Y Combinator Rejected Him And Then He Raised $62 Million To Build The Tech Infrastructure Needed Post COVID-19

Avi Freedman’s startup has proven to be an important part of the technological infrastructure helping enterprise businesses run post COVID-19.   

During our interview on the DealMakers podcast, he described how he fell into the world of computing, applying to startup accelerator Y Combinator, the pros and cons of bootstrapping your startup versus raising venture capital money, and the post coronavirus fundraising landscape.  

Listen to the full podcast episode and review the transcript here.   

Finding A Fascination For Computing  

Avi Freedman was born and grew up in the middle-class suburbs of Philadelphia. It was the 1980s when you had Radio Shack instead of Microsoft and Apple Stores.   

His mother was a lawyer and his father a doctor. Then his uncle who was a cardiologist and MIT grad gave Avi a book that changed everything.   

It was a book called Instant Basic. He ended up going to his father’s hospital to spend nights hacking and programming. He was just eight or nine years old.   

Freedman’s grandparents also owned a manufacturing company. He used his newfound love for technology to automate their business and upgrade from index cards.  

He then replicated that experience for other businesses and would go to computer shows to buy parts and build machines himself.   

Avi then went on to study at Temple University. He brought in his own machines and set up a public UNIX system for running multi-user games.   

He had become addicted to the T1 line at school, but at the time he was graduating you still couldn’t pay for dial-up internet service at home. He ended up creating Philly’s first ISP.   

Learning The Ropes Of Business  

Avi was recruited to AboveNet to run engineering. They became the world’s third-largest web hosting company and went public.   

At AboveNet, he learned about the frustrations and challenges of being a founder and the head of a company that is out to scale. He learned the tough balance of being in control enough to make things happen while avoiding micromanaging, which can strip all the benefits from making great hires and sabotage their potential contributions.   

After AboveNet, he joined Akamai. A company at which he stayed with for another 10 years, and through another IPO.   

At Akamai, he learned what it was like to go through a severe economic crash, as well as finding love for projects.  

The company was raising hundreds of millions of dollars and growing fast when the bubble burst. Not only did more than half of their customers stop paying, they completely went out of business.   

Still, Avi used this time to start hobby and side projects that became very successful. Including some of the first decentralized and distributed applications for the internet. One sold for millions of dollars.  

Then before starting his own company, he did a stint with ServerCentral as CTO, working on cloud infrastructure.  

Startup Fundraising  

Avi came up with the business idea for what would become his own company Kentik. He already had a company that could be a customer of it. He did a mock-up for it. Not only did people show interest, they already wanted to buy it, signaling great product-market fit.  

He did the math and calculated that even a seven percent increase valuation would justify the dilution of joining a startup accelerator given his lack of network with investors and desire to build a high-growth SaaS company.  

They applied to Y Combinator but didn’t get in. They didn’t even land an interview. He puts that down to having three co-founders who hadn’t quit their day jobs to go all-in on the venture, as well as perhaps not appearing to be breaking new ground in the way investors were attracted to at the time.   

Today, Kentik has customers like Zoom, Yelp, Dropbox, DigitalOcean, and IBM. In essence, Kentik has created a network intelligence platform that provides visibility, performance, and security services to digital enterprises. Their platform ingests diverse data streams from the internet, edge, cloud, data center, and hybrid infrastructures and provides real-time visualizations and AIOps-powered insights and automation.

To date, they’ve raised $52M in equity, plus around $10M in debt financing. Storytelling is everything which is something that Avi was able to master. Being able to capture the essence of what you are doing in 15 to 20 slides is the key. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) where the most critical slides are highlighted.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

There can be downsides of going the VC funded route. Lots of easy money in itself can be a problem. One which has been the ruin of many startups.   

Today, Avi says looking back it may have even been possible to raise the $3M seed round from other professional friends in the industry, without having to go to VCs. He didn’t want to have to deal with raising from friends and family. Yet, he knew there were real benefits of having accountability. Having that structured accountability of reporting to sophisticated investors, on tight timelines and building specifically to match deadlines can be great for focus and avoiding the temptation to get lost in the technology, versus the business.  

They raised their last round in May 2020, right in the middle of the coronavirus chaos. He says they found it surprisingly easier than you might think.  

While companies that investors weren’t convinced about before COVID-19 might be having a much harder time raising money now, Avi says others may be finding it much easier. If you have the relationships and the right startup, VCs have the money and are eager to put it to work in the best opportunities.   

The same applies to business in general. Kentik is still growing. Operating and moving and scaling in the cloud is more important than ever. That’s a great thing for startups set up to serve them.   

It may take more effort in making sure teams are comfortable working with family from home, educating customers with a Product Led Growth approach, and being able to make decisions fast, even without a complete date. Yet, many enterprises are growing faster than ever before.   

Listen in to the full podcast episode to find out more, including:  

• Being rejected by Y Combinator 
• Why the traditional demo as call to action style marketing approach is dead
• How Kentik is adding value to others in this new era
• Avi’s top piece of advice for new founders

SUBSCRIBE ON: