Electric, a fast-growth MSP based in New York City, has raised $40 million in C-Series funding led by Greenspring Associates. The latest investment in Electric, disclosed Tuesday, brings the total amount the MSP has raised to more than $100 million.

Greenspring Associates is a Maryland-based venture capital firm that provides direct and secondary investments, but also invests in funds. General partner Hunter Somerville said Greenspring Associates is taking a direct investment in Electric.

Greenspring Associates’ Hunter Somerville

“It’s been a very nice, high-growth story that we think will continue,” Somerville told Channel Futures.  “It’s not slowing down. I think we’re coming in at a very interesting inflection point.”

Electric has raised several rounds of funding during the last two years. In early 2019, prominent VC firm GGV led a $25 million B-Series investment.

Since signing its first client in late 2016, Electric has grown rapidly, focusing on small and midsize businesses (SMBs). While Electric does not disclose its revenues, founder and CEO Ryan Denehy told Channel Futures they are ” eight figures.” Denahy predicts it will double revenue this year.

Electric claims it now has 160 employees supporting more than 20,000 users among a roster that has exceeded 300 businesses. Denehy said SMBs are underserved by MSPs.

“We provide solutions for companies that are large enough to have real IT needs and pains, but too small to where they have an actual full IT department,” Denehy said.

Electric’s History

Initially, Denehy founded Electric to provide managed services to SMBs that primarily use Apple Macintosh computers. Among its customers were advertising agencies, media operators and tech companies, which tend to require or prefer Macs over PCs.

Still, many of those clients had some Windows PC users as well. But more recently, Electric expanded into other verticals such as business services and nonprofit agencies, where Windows is more prevalent. To support the growing Windows management requirements, Electric recently announced the acquisition of Sinu, also based in New York.

“They add a lot more Windows expertise,” Denehy said.

While Denehy isn’t ruling out additional acquisitions, perhaps in other U.S. markets, he said Electric is focusing on organic growth.

“The fact that most of our new revenue growth is from organic sales-led customer acquisition, that’s something we want to continue to get better at, and continue to scale,” Denehy said.

Automating Electric’s Managed Services Platform

The latest investment will continue to fund the expansion of Electric’s proprietary, automated MSP platform, Denehy said. Electric uses tools from Kaseya to manage PC and Jamf for Macs, those plug into its internally developed automation platform. The investments will fund expanding the automation capabilities of the platform using artificial intelligence.

“What we know is the more we automate, the happier our customers are,” Denehy said. “When you can get an answer in 10 seconds instead of 10 minutes, or when you can onboard a new employee in a matter of minutes with a ridiculously complex set of requirements, that makes the customer really happy.”

Now, Electric is expanding the automation capabilities of its platform to lower the cost of …

… delivering managed services to SMBs. Expanding automation with AI and bots will let Electric provide lower cost services to SMBs by reducing human interaction. To that end, Electric will also invest in delivering more lower-cost solutions that don’t require expensive labor. The cost of labor to deliver services is a key reason why SMBs don’t use MSPs, Denehy added.

Electric’s Ryan Denehy

“One of the reasons why 80% of small businesses have never worked with an MSP is because when the whole model is based on labor, you have to sell a high-priced product to support the headcount going into it,” Denehy said. “For us, as we build more software, we will create lighter weight offerings, that any business can use to dip their toe in to begin their journey with a managed services solution that don’t necessarily involve, as large of a commitment.”

The focus on SMBs was a key factor for Greenspring, according to Sommerville, the general partner.

“We think they offer a lot of value to SMBs and companies that are oftentimes underrepresented or underserved,” he said.

The COVID-19 Effect

Like many IT providers and MSPs, the increase of remote work resulting from last year’s pandemic affected Electric. Initially, business slowed as businesses paused, but it suddenly spiked last June.

“I think once businesses realized that the world wasn’t ending, companies looked around and said, ‘IT is really important,’” Denehy said. “COVID ended up creating a bigger need for what we were doing.”

Electric had just closed on a $14 million investment right before governments ordered businesses to shut down.

“The money landed in the bank on the Friday before the Dow dropped 2,000 points on the following Monday,” Denehy recalled.

While that didn’t change how Electric used the funds, the effects of the pandemic resulted in higher costs. Electric’s investors supplemented that round with an additional $7 million.

While Electric does provide on-site services directly and through partnerships with other MSPs, managed services account for more than 80% of its business. Since the pandemic began, Electric has seen increased demand for services to enable remote work from home. Demand for Microsoft Teams and Slack are notably high, Denehy said. Among Electric’s key alliance partners are Apple, Jamf, Kaseya and Microsoft. Cisco Meraki and Ubiquiti are also key partners for wireless LAN infrastructure.

VC Investor Confidence

Existing investors Bessemer Venture Partners, GGV Capital, 01 Advisors and Primary Venture Partners also participated in this week’s round. Besides Greenspring Associates, new investors include Atreides Management and Vintage Investment Partners.

Somerville said Greenspring Associates also decided to lead the latest funding because of Denehy and his management team.

“We were just blown away by Ryan, his leadership capabilities, the culture that he’s built and the high-quality people that he surrounded himself with,” Somerville said. “He has really built a management team that I would say is public-market ready even before he needed to do so.”