Securing $20 million from investors in a down economy is tough, but, for Marty Kagan the down economy is what is driving his startup.
Hydrolix bills itself as changing the economics of data storage. It’s in a crowded space of cloud data management but its unique value proposition is the cost savings it can give customers.
However, until late last year cost savings weren’t top of mind for the large companies it serves. For many tech teams the pressure was on the top line and not for cost savings.
“Then in Q3 last year that changed dramatically. Companies that said call me in six months they were calling me,” said Kagan, Hydrolix co-founder and CEO.
“The whole market shifted to cost savings. We were suddenly telling the right message,” he added.
The company is now launching pilots with very large companies daily. The millions that can be saved using Hydrolix can mean the difference of avoiding layoffs, Kagan said.
It was this traction that was attractive to the startup’s newest investor Nava Ventures, which led the company's Series A. Kagan didn’t have a relationship with Nava before he was put in touch with the Nava team. In fact, Nava was in town talking to other startups when they were told about Hydrolix.
In that initial meeting last fall Kagan told the Nava team about how the startup’s message hadn’t been resonating a quarter earlier but how they now had a huge uptick and a clear path for growth.
Nava agreed and put up half the round. The rest came from existing backers who have remained supportive of the company.
Kagan met Nava in November and a term sheet was signed in December. The deal closed in the first quarter, so it came together pretty quickly.
“We had already built a plan to fund and Nava bought into the model,” Kagan said. “They are fantastic. They understood the model and the assumptions and why its achievable and what the upside is. They gave us the terms we wanted.”
Kagan also noted that the fundraising process is a two-way street. He checked out Nava as well and talked to other portfolio companies before deciding to work with them.
For this round, the pitching part wasn’t the most challenging. Kagan said after the round closed the entire amount was tied up in a Silicon Valley Bank account prior to the bank’s collapse. Kagan said he had a tense weekend hoping everything would work out. He has since changed the startup’s banking strategy with several accounts and short-term Treasuries.
Like other founders, Kagan said he never thought to worry about his bank failing.
Hydrolix is a cloud data platform focused on company data that doesn’t change, such as logs for observability of how software is working. Typically, as company data gets bigger, it needs to build bigger clusters to store the data and it eventually becomes untenable to store everything. That means companies must then start discarding data, usually older data. And those timeframes for saving data can get smaller and smaller.
That means that instead of having six months of log information, a company may only have it for two weeks or two days or two hours. A company might be discarding data that is valuable for machine learning and other business intelligence because it’s too costly to keep.
Prior to this funding, Hydrolix was heavy on engineering. During the pandemic, the team had shrunk in an effort to conserve runway. Now, Kagan is investing and hiring in go-to-market functions like sales and product marketing.
This round is expected to give the company three years of runway.
Prior to the entire market’s current shift toward cost efficiency, the company was having success signing up customers. They just had to be hitting those customers at the right inflection point for cost to matter.
“There were happy customers. That reassured us that when the stars align we knew we really added value. In those deals we grew and expanded,” he said. “We had signals the product worked and solved a real problem. We just struggled finding those companies that were at the point that they care about cost.”
Kagan’s experience fundraising in this down market might be unusual based on market timing, but he did do some things to make the process smoother. This includes having all data and information surrounding every aspect of the company from employment agreements to NDAs to customer contracts all documented and organized.
When Nava’s due diligence team needed something it was easy to find, Kagan said. He noted that this was something he learned from his last startup when he wasn’t as organized for due diligence.
“Act like a big company in terms of paperwork,” from the start, he said. “Be nimble as a startup but paperwork everything like you are IBM.”
