesting that, unlike multiple Ukrainian projects with Ukrainian cofounders, GitLab does not have any development or R&D office in Ukraine. IT specialists are hired all over the world, from Europe to the USA and Brazil – totally in 39 countries of the world.

The employees work remotely, but a few times a year they meet on summits – half-working and half-entertaining meetings of the entire team. In order to make socialization of the widely disseminated team easier, it became a common practice in GitLab to take virtual coffee breaks: video calls, during which the employees spend their time resting and communicating – similarly as if they were in the office with a cup of coffee.

To lose the first client and to find a business model

GitLab began with self-hosted market. The team saw that many companies started using open source version of GitLab, installing it on their servers. Therefore, GitLab decided that they can sell consulting services, provide assistance in the area of adjustment and customization. The companies-clients often requested to add a couple of functions. This gave birth to the idea of corporate edition “open source version plus a few popular tricks” (something like LDAP authorization protocol). Thus, in summer of 2013 they announced GitLab Enterprise Edition. Since the launch of corporate version the team has realized that it is highly-demanded and this product (and not the consulting and support) became the core business of the company. At the same time, GitLab lost their first client. The reason lied in marketing.

That client was the company, which used GitLab’s service, but further their TOP management decided to transfer the entire company to a single soft. As far as no one knew about GitLab at that moment, the decision was made for the benefit of another service, which was more widely known. According to Dmytro, GitLab always grew in the companies “from the bottom”: a developer installed it on the company’s server, attracted other developers of the department and, in such a manner, a number of users within a company organically increased from the bottom to top. When this number became noticeable, someone from engineering department or bookkeeping contacted GitLab and they bought Enterprise-version, but not this time.

Dmytro states, “It had a strong influence on us. We understood: no matter how good GitLab was, it’s all in vain if nobody knows about our existence. If in future the companies move to single platforms for code hosting and review, we will continue loosing clients and will not be able to grow.”

If there is any place where they could manage to teach the team to grow rapidly and capture the market, it is Silicon Valley.

Y Combinator

Sid proposed to send application to Y Combinator (it was filled in like this). At the beginning the startup encountered fierce competition – they selected literally 1-2% of all submitted applications. Nevertheless, the founders of GitLab were noticed and invited to the interview.

After a few interviews two cofounders were admitted to the program. Although the open core model of GitLab is not very popular among Y Combinator’ projects, a positive role has been played by the developed community (about 800 contributors at that moment) and availability of major clients. Dmytro and Sid have settled in Mountain View that is a 10-minute drive from the incubator. Due to the legendary expensiveness of housing estate in California, they decided to invite a few other employees of GitLab to reside and work together. As a result, eight people resided in a house – almost the whole team of the project at that moment.

Program lasted three months. Every company – participant had to choose the key metrics-numbers that the success is calculated by, to measure it every two weeks and explain such measurements to mentors from Y Combinator. Initially the team chose a number of downloads, but further they replaced it by financial indicators, despite of the fact that mentors considered that it was a bad practice to change metrics in the course of training. However, at that moment, revenue was more important for GitLab that the number of downloads: in contrast to the latter the revenue demonstrates not only the growth of the amount of clients, but also the internal growth of every client. At that time the basic version of GitLab Enterprise Edition costed $39 per user during a year — it was cheap in comparison with the competitors’ prices.

Dmytro says, “Y Combinator facilitated selection of our focus and approach: you have a number, you focus on it and know your numbers. They continuously pushed us forward: better earlier than later, and it doesn’t matter which way. When everyone around you is an entrepreneur and creates crazy things, you need to grow and you are filled with absolutely different mindset –higher, faster and stronger.”

A special value for startups – participants is a demo day at the end of the training, when the TOP investors are invited and a team is allotted 50 minutes for pitch. According to the cofounders, after the demo day all participants received more or less adequate investment offers.

Too much money

It is owing to Y Combinator that the team raised the first round of investments: in July of 2015 they raised $1.5 million from the major funds – 500 Startups, Crunchfund, Sound Ventures of Ashton Kutcher, Liquid 2 Ventures and Khosla Ventures. In September of the same year the startup raised $20 million more from Y Combinator and, finally, this year – $20 million from venture department of Google as a lead-investor. The total amount of the raised investment is estimated as в $45 million, taking into account the fact that the founders haven’t lost control of the project. Dmytro believes, “If it’s ok with your idea of project, its implementation and numbers, the investors from Silicon Valley are quite active and they will be the first to approach you, as incredible as it may sound. All this is a consequence of Y Combinator’s demo day – they have an immense and very effective network.”

Investment contributed to expansion of the team: since spring of 2016 till summer of 2016 the team has increased from 10 to 93 employees. At the moment more than 200 employees work for the company. The clients of the project exceed 100,000 organizations, including NASA, CERN, Alibaba, SpaceX, IBM, Ticketmaster, ING, NASDAQ, Sony, VMWare and Intel. Sid Sijbrandij tells us, “It happened because these companies and organizations themselves were looking for open source solutions. They did not even contact us, but just started using our service.”

I.e., even such kinds of companies encountered GitLab “from the bottom”: initially, ordinary developers commenced using the service, then their teams were attracted and thereby user base progressively increased. However, this time, in contrast to 2013, TechCrunch and Fortune wrote about GitLab, and Forbes considered Dmytro to be among the best 30 IT entrepreneurs of 2016 – the project became well-known.

GitLab grew in terms of revenue and structurally extended: they created new PR and marketing departments, sales team, security and infrastructure departments. Dmytro Zaporozhets says, “Now the market knows about GitLab as alternative software for the enterprise. So, the problem that we had faced in 2014, was eliminated.”

Due to a remarkable growth of project users (more than 3 million projects and 2 million users), they have problems with scaling: if the service hosts repository files for 100 terabytes, not all file systems are able to sustain such load. It means that they need to update the service and build up server base. This is also a reason for uptime improvement: from 99.5 to 99.9. Nevertheless, the biggest challenge is the product.

Dmytro Zaporozhets summarizes, “Our idea is that the developer should come to the office in the morning, open GitLab and have no need in other products. We have to ensure that all undertakings, from chat to deploy, take place on our platforms. We would like to encompass a full range of development and operations, from issue tracker, planning, road maps, development and management to packaging in containers, release, and monitoring. We have exceeded the framework of competition with GitHub long time ago. Our goal for 2018 is to complete DevOps.”