Insights > Funding and Growth Strategies: One Startup’s Journey

Funding and Growth Strategies: One Startup’s Journey

In ACG Maryland’s virtual fireside chat, Shaq Dastur, managing director at Riveron, hosted Expel COO and cofounder Yanek Korff. The discussion examined the fast-growing cybersecurity startup and its approaches to funding strategies and shaping growth, plus other considerations for today’s competitive landscape.


KEY TAKEAWAY #1
Business leaders can learn from their mistakes by understanding what worked in prior operations while avoiding continued unsuccessful practices.


Shaq Dastur – Riveron : A lot of times startup technology companies build a widget, build something, get a client or two, then go out and say, “Hey, we have a lot of money!” and then build organically from there. But your company did not. Discuss why you chose to go a different route?

Yanek Korff – Expel : I’ve learned from my mistakes at Mandiant, which had a very consulting-oriented mindset and where we did incident response work,  managed services, and built an endpoint product. We initially took a very people-centric approach to solving problems. Three years in, it became clear that solving problems by throwing more people at it does not work—you end up creating a lot of process and turning cranks, and continuously making the problem bigger. At Expel, we wanted to tackle a similar security problem for heavily investigative, judgment-driven security work. Our thinking was: if there is anything that a human being does not need to do, then create technology to do it and leave everything else (like judgment and relationships) to people. This required a capable technology leader and engineering team so that we could build a strong technology foundation on top of which we could layer the rest of the business. We knew we were not going to convince a dozen people to work for free to build the technology foundation. That meant we needed capital, and so we chose a venture-backed approach.


KEY TAKEAWAY #2
Raising capital for a new business can involve many iterations, and the ideal investor may change over time. Also, at each stage—for capital-seekers and investors alike—the process requires a lot of faith that the business will prevail.


YK : We’ve done four capital raises. (On capital raise one) We had to build a technology platform and a 24×7 operational capability to cover the clock.  You might think you can do this with two or three people, but it’s a horrible thing to do to someone, and really—to be reasonably robust—you need around 12 people working on an effort like this. We needed to get the timing right for writing software, getting customers on the platform, and starting to hire more employees. The spreadsheet told me we needed about seven and a half million dollars, and two and a half million in debt on top of that, as a safety net, in case our budgeting was not exactly right. So, 10 million dollars, all-in.

SD : What were you looking for in terms of capital partners going forward, expanding your capital structure?

YK : What we were looking for prior to each fundraise changed every time. It had a lot to do with where we were as a company in our journey. The first investors that we worked with were the ones who saw the market the same way we saw it. We talked to a lot of investors. All we had was a PowerPoint deck—so we needed a lot of faith from our investors for capital. (On capital raise two) The second round was about financial discipline: How do we manage the success of the business from a financial lens? What are the financial metrics we should go look at? How do we benchmark effectively? Scale Venture Partners was an ideal partner at this point. (On capital raise three) The third was about investment in sales, marketing, and further investment in product maturity, to really build that go-to-market engine.  Index Ventures was our huckleberry here. (On capital raise four) And the fourth round was Capital G. We were sitting there at the  beginning of the pandemic, and we really did not need the capital because we had closed our previous round only about a year prior. But the market was ready. There was capital out there. And we knew at some point we’d need to raise more capital. We were doing reasonably well as business—for debt, they say the best time to raise debt is when you don’t need it. I think that holds true in the venture side as well. We didn’t need it, but we knew that next round would set us up well to both survive the pandemic and accelerate our growth coming out of it.


KEY TAKEAWAY #3
Differentiation is critical. Observe areas in which competitors fail to meet customer expectations—such gaps can create differentiation opportunities but may also negatively affect buyer perceptions of all businesses in within a competitive landscape.


SD : This organization is primarily constructed of private equity investment banks lenders, the advisors to the deal. What are things should people consider when contemplating (investing or starting a business venture)?

YK : Some of the themes we’ve discussed are relevant. For many businesses, the market is a really crowded space. And so, differentiation is everything—how are you going to set yourselves apart?

For the argument of “a rising tide lifts all boats,” I think there is going to be some truth to that (for technology industry growth trends) on the cloud side. But in more mature markets, that is not going to be the case—there will be clear winners and losers.

Another interesting dynamic that I’m seeing playing out in the cybersecurity industry is that there’s an influx of questions and concern about competition. We do get questions like, “Who do you compete with?” and “What kinds of companies do you run up against?” One competitor factor that nobody talks about is apathy. We have seen a pretty significant volume of cybersecurity leaders not actually care (about which vendor they select to do business with), in part because they have been so consistently underserved by so many different vendors.


Excerpts have been edited for brevity and clarity.

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