Rising up together: from 3 to thousands
COO Laurent Soubrevilla took a gamble when he started CrowdSec with the other founders but made sure to make all the right decisions to ensure it would withstand the challenges of 2022 and 2023. In this article, he shares the story, strategy, and takeaways from launching an open-source and collaborative software company in the field of cybersecurity.
Three years ago, we took a gamble on launching CrowdSec, a start-up offering free, open-source, and collaborative software in the field of cybersecurity. It was a bold choice at a time when digital security, increasingly a concern for businesses and consumers, was still clinging to its old strong castle model.
As a pure player whose concept was based partly on a strong and engaged community, we had no choice but to build that community and move forward without the hope of generating any revenue for at least two years. And it is by firmly believing that our vision had great potential that we managed to convince the first investors to follow us while keeping in mind that we would need the support of others to grow and reach our ultimate goal of becoming a unicorn.
Lifting our feet off the break
The first round of funding was raised from friends and family and provided us with the capital needed to implement the first version of the software and shake up the web for the first time through powerful marketing operations. We were thus able to validate the market's appetite for our concept by quickly going from 0 to 5000 installations worldwide. With this rapid adoption, we had no difficulty convincing new investors (Breega) to invest 4M€ in a new round of financing (seeding) and start our Go To Community.
Ambitious, determined to make a real difference in the cybersecurity world, and properly funded, we worked hard for a little over a year, with great teams who gave everything they had to follow the plan we had outlined and make this GTC a success. Thanks to them!
The next step in the plan included another fundraiser in the fall of 2022, to put fuel in the new stage of the CrowdSec rocket and fund our Go To Market this time. All our KPIs were showing growth in line with our expectations and we were confident that this next step would go smoothly.
But by the end of the first quarter of 2022, the market showed some early warning signs... We anticipated the changes to come by taking into account the signals we spotted, such as the overvaluation of companies in the technology sector, galloping inflation, and global salary increases. Even if our ambition is more ambitious than that of the stock market indicator, the sources of financing and the arbitrages of venture capitalists depend on it quite directly.
Making it to Series A Funding
After consultation among the founders, we made the strategic decision to accelerate our fundraising plan and timetable in order to protect ourselves against economic uncertainties and to give us all the means to continue our growth.
Our decision proved wise when market conditions deteriorated significantly, jeopardizing the financial stability of many companies, especially start-ups dependent on external financing. If we had waited until the planned deadline, the management of the company would undoubtedly have required complex arbitrations associated with complicated financial arrangements (bridge, debt, etc.)
We decided to mobilize for a new roadshow and with our KPIs on fire, we managed to raise funds before the market conditions tightened significantly. It was Supernova and again Breega who, just before the summer, confirmed their support to fund Crowdsec up to €14M. We would like to take this opportunity to thank them once again for their confidence in our vision and their commitment to helping us realize our potential.
Shortly after, the markets continued to plunge, causing stock indicators to lose between 20 and 30%, applying a sharp correction to all sectors in terms of valuation, causing anxiety and frustration for many investors and leading to waves of layoffs, especially in the US in tech companies. And for start-ups like us, this translates into facing an additional challenge in securing funding and refinancing.
Barely missed the cannonball
This strategic acceleration allowed us to finalize our transaction before the fall while preserving the value of the entire team's work... We can say that we felt the wind of the cannonball passing. With hindsight, we were able to give ourselves the means of our ambitions through a very nice operation. With substantial funds that give us a runway of several months, the teams are boosted, they can now scale and our pipeline is filling up a little more every day. Phew.
What I wanted to emphasize here is that the challenge for a pre-revenue startup is to find the right balance between cash burn, valuation, and funding sources. A sort of three-body problem because it is extremely complex to predict. With too much cash, you dilute yourself unnecessarily; with not enough cash, you are on the reserve and always on the crest line. The valuation of the company should and can only increase. As a COO involved in governance, I must constantly measure these indicators and ratios in order to make the right trade-offs and adjust the company's trajectory.
What we took away from our experience
Finally, governing means forecasting. This is why it is always necessary to keep an eye on the macro-economic context in order to steer as well as possible. In particular, it is important to remember that market fluctuations are normal and that long-term investments tend to regulate themselves over the long term. And I tend to believe that things will get better from here on out.
Indeed, 2022 has been marked by a real economic storm, limiting the good arbitrages to be made. Essentially because inflation at very high rates has invited itself to the party and this is something we were not used to seeing from an economic point of view. In Europe in particular, we have reached levels of inflation that we have not seen since 1970. But from what I have read, many economists agree that inflation will normalize from 2023 onwards. The causes of supply chain pressures in 2022, such as delivery delays, have been resolved. The reopening of the Chinese economy and stable ocean freight costs are positive indicators. Supply in Europe should be maintained and on the energy front, things should also be better (concerns about the winter of 2022-23 have been lifted and with the French nuclear fleet expected to return to near 100%, the forecast for the winter of 2023-24 is more optimistic).
Despite the fear of the conflict in Ukraine, the economy should experience this year what we experienced in 2021 and 2022, a strong rebound in services. Furthermore, from what I have compiled from my recent readings, I think that from a macroeconomic point of view, we can expect rates in the US to be 3.5% without a major risk of seeing them rise sharply from current levels because inflationary and macroeconomic trends are down. This translates into real opportunities on bonds for example even if I prefer to remain cautious regarding the stock market…
Looking forward: the generation of results
In conclusion, the economy is more resilient than we feared some time ago and on the inflationary front, this allows us to start 2023 under better auspices. Nevertheless, for startups looking for funding, investors will remain cautious and extremely elitist about which startups to fund, without being fooled by off-the-ground valuations. It is therefore important to keep in mind that 2023 must be synonymous with the generation of concrete results and value creation, thus helping to reassure their current investors and to prepare the best for their next round. Being totally in this case, I go back to the others and to work!