How To Raise $36 Million In The Middle Of A Pandemic

I’m a strong believer - as we’ve explored several times over the past few months – that the current COVID-19 pandemic, though devastating for society and the economy, is motivating real estate industry stakeholders to fully embrace proptech and the value it can deliver now and for the future. It’s not surprising that, in all this doom and gloom, startups providing this value are getting the opportunity to shine. Last week, LA-based proptech startup Openpath (a firm favorite of this column) announced it had just closed a $36 million Series C round led by Greycroft Ventures. I sat down virtually with Openpath co-founders and respectively President and CEO James Segil and Alex Kazerani, as well Mark Terbeek, Partner at Greycroft to discuss how (and why) it all happened.

Where they are today and the effects of COVID on the business

Since we last spoke, the company has seen a tremendous amount of growth. According to Segil and Kazerani, they’ve grown 20% per month over the past two years and, to date, have over 10,000 doors in 2,000 locations across the US and Canada, with 250,000 people using their system daily. Though its core business remains in the office space, Openpath has had unexpected traction in areas as diverse as multifamily, schools, retail (Dominos PizzaDPZDPZ is a client) and gyms. 

Segil shared that the key to this success across asset classes is the effectiveness of their channel – the systems integrators and installers that deploy the technology and sell to a vast range of clients. Building relationships of this kind is a huge challenge, especially for startups, so the fact that they were able to build them so quickly is a clear indicator of the strong value-add that Openpath brings.

As could be expected, COVID-19 came down like a ton of bricks on the company’s activities: like many others, they began working remotely, and their channel shut down. However, its pipeline quintupled over the last three months, with June being their best sales month ever. According to Kazerani, they’ve benefited from a lot of “return to work” investment into touchless access, as he shared that, “Over the past two years since our launch, Openpath’s access control solution has been adopted by so many different businesses as they moved into new offices or built new construction, so we knew we had a great product-market fit. Now as we prepare to live in a post-pandemic world, our unique touchless access control and cloud-managed capabilities have made our technology a must-have for everyone’s Return to Work strategy. We are now being retro-fitted into existing buildings and offices as much as being specified into new construction.”

The fact that Openpath is entirely cloud-based and provides flexible features thanks to a software engine that can quickly be updated played a role. For example, during lockdown they built a “wave to unlock” feature (so that users won’t have to touch anything to enter a building) over a weekend and rolled it out automatically across their whole network without having to send in a single technician.

How to fundraise during a pandemic

The simple answer is to have a product that becomes even more significant during a crisis.

According to Terbeek, security and access control was a category that Greycroft was doing a lot of proactive work in and thought it was ripe for disruption. They noticed three main trends in the space: security shifting away from traditional management methods in favor of being run by “tech folk” under the direction of the CIO, migration of IT in general to the cloud and the use of mobile credentials or wallets to store data.

They singled out Openpath because it is positioned to take advantage of all three, is run by repeat entrepreneurs who are also experienced managers, and has a product with significant traction. The only question that remained to answer was whether it is a “nice to have” or a “must-have” and the pandemic turned out to be the catalyst that accelerated demand in the space, proving the latter.

“Investing in technology companies during the pandemic adds a unique layer of stress testing on a company, one that Openpath passed with flying colors,” said Terbeek. “We saw the market validation happen right in front of our eyes as the pandemic unfolded, and believe firmly that Openpath is a must-have Return-to-Work technology. Together, our cloud system allows us to innovate quickly and add new services on our platform to solve customer needs and to grow our market opportunity.”

Another investor in the round was OktaOKTA, one of the leading enterprise security companies for directory services. They act as a single source of truth for employee information and Openpath was one of the first physical security systems to integrate with them. Their collaboration allows for any changes in corporate directories (such as with regards to scheduling) to be pushed into the Openpath system in real-time. According to Monty Gray, Senior Vice President for Corporate Development at Okta, "dynamic workplaces are crucial in 2020 and beyond, and with Openpath we're excited about enabling end-to-end fully-encrypted contactless access control for our own business and the needs of our joint enterprise customers."

What happens next

Funds from this raise will be used for product expansion, with investment into R&D for different verticals. Openpath will also focus on growing its sales team, in preparation for supporting growth in international markets. At the start of the year, they announced they were expanding into the UK, and want to continue broadening their international reach to support large Fortune 500 clients as well as gain new ones.

The co-founders are firm believers that open development platforms are the future of tech and thus want to continue expanding the openness of their company, with more robust direct partner integrations. with partners. As they grow beyond the office market, it is apparent that each vertical requires its discreet features. For example, multifamily properties need door welcoming features, whilst enterprise requires more customization capabilities and backward integration for legacy software that is in place.

From an investor perspective, Terbeek is excited at the sheer size of the potential market opportunity. He believes that, thanks to its flexible development structure, Openpath could conceivably continue to stack new products, expand its reach, and keep innovating for decades to come.

Fundraising is often a battle for startups, and, it is rare to find like-minded investors who agree with your vision and deploy money in advance to when it is needed. As Segil put it, “it feels unnatural… in a good way.”