Software billing startup Octane announced Tuesday that it raised $2 million on a post-money valuation of $10 million to advance its pay-as-you-go billing software.
Akash Khanolkar and his co-founders met a decade ago at Carnegie Mellon University and since then went off in different directions. In Khanolkar’s case, he ran a cloud consulting business and saw how fast companies like Datadog and Snowflake were coming to market and dealing with Amazon Web Services.
He found that the commonality in all of those fast-growing companies was billing software using a pay-as-you-go business model versus the traditional flat-rate plans, Khanolkar told TechCrunch.
However, he explained that monitoring consumption means that billing becomes complicated: companies now have to track how customers are using the software per second in order to bill correctly each month.
Seeing the shift toward consumption-based billing, the co-founders came back together in June 2020 to create Octane, a metered billing system that helps vendors create a plan, monitor usage and charge in a similar way to Snowflake and AWS, Khanolkar said.
“We are API-driven, and you as a vendor will send us usage data, and on our end, we store it and then do real-time aggregations so at the end of the month, you can accordingly bill customers,” Khanolkar said. “We have seen contention between engineering and product. Engineers are there to create core plans, so we built a no-code experience for product teams to be able to create new price plans and then perform changes, like adding coupons.”
Within the global cloud billing market, which is expected to reach $6.5 billion by 2025, there are a set of Octane competitors, like Chargebee and Zuora, that Khanolkar said are tackling the subscription management side and succeeding in the past several years. Now there is a usage and consumption-based world coming and a whole new set of software businesses, like Octane, coming in to succeed there.
The new round of funding was led by Basis Set Ventures and included Dropbox co-founder Arash Ferdowsi, Github CTO Jason Warner, Fortress CTO Assunta Gaglione, Scale AI CRO Chetan Chaudhary, former Twilio executive Evan Cummack, Esteban Reyes, Abstraction Capital and Script Capital.
“With the rise of product-led growth and usage-based pricing models, usage-based billing is a critical and foundational piece of infrastructure that has been simply missing,” said Chang Xu, partner at Basis Set Ventures, via email. “At the same time, it’s something that every department cares about as it’s your revenue. Many later-stage companies we talk to that have built this in-house talk about the ongoing maintenance costs and wishes that there is a vendor they can outsource it to.”
We are super impressed with the Octane team with their dedication to building a best-in-class and robust usage-based billing solution. They’ve validated this opportunity by talking to lots of engineering teams so they can solve for all the edge cases, which is important in something as mission critical as billing. We are convinced that Octane will become an inevitable part of the tech infrastructure.”
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The new funding will go primarily toward hiring engineers, as well as product, marketing and sales staff. Octane currently has seven employees, and Khanolkar expects to be around 10 by the end of the year.
The company is working with a large range of companies, primarily focused on infrastructure and the depth gauge industries. Octane is also seeing some unique use cases emerge, like a construction company using the usage meter to track the hours an employee works and companies in electric charging using the meter for those purposes.
“We didn’t envision construction guys using it, but in theory, it could be used by any company that tracks time — even legal,” Khanolkar added.
He declined to speak about the company’s revenue, but did say it now had two to three years of runway.
Up next, the company plans to roll out new features like price experimentation based on usage to help customers better make decisions on how to price their software, another problem Khanolkar sees happening. It will build ways that customers can try different plans against usage data to validate which one works the best.
“We are still in the early innings of consumption-based models, but we see more end users opting to go with an enterprise that wants to let them try out the software and then pay as they go,” he added.
Subscription-based pricing is dead: Smart SaaS companies are shifting to usage-based models
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