Growth in a Cold Climate: Three learnings from the journey to Quantexa’s $1.8bn Series E
Doctors, lawyers, police. All make a tremendous contribution to society. They can also sleep easily even in turbulent economic times, reassured that they will never be out of work.
Today, founders of counter-cyclical companies — those that do well even in a recessionary environment — are similarly able to breathe easy. In the B2B software space, there is lots we can learn from the characteristics of such businesses. But unless you’re fortunate enough to be inherently counter-cyclical, like a healthcare provider, success in a challenging macro is the result of conscious effort. You have to actively position for success when the economy is stressed.
Quantexa is a perfect example of an intentionally counter-cyclical software company. A pioneer in Decision Intelligence, Quantexa has just raised a $129 million Series E funding round at a $1.8 billion valuation off the back of impressive growth.
Since closing its Series D round in July 2021, Quantexa has managed to double ARR. As tech companies around the globe have made layoffs and cut costs, Quantexa has launched new geographies, opened a New York office, and increased headcount from 500 to 650 employees. The company has also expanded through acquisition: it bought Aylien, a Dublin-based leader in NLP and advanced AI, just last month.
Software founders are now operating in a new reality where underlying factors have changed. They are having to make big decisions on everything from sales strategy to target markets, often with long-term consequences.
We’ve supported the company ever since we led Quantexa’s $20m Series B in 2018, and as we look back over the last five years, we can see that certain prescient decisions and adjustments have set the company up to succeed despite the current economic climate.
So what has enabled Quantexa to succeed despite economic headwinds? We hope that these insights and questions can help teams to navigate today’s challenging environment and decide where to adjust your approach.
‘Am I selling ski boots in Hawaii?’ : Diversifying into resilient markets
How secure is your customer base? Is it under structural economic pressure? If so, you need to focus on a different market.
When we first invested in Quantexa, it was selling into just one vertical (financial services) and one use case (financial crime). This is certainly a solid customer base and use case. However, management made a conscious decision to diversify into other inherently resilient sectors including government, insurance and utilities.
Pursuing these sectors was not the most obvious or the easiest move. The company could have grown ARR even faster in the short-term by pushing further into sectors where it already had clear product–market fit and reference accounts. But especially when the pandemic struck, Quantexa’s founders foresaw tightening budgets and heightened risk in being heavily leveraged into one vertical, and so began to shift focus. Quantexa has since won major contracts in all its new sectors, including one to help the UK government tackle fraudulent claims on the £47 billion bounce back loan scheme. (As an aside, government is still an undervalued section of the business world and is extremely resilient — unless things go really wrong…)
Broadening out the customer base had initial growth and efficiency trade-offs for Quantexa, and other founders must similarly expect a J-curve after making such pivots. But as Quantexa’s story shows, it’s vital to ensure that your market focus will set you up for long-term success — rain or shine.
Product agility: Respond to the “Run the Business” vs “Change the Business” mentality
In a downturn, there is also a general pull towards a “Run the Business” rather than a “Change the Business” mentality.
Companies want to purchase products that offer immediate operational efficiency and hard ROI, ideally within the same financial year. There is less appetite for long-term transformation projects, and fluffy business cases are given short shrift. Buyers also prefer incremental, cost-cutting solutions that help operations run smoothly, rather than a risky overhaul of core systems.
All this means that it’s important to ensure that — even if you believe yourself to be revolutionary and transformational — you’re not positioned too heavily as a “change product”. Instead, you need to fit in with agile delivery and be more incremental in the way you deliver value. The trade-off here is that the projects you win may not command such high ACVs at the land stage — meaning that farming becomes an indispensable complement to hunting (do you have the right Customer Success team in place?). Quantexa has architected its product suite so that it can land in an account with a small footprint, prove immediate value, and expand rapidly from that initial success.
In this economy, there is also a desire to consolidate towards fewer vendors. Quantexa’s platform architecture means that it can power many products and business needs, which translates into fantastic net dollar retention and customer economics. And when customers trust you across multiple lines of business, your relationship is in turn much more durable.
Go-To-Market learnings: Expect slower sales cycles and headwinds in bottom-up sales
In a pressured macro, budgets come under strain, leading to lower spend approval thresholds, longer sales cycles, and more stakeholders challenging the business case or trying to push out spend into future years.
B2B software companies should seriously consider two adjustments:
- Bottom-up vs Top-down sales: inspired by Zoom and Slack, many SaaS businesses have invested heavily in bottom-up sales over the past few years. However, in today’s climate the user-champions are less able to buy software this way. As a vendor, should you still be spending your sales & marketing budget on bottom-up / PLG sales? Or is this the time to step up investment in top-down sales, and treat bottom-up as upside only to your topline number?
- Pipeline coverage: the market standard for unweighted pipeline coverage used to be 3x, but in a downturn where clients are likely to be cutting budgets and making layoffs — frustrating your careful stakeholder map and MEDDPICC progression — you probably need to increase this. Anchoring to a higher coverage ratio has enabled Quantexa to hit its numbers consistently — albeit you may see a dip in your magic number.
A company ready for the future
Quantexa has navigated ongoing management of risk, found opportunities in its customer base, offered a multi-use platform, and focused on the parts of its product — such as fraud detection — that are resistant to a downturn. Doing all of these things and more over the past few years has turbo-charged the company, and as a result it is among the few software businesses to be raising funding at a significant premium in this tricky climate.
Here at Dawn we could not be more proud of the entire Quantexa team, and we’re already looking forward to learning more from their continued success.
