Two Sides of the Private Equity Coin: An Interview with Dmitry Raidman of Cybeats and Matt Cohen of Ripple Ventures
The Startup’s Side
Even the most ambitious and goal-oriented of us sometimes find that good things come from unexpected places. Toronto cybersecurity startup Cybeats is no stranger to this fact, having recently closed a $3 million dollar round thanks to investments from Ripple Ventures and GreenSoil Building Innovation Fund (with participation from MaRS IAF, MLA48, ScaleX, and inovia capital). Though the round itself was the result of meticulous discussion and due diligence on the part of both startup and investors, its catalyst was our very own 2018 Fundica Roadshow, where Cybeats—or, more specifically, its CEO and co-founder, Dmitry Raidman—competed for a chance to win a $650,000 equity investment award. This in and of itself is not that remarkable; the Roadshow, after all, exists for the express purpose of connecting entrepreneurs and investors; however, what was unusual was Dmitry’s attitude going into the Roadshow.
"I went there with zero expectations," Dmitry said during a phone interview with Fundica. And yet, at the end of the day, when the finalists were announced, Cybeats was among the three companies called onto the stage to accept a trophy.
Like many successful entrepreneurs, Dmitry and his co-founders—Vlad Kharbash and Peter Pinsker—created Cybeats to tackle a problem they encountered every day. The three Veteran IT specialists were consistently shocked by the number of unsecured devices sold by their competitors. This, paired with the pain of ensuring that their own devices were secure, inspired them to found Cybeats.
The founders were incentivized to create a viable solution and had the experience to do so. Dmitry spent years managing IT product integration at one of the largest IT video surveillance capturers in the world. Vlad and Peter, meanwhile, tag-teamed the creation of the now near-ubiquitous tap software used in payment terminals—Peter writing the code that allows the tap transaction to take place and Vlad writing the code that transports data from terminal to bank.
“It is a good match,” Dmitry said, referring to the Cybeats team, “because each one of us is from a different world.”
Dmitry claims that, when launching the company in 2015, the team invested an average of 100 hours a week on their startup, working from one of their basements late into the evenings and over many weekends. Despite this grueling schedule, it wasn’t until 2016 that Cybeats really took off, developing a fully working product and gaining entry into the L-Spark accelerator program. At L-Spark, they learned how to package their product and secure angel investments. It was also there that they participated in their first pitch event.
While talking us through Cybeats’ win at the Fundica Roadshow, Dmitry noted a second shift in their funding journey; after the Roadshow, Cybeats went from chasing VCs to being chased by them. Among their pursuers was Ripple Ventures, who, unbeknownst to Dmitry, sat on the judging panel at the Toronto Fundica Roadshow. Dmitry says that Cybeats’ interactions with the formative, early-stage venture fund were unique from the get-go. “They prepared, they knew what we were doing, they knew our competitors...every single question [they asked] was a direct hit.” Less than six months later, Cybeats raised a $3M round, led by the same fund.
The Investor’s Side
When we asked Matt Cohen, founder and managing partner of Ripple Ventures, over the phone if Cybeats exemplified a particular Ripple ‘x-factor’ at the Roadshow, Matt answered, “While there is no x-factor, I will say that we prefer not to invest in founders who think our capital alone will solve their problems.” Matt went on to stress Ripple’s desire to work with technical founders who have experience first-hand the problems that they’re trying to solve. Many of the fund’s founding members have a background in enterprise software, and they look for companies with a similar focus; “If we can’t add value within the first five phone calls, there’s no point in us making an investment.”
Though Cybeats is a relatively new addition to the Ripple portfolio (as is Pitstop, another Toronto Fundica Roadshow participant), the startup and fund have already made strides together, working in particular on Cybeats’ marketing efforts.
Ripple’s work with portfolio companies eases the due diligence process. Startups are encouraged to create a monthly newsletter for their stakeholders and other interested parties as well as a data room to track finances, legal, and sales. Having these assets up-to-date and available helps expedite evaluations when investors come knocking.
Ripple also stresses collaboration. Cybeats, for instance, has teamed up with a fellow company in the fund’s portfolio and is supported by some of the fund’s entrepreneurs-in-residence, whose specialties include recruiting, accounting and bookkeeping, leadership coaching, PR, enterprise sales, and project management. This comprehensive, integrative, hands-on approach to working with portfolio companies exemplifies the “operators-first” motto that sets Ripple apart from other venture funds. “We are there every day, not every quarter,” Matt said.
When we asked Matt for his general thoughts about funding roadshows like Fundica’s, his feedback was positive. “Roadshows are a great opportunity to meet new companies and also get updates on those you’ve seen in the past,” he acknowledged, going on to express his appreciation of veteran pitchers who take the time to adjust their strategy or pitch deck after receiving investors’ feedback . Matt believes that roadshows should implement a more “multi-pronged approach,” one that compliments startups’ fundraising efforts with strategic partnerships and recruiting opportunities. On the entrepreneur’s end, meanwhile, Matt feels that some startups need to improve how they identify which investors are the right fit for their brand.
Funding and Fundraising in Canada
When asked what distinguishes Canadian tech and funding from the United States, Matt noted that Canadian companies have a penchant for being product-first and capital-efficient, qualities that he attributes to Canada’s lack of available capital relative to the United States. Fittingly, Dmitry ascribed his own success as an entrepreneur in part to his experience developing and refining products. What’s more, he predicts that the successful startups of the future will be the ones that can create advanced products that are easy to onboard.
Speaking about the Canadian startup scene relative to the rest of the world, Dmitry added that “...Canadian companies are usually a bit behind the rest of the world when it comes to innovation and new technology,” taking fewer risks compared to the United States or Israel, for instance. And yet, ultimately, Dmitry acknowledged that, “What we found in Canada was the willingness to try out new solutions, new approaches.”
Though Cybeats did not come away from the 2018 Fundica Roadshow with the final equity investment award, they found, thanks to Ripple Ventures, an arguably more valuable asset. At the end of the day, it’s connections like these that fuel the Fundica Roadshow; and we hope we’ll be able to tell many more stories like Dmitry’s in the coming months.