How Carbyne Closed an Oversubscribed Series C in the Middle of Financial Market Turmoil
By Rahul Sheth, Chief Financial Officer at Carbyne
This is a challenging year for tech companies, especially for entrepreneurs seeking funding for their next phase of growth. According to Pitchbook, VC funding was down 8% in the first six months of the year, driven by the sliding shares of mature tech companies. The NASDAQ composite index is down close to 25% through September. And yet, despite the liquidity crunch, Carbyne secured $56 million to invigorate the public safety industry with modern cloud-native technology.
While I’ve raised capital at Carbyne and previously managed companies through the IPO process, this cycle was remarkably different. For Carbyne, this round will help us accelerate our global expansion and help us achieve our target of covering one billion people by 2024.
Here are some important lessons I learned while closing this round in today’s treacherous fundraising environment.
Expect a Roller Coaster Ride
As we entered 2022, the financial markets were riding at all-time highs, and investors were looking to deploy their surplus cash in high-return opportunities like those offered by startups. Within a matter of weeks, the markets cratered, and pessimism spread rapidly across the financial markets. Unable to fulfill their own financial commitments, fund managers were looking to rationalize their positions, and the flight to safety was in full swing.
We started the round right when the financial markets started to tumble, not expecting it would last throughout the year. A couple of times, the deal was on the cusp of closing and then, at the last moment, there was a surprise turn in the process. Investors’ sentiment changed almost overnight due to the macro environment, and we went back to square one. The key to riding the roller coaster of the fundraising process is to stay focused on investor feedback and to expect the unexpected.
Be Flexible, Adapt Quickly to Changes, and Focus on the Right Investors
Companies like Carbyne that successfully navigated the volatile markets of early 2022 got a few critical things right. For one, we realized that the tide was turning, and we adapted to the changes quickly. We adjusted our ask to investors, whose portfolios were reeling from the downturn. While we focused on the bull market case, we developed a base case and also bear case scenarios. Scenario modeling is key in a challenging market like this one – it’s crucial to show financial models that span from bull to bear case.
We also continued engaging with more investors in our pipeline, targeting potential partners whose investing mandates would align with our mission and who would believe in our vision and guide us toward our North Star. Companies in fundraising mode should focus on finding investors who understand their business and are excited to join in their journey. Value choosing the right partner, even if they are not the highest bidder.
Build Plan B and C
Startups should always keep an ear to the ground and wake up earlier to shifting investor sentiment. Build lots of wiggle room into the process and prepare for unexpected delays within the plan. Right now, having just a plan A is not sufficient. Companies need to build plan B and plan C. Build these plans for base and bear cases without changing your vision and mission. We started the process a lot earlier and kept plans A, B, and C ready to execute. As they say, plan for the worst and prepare for the best.
Be Open to Different Structures for the Round
In cash-constrained environments, when it becomes difficult to raise equity, startups should calculate the cost of equity and the cost of debt. Be open to adjusting the size of the round, show investors your flexibility in the round size, and most importantly, build flexibility into your financial models.
Don’t be afraid to explore alternative ways to raise capital, such as debt. We should dispel the stigma associated with raising debt financing since it can bring unique advantages. The cost of debt is usually lower than equity in the long run if you are confident in hitting your financial targets and forecasts. Furthermore, debt financing has the added benefit of not diluting existing investments.
The environment today is much different than it was only a year ago. The key to successfully reaching your funding goals is to be agile and flexible while staying true to your mission.
Carbyne (Headquartered in New York, NY) is a leading global provider of cloud-native mission-critical contact center solutions. Carbyne is one of the largest rich-data providers for emergency response centers, delivering over 250M data points per year all in a unified platform. Our technologies enable emergency contact centers and select enterprises to connect with callers as well as connected devices via highly secure communication channels without needing to download a consumer app. With a mission to redefine emergency collaboration and connect the dots between people, enterprises, and governments, Carbyne provides a unified cloud-native solution that provides live actionable data that can lead to more efficient and transparent operations and ultimately save lives. With Carbyne, Every Person Counts.