Russian-Ukrainian war, Corona, inflation: We live in difficult times and the global economy is suffering. Of course, these developments are not bypassing the startup landscape, which experienced an all-time high in financial injections collected in 2021. Shortly thereafter, we saw a downturn in venture capital deals due to uncertain market conditions. Soon the first startups went bust.
Key take-aways from this article:
- Capmo forecasted the risks and secured its financial position by extending its latest financing round.
- To adapt your strategy is key and puts a stronger focus on product development, technology and internal efficiency without laying people off.
- The market is in need of solutions such as ours as construction is still very undigitalized compared to other industries.
Today, I want to share our decisions over the past few months at Capmo with you. Our goal was to continue to be able to pursue our mission and remain a safe employer.
1. Observe the risks and take action - fast!
Let's go back to December 2021: Startup valuations reached new records. Without a change in revenue, the average startup was able to raise at much higher valuations compared to the years before. This clearly had to be called a market anomaly. Financial markets however usually correct such inconsistencies over time. At Capmo, we recognized this as a risk and made a decision: raise additional money. Did we need it at this point in time? No. Was it the right decision? Absolutely yes.
Raising capital at that time was attractive to us because the conditions were still pretty good. We wanted to have extra money in the bank in case the markets would plummet. So we raised 10 million euros in additional funds on top of our series B round of 30 million euros.
Two months later, winter came. Rising interest rates caused a downturn in the stock market, which spread to late-stage companies and eventually to early-stage VC markets. The euphoria of December 2021 turned into a drought in February 2022.
“We now had to pay more attention to capital efficiency without compromising the product.”
So money wasn’t the problem when markets took the downturn. But still - we had to check: what do we need to change right now to sail safely through the upcoming months of increased uncertainty?
When markets take a downturn, it is extremely important to act really fast as a VC funded company. Being too hesitant with tough decisions can easily lead to a downward spiral of cost accumulation, cash burn and ultimately bankruptcy. Thus, at the earliest signal of the downturn, we assembled the board and leadership team and assessed the situation. The goal was to make a decision within the next 48 hours.
When markets cool off, capital efficiency becomes important. As a startup, it’s important to think about runway (days to cash out) as you want to delay having to raise capital until markets recover. Hence, we started modelling our runway and compared different conservative and optimistic scenarios.
2. All ideas are welcome, layoffs aren't an option
We set a few high level objectives. We knew that we had to improve capital efficiency in the next few months. Nevertheless, we wanted to continue working on bringing even more value to our customers. Moreover, it was highly important to us that we provide a secure workplace for all our employees - and thus modelled our growth scenarios with no layoffs.
3. Extend the runway - this is how
We then made a decision. Due to the fact that we had a lot of cash in the bank, we were able to extend our runway to 3-4 years without having to let anybody go. We achieved this without actively cutting costs, but with freezing costs in certain areas.
The goal was to increase revenue growth while only increasing headcount in Product & Engineering. The reason is easily explained: you can only add value and change an entire industry by having an amazing product which is particularly important in the construction sector.
4. Focus on what adds value to our customers
The construction industry is one of the least digitised industries today. A fact that goes hand in hand with only 1% annual productivity growth over the past 20 years. We see huge potential to optimise analogue workflows and thus save countless hours of tedious work for our customers. Focusing on the “amount of saved time” as a core value proposition will be one of the key contributing factors of product success at Capmo.
5. No cost freeze in Product & Engineering
I am convinced that only software with high standards in usability can bring the time savings we aim for and thus be a part of the daily work in the construction industry. And the potential for impact is there. As our CEO Florian Biller likes to say: “Just look outside the window and count the construction sites you see - that’s our playground to change how work is done.”
To really add value it’s important to listen to feedback from our customers and adapt the product quickly. That’s why we now focus on hiring in Product & Engineering.
Let’s wrap it up
A few months have passed since we made these decisions. And our development today confirms that we’re on the right path. To figure out which actions were right for us, our company values always provided the framework within which we operated. Rooted in our core value "win as a team", we ensured (and still do) that we'll continue our mission to steer the construction industry into a more digital future, together.
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