How CyberSmart Achieved 160% Net Revenue Retention and Closed a Series B in a Downturn (Interview with CEO Jamie Akhtar)

Introduction and CyberSmart Background

Jamie Akhtar

00:00Spoiler alert, it's about SVB. So we're going to dive right in, but a little bit of context, little bit of background on myself and cybersmart about what we do. So my background is in technology and cyber, spent the last fifteen years either building technology products, running tech teams or helping companies do all the great stuff around data protection from technical security all the way up to the governance, risk and compliance piece. And like most founders, the

00:25reason we started cybersmart was because of the amount of pain and frustration we saw when it came to our customers, the people we're working with day in, day out, and we just needed to solve this problem. What we do at cybersmart is really focus on how SMEs can be enabled by cybersecurity. So it's a really difficult challenge because most SMEs are not really aware of the risks they face or how best to approach them. So what

Mission to Protect and Empower SMEs

Jamie Akhtar

00:47we do is to build a unified platform for small businesses to basically tackle this. So our mission is protect and empower SMEs. That's one of the main reasons why we went down the funding venture route. There's a lot of amazing companies that have spoken today that are bootstrapped. I think that's a really, really good way of solving a problem. For us, we think the problem at the time is now. So I'm going to take you a

01:08little bit through that journey. Our most recent Series B, which U. S. Terms, it's probably a lowercase b because it's quite a small Series B. For us, it was really about hitting our milestones and getting the right investors. So I'm going to talk through that as well. So setting a little bit of context. So I want to set the scene. The last year has been really rough. And as most of you know, it's not going to

01:28get any better for the next twelve, eighteen months when it comes to funding market as well. So just going through some of those context pieces, some of the ways we had to change how we're presenting ourselves and the approach we had when it came to fundraising as well. I want to kind of take you behind the scenes a little bit, how we run the deal process, how we closed there and how we figured out what the

Series B Context and Fundraising Journey

Jamie Akhtar

01:48right investor for us really looked like. And then finally, two of the most important roles in your business as well, Why we love Founderpath, I'm going touch on that too and finally some key lessons to wrap up. So let's dive in. So first bit I want to talk about is kind of that behind the scenes looking through that deal process too. So last the last two years has really been a bit of a hell on earth,

02:14I guess, for most companies. And one of the key things for us as a company is always to look at these kind of inflection points that are happening outside the business and try and utilize those and see the silver lining. So the pandemic was a massive shift in like how businesses work. Now being in cybersecurity, this is a lot of industries SaaS has benefited hugely from. But essentially, the move to remote work has really impacted everyone.

02:38It's about not only the benefits that businesses have been able to take on, also the risks. So every time this happened, we sat the team down and said, this is what's happening in the world. This is where the challenges that we face. This is why it's going to be quite tough for us and this is what we're going to do about And it's the same theme throughout all this. In a previous talk I did, the Founder500

Macro Inflection Points and Company Response

Jamie Akhtar

02:59Conference, I really dove more into these. I'm going to just kind of touch on them briefly here in terms of this. But what we're now facing is this last phase, which is the recession, and that's going to reverberate for quite a long time. So a lot of what we did was about like position ourselves in order to accomplish that. When it got to fundraising, so we kicked off the fundraising process about January last year, so about

03:22fifteen months ago now. Obviously it was not a good time. It's not going any better since then. But we were looking at what's our story like when we're pitching VCs like Tier one VCs, how are we going to get the cash? Our revenue growth, as you can see here, looks a lot like some of the bootstrap companies, but we had a lot of cash and we're burning a lot of cash like hundreds of thousands of dollars

03:44per month to achieve this kind of revenue growth. It's kind of average, right? So we had to really look at like where's our strength as a company, what's the thing we're really nailing and what do we want to double down on. And really for us it was about unit economics. So there's a shift in our go to market that happened and actually we started to accelerate throughout last year, which was a shift towards our partner channel.

