If you’re an entrepreneur in a later-stage company, you know that fundraising is a challenge that requires hard work, commitment, and fortitude. Raising capital in a down market with high interest rates adds an extra layer of complexity. Recently, our company, Alkira, was fortunate to close a $100 million Series C funding round. We are incredibly grateful for the support we received, but it wasn’t an easy journey.
As CEO and founder of Alkira and as CEO and founder of Viptela, a networking startup acquired by Cisco in 2017, I have been through the fundraising process many times. But this most recent experience taught me some unique and valuable lessons that other leaders in this market can benefit from. Here are some key takeaways that I would like to share:
Lesson 1: Start with the numbers
During market downturns, investors are naturally more cautious. They want companies with great products or services and a clear path to success, even in the face of economic headwinds. Additionally, $1 out of every $3 invested in the US in 2023 will go to AI startups, making this particular downturn market even more competitive. For late-stage companies, getting a significant amount of investment in this market is extremely rare. So how did we do it? And what can you do if you find yourself in this situation?
The harsh reality is that it all comes down to fundamentals. The numbers need to be strong and show consistent and significant growth over time. You also need to make a compelling case for future growth with evidence to back it up. Customer testimonials are crucial. In our case, the breadth of the “on-demand network infrastructure” use cases we solve for our customers and how much they love our solution helped. Additionally, while Alkira is not classified as a pure AI company, we play a foundational role for companies looking to adopt AI quickly and securely. Specifically, we can launch AI services quickly, secure them, and effectively meet compliance requirements. Clearly articulating our AI vision and showing that customers are already benefiting from it was extremely helpful in the fundraising process.
Another important point is that our last fundraise took nearly four years. During that time, we were very responsible with our investments and proved out our business model without overspending. This was during a global pandemic. Highlighting this to investors gave them confidence that we would get the most out of their investment.
Lesson 2: Prioritize investor suitability
Even though we had so many key pieces in place, finding the right group of investors who understood our product and market didn’t happen overnight. We spent countless hours preparing for meetings with investors that ultimately didn’t yield the results we were looking for, and often it’s not our fault. Sometimes the presentation went well, but the connection just didn’t happen. The hardest part is knowing you’re doing everything right, but having to patiently wait for the stars to align. As someone who’s been on the other side of the fundraising process, I can tell you that it’s well worth the wait to find the right investors in the current market.
Broadly speaking, there are two types of investors: those who simply provide capital to your company and have only a cursory understanding of your business and the market; and those who are true business partners who have done their research, spoken extensively with customers, and have a comprehensive understanding of your unique market, adding significant value to the growth of your company. Both types of investors can be helpful to your company, but the latter is much more important in tough economic markets.
Finding an investor who understands your market opportunity and competitive advantages allows them to have strong conviction in your business, which is essential in a down market where investors are more selective with their capital. Additionally, if an investor is familiar with your industry, they can expedite the due diligence process, saving you valuable time and resources. The right investor can also leverage their network and expertise to connect you with potential customers and partners to further strengthen your investment case. This has happened many times in my career, and I’ve found that these connections are usually the ones that last the longest.
By prioritizing investors who understand your business and market, you can increase the likelihood of a successful funding round and raise the capital you need to thrive even in tough economic times.
Lesson 3: Never be complacent
In a down market, where every dollar counts, excellence is the most valuable currency for attracting investors. Never settle for good enough at any stage of the fundraising process. Throughout the process, you will be tempted to rush things, be it a pitch deck or a brand narrative. But if your startup has strong numbers, consistent and sustainable growth, and a clear vision of why you’re positioned well for the future, invest the time, resources, and energy necessary to help your business do what it does best and achieve your fundraising goals. Going back to what I said earlier, even when investor meetings didn’t go as expected and frustration began to set in, we didn’t let those experiences dictate how we prepared for the next meeting. We treated every investor meeting as if it was the only one we had, and we made sure to always put ourselves in the best position to succeed.
The same is true of how we approach technology every day. We pioneered the concept of on-demand network infrastructure years ago, and only now are more people beginning to understand why this technology is so valuable. We would never have raised $100 million in today’s market if we had taken shortcuts along the way or given in to frustration. Disrupting a traditional industry requires an unwavering determination to see the process through, demonstrate efficiency in how you use resources, and never settle for good enough, even in the face of pressure.
Key Takeaways
Admittedly, Archila and I have some advantages that not all founders or companies have: our network technology is a great fit with the recent AI boom, we have a track record of success with previous startups, and we are certified by Microsoft’s Elite Startups program. Of course, not all entrepreneurs have these advantages.
Yet securing funding during a market downturn requires a strategic approach and an unwavering commitment to excellence. Focusing on strong fundamentals, finding the right investors, and refusing to become complacent in the face of pressure can increase your chances of success. Remember, even in difficult times, great businesses with a clear vision for the future can attract the capital they need to thrive.
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