If you’re an entrepreneur in an early-stage company, you know that securing funding is a challenge that requires hard work, commitment, and a can-do mindset. Doing so 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. While we are incredibly grateful for the support we’ve received, the journey hasn’t been easy.
I’ve been involved in the fundraising process several times before, as CEO and founder of Alkira, and as CEO and founder of networking startup Viptela, which Cisco acquired in 2017. But this latest experience taught me some unique and valuable lessons that other leaders in this market can benefit from. Here are some key takeaways I’d like to share.
Lesson 1: Let’s start with numbers
In a down market, investors are naturally more cautious. They look for companies that offer a great product or service and a clear path to success, even in the face of economic headwinds. Additionally, AI startups attracted One in three dollars invested in the US in 2023, making this bear market even more competitive. For a late-stage company to get a significant investment in this market is extremely rare. So how did we get there, and what can you do if you find yourself in this situation?
The hard truth is that it all comes down to fundamentals. Your numbers need to be strong, and you need to show consistent and substantial growth over time. You also need to make a compelling case for future growth, with supporting evidence. Customer stories are incredibly important. In our case, the breadth of “network infrastructure on demand” use cases we solve for our customers and the love they have for our solution has been a huge help. Additionally, while Alkira is not classified as a pure AI company, we play a critical role for companies looking to adopt AI quickly and securely. Specifically, we are able to quickly set up AI services, secure them, and efficiently meet compliance requirements. Clearly articulating our vision for AI, while showing that our customers are already benefiting from it, has helped us immensely in the fundraising process.
Another important point is that our previous fundraising took almost four years. During this period, we were very responsible in investing, proving our business model without spending too much. And this was in the middle of a global pandemic. Highlighting this to investors gave them confidence that we would optimize their investment.
Lesson 2: Prioritize Investor Fit
Despite having 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 investor meetings that ultimately didn’t work out the way we wanted, often through no fault of our own. Sometimes you can nail your pitch, but the connection just isn’t there. Sometimes that’s the hardest part of it all: knowing you’re doing everything right, while having to be patient for the stars to align. As someone who’s been on the other side of the fundraising process, I can say that the wait to find the right investors in today’s market is worth it.
Basically, there are two types of investors. The first is the one who simply provides capital to your business, but has only a vague idea of what you do and the market you serve. The second is a true business partner who will do their research, talk to your customers at length, have a complete understanding of your unique market, and add significant value to the growth of your business. Both types of investors can be valuable to your business, but in a tough economic market, the second becomes much more critical.
Finding investors who understand your market opportunity and competitive advantage allows them to strengthen their conviction in your company. This is critical in a down market where investors are more selective with their capital. Additionally, having investors familiar with your industry can expedite the due diligence process, saving valuable time and resources. Good investors can also leverage their network and expertise to connect you with potential customers or partners, strengthening your investment case. This has happened many times in my career, and I have found that these relationships are typically the ones that last the longest.
By prioritizing investors who understand your business and your market, you can increase your chances of successfully raising funds and attracting the capital you need to thrive even in difficult economic conditions.
Lesson 3: Don’t settle for enough
In a down market, where every dollar counts, excellence is the most valuable currency to attract investors. Don’t settle for good enough at every stage of the fundraising process. Throughout the process, you’ll be tempted to rush things, like your pitch deck or your brand story. However, if your startup has strong numbers, consistent and sustainable growth, and a clear vision of why you’re well-positioned for the future, invest the time, resources, and energy to ensure your company puts its best foot forward and successfully hits its funding goal. Going back to something I mentioned earlier, while some investor meetings didn’t go as we hoped and frustration could start to set in, we never let those experiences influence how we prepared for the next meeting. We treated every investor meeting as if it were the only one we’d ever have and always made sure we put ourselves in the best position to succeed.
The same is true for our day-to-day approach to technology. We pioneered the concept of on-demand network infrastructure a few years ago, and now more and more people are finally starting to understand why this technology is so valuable. If we had cut corners along the way or let frustration get the better of us, we wouldn’t have raised $100 million in today’s market. Disrupting a traditional industry requires an unwavering commitment to getting processes right, demonstrating efficiency in how you use your resources, and not settling for good enough when under pressure.
Key points to remember
Of course, Alkira and I have some advantages that not all founders and companies have. Our network technology fits perfectly with the recent AI boom, and I have a proven track record at a previous startup. I’ve also been validated by Microsoft’s Elite Startup program. Of course, not all entrepreneurs have these advantages.
However, securing funding in a down market requires a strategic approach and an unwavering commitment to excellence. By focusing on strong fundamentals, finding the right investors, and not settling for good enough in the face of pressure, you can increase your chances of success. Remember that even in tough times, exceptional companies with a clear vision for the future can attract the capital they need to thrive.
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