04:05So cybersmart sells into small businesses. We had quite a few partners. So these are managed service providers, so people managing IT on behalf of other small businesses, where it took us, I'd say, a good two years to really figure out how best to position the product, to package it up, to enable them. Partners are like this amazing channel, but they really do take a lot of time and work to get up and running. Once we figured

Unit Economics and Partner Channel Model

Jamie Akhtar

04:32that out, we're able to basically double down on that. So our unit economics, our customer acquisition cost, lifetime value was 115%. Our net revenue retention was about 160% a year for partners and our gross retention about 99% a month or about 86% a year. So really, really sticky customer base that we're able to essentially land and expand in. So we called this model, we called it a partner led product growth model. So we are landing into

04:55partners and they were selling into their customers, maybe one or two to start, but 20 or 30 over time. So that's really what we focused our whole story on. When it came to finding our ideal investor, we really focused on an investor that understood the fundamentals of unit economics. We spoke to one VC that said, oh, we don't look at companies that are not growing three or 4x a year. And I'm like, who's growing three or

Pitching 100 VCs and Managing Rejection

Jamie Akhtar

05:174x a year right now? That's crazy. Like we were growing like 60 as you see on that previous slide, like 60%, 70% a year, not free or 4x. So this is when we started that process, this is these are actual things that VCs I pitched said to me. I pitched about 100 different VCs. I'm thinking like 200, two fifty, 300 meetings, like two or three meetings a day is it was savage. I mean I was literally

05:45just sitting there. My wife's sitting over there in the front row, but she like she can do my pitch off by heart right now because we sit like shoulder to shoulder on a little tiny desk in our flat one bedroom flat. And like it was just continuous like trying to manage that deal flow. So it's very much like a pipeline. So any sales process would go through this. My favorite one is probably the one at the

06:05bottom, which is like just like this is an actually an Austrian VC and the like we just don't see the business cases. We obviously don't see what we're trying to do here. But it's really tough. I mean when you're going through this and it's just like setback after setback, rejection after rejection. And last year, I don't think there's a single point in the entire year where we had more than three months runway. So throughout this process

06:26is where we had to make sure that we had cash in the bank and we're trying to keep the team on this journey as well. So it's really tough. And this basically how I felt. Mean that emoji I think describes it pretty good. You feel like you're failing as a founder. You feel like your company is failing. You feel really frustrated because you're like, why doesn't anyone believe in me? Why is no one giving me a

06:44chance? You feel angry. Why didn't we do this? Why did we make these decisions to get to where we are? There's really, really it can be quite a crushing blow to you as a Founder. And I shared all this with the team. I said this is what I'm going through. This is why I need your support and I need you to really focus on hitting these numbers and maintaining good unit economics because we will get there.

07:05It's just taking us a lot longer than we expected. And this is me on one of calls yet another presentation. Just basically like we're still in through those, but one important bit as well. It's not just about like sitting in our machine and firing meetings back to back, like reflecting on what's working, what's not. Refining your ideal investor as well and your pitch and your presentation is really important. So usually I'd have someone jump on the

07:29calls as well. They would just be listening and then ask us, how did it go? What was good? What was bad? What can we do better next time? So build that iteration into your pitch cycle as well. So towards the end of last year, I think this might be well, obviously, it's in the future, but this is last year. So Q3, things got really tight and I was like, okay, we've done advanced subscription agreements or convertible

Finding the Ideal Investor Profile

Jamie Akhtar

07:51notes with our existing investors, raised a bunch of cash there, thankfully Founderpath came in and saved the day, I'll touch on that a little bit. Things are getting really tight and I was like, is where essentially where we are. And this is actually from a team slide. So every quarter we run an all hands, we get the company. We're like fifty, sixty people, right? So there's fifty, sixty people are depending on me to get this round

08:13closed so they have a future with the company.

08:17So try and focus on the positives, try and tell them where we're going and how things could work out. And this is really important I think when it's when you're going through these challenging times like keeping everyone behind you and supporting what it is you're trying to achieve and just reminding of that over and over again, but not hiding the fact that this is difficult is super important as well. So we eventually did find our perfect

08:39match, what we were looking for. So we had an ideal investor profile if you can call it that, which is essentially a B2B SaaS focused European fund. We really want to double down on what we did. So we're based in The UK. We really want to double down what we do in The UK, maybe launch a couple of new markets, but not North America just yet. So redefining someone that understood the business, what we're trying to

Four Term Sheets and Closing the Round

Jamie Akhtar

09:01achieve, bought into our vision, our ambition and realized that like the way we were going to scale this business. So we end up with four term sheets in the end. And it was really the last one, which took a lot of work. I mean they said no two times, and I kept going back to them every couple months, but you're perfect. And they're like, yes, but you just need to do that, like a lot of VCs

09:22do. But I said, if I do this, will you commit to investing? I said we'll see about it. They never committed. But in the end they did. We got to where we need to get to. So what I would say on this is it's really important just keep searching for the ideal investor. If you've got the wrong way to do it like don't settle for second best. So Section two, want take you a little bit behind

09:42that deal process as well. What I call climbing mountains in a snowstorm because it's kind of like you're really trying to push, but you've got all these million other things happening in the business as well.

