Like many things about 2020, the search for funding in the middle of a pandemic tends to be a bit unconventional. I should know. My own company, Netdata, recently closed on an extension of our Series A. From my experience it is possible, even in a time of uncertainty, to make a successful case to investors. Some great companies were born during the 2008 financial crisis, another time of great adversity, so it’s certainly possible to turn a crisis into an opportunity.
Netdata provides an open, interoperable, and extensible infrastructure monitoring platform. Our business centers around, and was born out of, the open-source community, combining visibility and insightful metrics with real-time troubleshooting for slowdowns and anomalies within a company’s infrastructure. Our users are developers, IT teams, including DevOps and site reliability engineers, and their managers. Our product is easy to install, can scale to any size operation, and gives IT personnel a comprehensive view into their systems and applications. With more than 5,000 new users added each day and over three million users worldwide, our innovative approach to infrastructure monitoring is quickly gaining traction.
Simply put, our tool has been an essential component for many companies who have been forced to accelerate their digital transformation initiatives in the wake of the pandemic. It enables them to troubleshoot their systems to ensure that their infrastructure is running smoothly to prevent downtime and support employees working from home.
One thing I’ve learned is that investors are looking to partner with companies that have amazing traction with their user base and have the potential to disrupt an industry, even during economic headwinds. In fact, venture funding has not materially slowed down during the pandemic, even though there has been less “dry powder” (available money to invest). So smart investments, with a focus on fundamentals and demonstrated traction, have been the focus. Here are some of our lessons learned from this funding round.
Focus on Growing a Loyal Community Before Revenue:
It’s no surprise that building a loyal community is pertinent to the success of any company. The same rings true when pitching investors to raise funds. The size and support of your community has the potential to influence an investor’s decision to invest in your company – this shows traction and market validation. Our community-first approach allowed us to build a loyal base of developers helping to make our product better.
For starters, while Netdata is far from being the only player in our space, the industry suffered from cultural flaws, including accepting comparatively long issue resolution times, monitoring relatively few metrics, overcomplexity that tends to mask useful intelligence, and difficulty in installation and configuration. Those shortcomings were our starting points, and Netdata’s developers systematically addressed every one of these. It became a breakthrough product within the open-source community, with over 50,000 GitHub stars. So the product became a standout, and astute investors recognized it.
Find Investors Who Support Your Vision and Culture
The choice of an investment partner is also key to a successful round. Although money is a fungible asset, investors are not. Each has its own history, strategy, portfolio, and reputation. Particularly during a pandemic, many investors are looking for ways to lower valuations and to impose terms.
For us, Bessemer Venture Partners provided an outstanding fit. So they became the lead with additional participation by other earlier stage investors including Bain Capital Ventures and Uncorrelated Ventures. Bessemer’s strategy was closely aligned with ours, which helped increase our confidence in working together. In fact, they were actually, the ones who found us, rather than the other way around, through our open-source project about a year ago. They had also analyzed our public data and identified an approach for monetizing that was very similar to our own. They understand open source and SaaS – so they are an ideal fit. It’s worth taking time to find the right partners rather than just chasing capital.
Ask if You Really Need the Funding Now
When it comes to raising money, the rule of thumb is to avoid it unless it’s absolutely necessary. There is a lot at stake, including changes in control and some compromises. If, after speaking to many investors, you find that the pandemic has caused them to shy away or be more cautious about investing in your field, perhaps it’s worth considering whether you can wait. When possible, it’s always much better to wait for friendlier times than to bring in funds on unfavorable terms from investors who don’t support your long-term vision.
That said, securing funds has the potential to boost morale internally and credibility externally since it secures the future of the company. In our case, the funds we recently took down will be used to accelerate our R&D work by investing in world-class engineering talent as we continue to build a team focused on developing the world’s best monitoring solution. It has also allowed us to bring on key executive hires.
Applying the right approach when raising funds can have a major impact on the type of investors you attract and the amount of investment dollars. While we don’t know how much longer this pandemic will last, staying focused on these top three tips can help set priorities and hopefully, one day, secure funding.
Commentary by Costa Tsaousis. Here’s what you’ve missed?