09:53So just three things, right? But this is actually probably the biggest takeaway from this whole presentation is the number one thing you have to focus on, whether you're bootstrapped, you're raising venture or whatever model you're going if you're profitable, just build a healthy business is number one. It has to be number one. Like a lot of the times we get kind of wrapped up in the fundraising and like I need to get to this point, need

Three Priorities: Healthy Business, Deal Flow, Plan B

Jamie Akhtar

10:17to hit this ARR number. But unless you build a healthy business, it's not going to scale. It's going to come with a load of challenges. You'll hire the wrong people because you're under pressure. So really focus on that. And then the second bit is just focusing your deal flow for plan A. So really make sure you give that the time and the energy it needs. Like don't just do this as a side thing. Make sure you've

10:36got the team around you that you can basically empower to deliver the business day to day. I was probably spending 60% of my time on this plan A. So I really need the team around me to deliver on that. The last bit, which basically takes up every other waking hour of the day is the rest of the alphabet. So that's plan A, but the rest of it you need to have a plan B, C, D, E,

10:55like who you're going to go to if it doesn't work, like what options do you have for cash flow, whether it's your existing investors, whether it's you cutting back on spend, which is a really is definitely a real thing that you might need to consider or if it's accessing something like recurring revenue finance or venture debt. So make sure you've got those plans in place early because by the time you'll need them, it will probably be

11:16too late for you to start putting them in place. So negotiation, so this is kind of one of the things we realized and actually is kind of the new normal if you like. Although a lot of VCs are kind of repositioning it, the fact that the couple of years proceeding last year were a blip and actually it's just returned back anyway. Term sheets are much less favorable now. So expect a lot of things in there. If

Negotiation Tactics and Valuation Realities

Jamie Akhtar

11:40you see anti dilution for example, things like coupons as well, it's basically investors just trying to protect from that downside risk. But one of the ones we steer clear from is liquidation preference. Like some funds were like pretty upfront. They're like, oh, it's a 2x liquidation preference. Like, okay, I don't think this is going to work for us. Like if they're not bought into what you're trying to do today, like it's kind of like you're backpedaling

12:01from that point. So you probably avoid that. I don't I'm not 100% sure on how it look in The U. S, but this is definitely so from The UK. Valuation matters. It really matters for you and your business and what that means for your future and the amount of capital you can raise as well. But there are kind of ceilings in place like twenty, fifty. I mean this is like later stage companies. Earlier stages, it's a

12:25little bit more subjective. But mid late stage companies, it definitely looks like there's some kind of ceilings there. We heard from a lot of people like this 6% to seven range was pretty standard. What you can do to control that is just grow your top line hard. So if there's some measures, there's something you can pull in, like whether it's an enterprise sale or something that's slightly off the path of what you would typically do in

12:45order to boost your ARR, it will get you a better valuation. Not long term strategy, but it's something you can do to basically come in to change that narrative and also try and price based on your year end. So what your AR is going to be rather than what it is today. And the last one as well, just remember, give up control. I said I'd use the lasers you see there. Don't give up control. You are

13:08best placed to see the ship. If they try and like add additional like six board seats or whatever, everyone wants a board seat now, tell them they're going to get the same visibility, you're going to get same input. You're going to take the decisions because you're best place to do that. If you really need to, if you're at later stage, might look like an independent or something, but don't give a control as part of this. I

13:28don't think you need to. The last bit in this section is about smart allocation. So actually this is kind of like what our plan was on the left versus what actually transpired on the right. So like we had like we plan to hire like 20 to 40 new people in the next twelve months. When we set out, we had our full financial model. We had a burn for all our cash in about eighteen months or so.

Smart Allocation and Step-and-See Hiring

Jamie Akhtar

13:51Since then, we've basically reverted to like a more step and see model. So the presentation we saw just before was this kind of hiring in line with your revenue. I think that's a really, really smart way of doing it. So when you're testing, you're experimenting with whether it's a product or a new market or simply like adjusting your team, see that the results come through before you start hiring. As the presenter previously said, that's going to

14:15be the biggest line on your cost base. So we really have a fine eye on that one. We were looking like 14 rebuilds. We're just bringing in more experienced people. We're going to start this new function that we've really wanted. You speak to the engineers and I need like six new developers. So like that team rebuild is really, really hard now. So there's a really tight labor market. That's really expensive. You've got recruitment fees. You've got

14:39the time to get people up to speed. What we've done instead is focus a lot on leveling up the people. So like lots of learning and development, coaching, support professionally, personally, given the opportunities to grow, like really look at your current team and what you can do to get them to the next level. We wanted to do a bunch of new stuff like we're going to launch in like six new countries and we're going to launch

14:59all these new products. We've really scaled back that and start to focus on like what are those experiments we can run ever. Ever as an MVP, can we launch some really early alpha stage products? Can we do a lot more UX and partner research? So we start up things like a partner advisory board, which gives a lot earlier insights rather than building stuff and shipping it. And then the last piece on here is like we are

15:21planning on building most of our tech like we did today. We're planning on maintaining that. We've really shifted our focus. And now we think about more in this lens, which is like borrow. So like is there an API? Is there a company that's building something similar that would kind of jam right into your stack? It's a little bit of work, but you allow allows you to test that feature or that functionality for your customers without having

Micro Acquisitions and Borrow-Before-Build

Jamie Akhtar

15:42to go and build the full thing out. The other thing we started looking at and it's definitely something I encourage all the founders to do, look at micro acquisitions. So we used a platform called acquire.com, used to call microacquire.com. There's a bunch of platforms like this out there. There's lots of companies there like less than 100 ks that can maybe add that killer feature that you are planning to build for like five to 10 times that.

16:05So buying tech, small acquisitions can be quite helpful with that. And then finally, our last option is to build stuff.

16:13So the last bit, Section three. So

16:18to Sherpas, there's two roles in your business and actually it's listening to a lot of the presentations today. I've heard these time and time again. So the two most important people, two most important roles are people in finance. So people is all about like doubling down on your team, supporting them mentally, emotionally, professional development, personal growth, like really, really investing in them is going to be crucial for the next eighteen months. It was important before now

16:44it's like it's essential. And the second one is finance. So notice these are not like roles. You're not going to go and hire like a CPO and a CFO and just give this problem. These are CEO level responsibilities. You've got to make sure these two things are on track at all times. This image, by the way, random fact generated by AI, I was like, I want two shepherds walking up a mountain in a snowstorm and I

Founderpath Financing and SVB Comparison

Jamie Akhtar

17:07couldn't find on Google. So DALL E produced that, pretty cool. Last couple of bits, so debt financing and alternative finance. So it's actually our proposal from SVB that we got last year, think it about March. But the strings attached here is like here, we're going give you like 3,000,000 to 5,000,000, pretty decent interest rate, 6.5% to 8%, but you need to close your funding round first. Like why do we want your money if we're going to

17:33close and get a load of money in the bank? So it's kind of, okay, interesting. Anyway, we spoke to Nathan and the Founderpath team. That actually end up giving us like $1,500,000 when we really, really need it. And that Q3 crunch, super easy platform. You log in, you select your customers, click review, they send you some paper, you sign it. And I was quite surprised that we'd hired a CFO by this point and he was like,

17:54I can't believe they just wired us the money like we filled in some forms in this U. S. Company, you sent it to us. Anyway we paid it back to them very easy. That was a letter they sent to us. And actually it was only a few months afterwards you see that most of our balance is still outstanding. So they didn't charge us any repayment fees. So if you are in a bind like tapping to Founderpath,

Key Lessons for Founders

Jamie Akhtar

18:15the interest rates a bit higher than what you pay, but you don't have early repayment fees. So last bit I'll touch on is just kind of free lessons. One core theme that build a sustainable startup Like don't raise venture money to just support your runway so you can keep experimenting. Go back to the basics even if it means like being uncomfortable for a little bit. So that's definitely number one. Tilt the odds in your favor. Think

18:40a lot of this is about making sure that you're staying positive, staying determined, but also bringing your team with you on that journey. Like if you start having like doubts amongst your staff, then it's really going to make this a hard process for you. And the last one, and it sounds really stupid, don't run out of cash, but not running out of cash actually starts today. It starts like way earlier. Right now we're like, okay, good,

19:01we're good for twenty four months, but we're going to make sure that we the cash we've got today is going to last us for cash flow profitability or our next round. So by our plan is by our next round, we'll probably have about half our cash there in the bank. And we're doing that step and see approach. So like this is what I'm focused on right now even though we have cash. So it's not it's really

19:20important. Anyway, last bit, there's a micro context. It's stuff out there. It's not getting any easier. So make sure you factor into your what you're doing. In terms of the deal process, make sure that you're negotiating the best deal for your team and don't settle for second best when it comes to investors. And a few conclusions there. Is that over time? I think it is. It's counting up. Anyway, I did have one more bit, but I

19:40think Nathan is looking at me strange. Thank you. Thanks very much. It starts counting up. I know. Good job. Thanks very much. Cheers.