Alloy Automation Secures $5 Million in Funding

Alloy Automation, a company that participated in the Y Combinator Winter 2020 program, has successfully completed two rounds of funding, totaling $5 million. The most recent investment, amounting to $4 million, was secured in October 2020.

Valuation and Investors

The company’s fundraising resulted in a $16 million pre-money valuation and a $20 million post-money valuation, as disclosed to TechCrunch.

This funding round was spearheaded by Bain Capital Ventures and Abstract, with additional participation from Color Capital, BoxGroup, and several individual investors. Notably, Laura Behrens Wu of Shippo also contributed to the round.

Founding Story and Inspiration

TechCrunch interviewed co-founders Sara Du, the CEO, and Gregg Mojica, the CTO, to discuss the funding, their target market, and their experiences within the Y Combinator accelerator.

Du, who left Harvard University, and Mojica, who bypassed traditional higher education, initially connected after Du reached out to Mojica regarding a potential speaking engagement at an open-source conference. Although the event was ultimately cancelled, they maintained contact.

Du subsequently operated a small clothing boutique, sparking her interest in automation and application integration tools. She found existing solutions like Zapier to be overly simplistic, while MuleSoft proved prohibitively expensive. This gap in the market ultimately led to the creation of Alloy Automation.

Early Traction and Y Combinator

Following a launch on Product Hunt in 2019, where they offered “complex automation made easy, and with no code,” Alloy received investment from Bryant Chou, a founder at WebFlow. This provided the initial capital to develop prosumer automation tooling.

The startup subsequently joined Y Combinator, refining its focus towards the e-commerce sector. This strategic shift, coupled with their innovative technology, has attracted significant investment, as recently announced.

Focus on E-commerce

The decision to concentrate on e-commerce stemmed directly from customer feedback, according to the co-founders. Initially, Alloy offered integrations for services like Twilio and HubSpot. However, during their time in Y Combinator, they observed a strong product-market fit within the e-commerce landscape.

Alloy’s technology is currently utilized by customers on platforms such as Shopify and BigCommerce, solidifying e-commerce as a key area for the company’s growth.

Alloy’s Core Functionality

Alloy Automation empowers e-commerce businesses by connecting various services to automate crucial tasks, including shipping, marketing, and data analytics.

For instance, Du explained to TechCrunch that customers are leveraging Alloy to integrate SMS capabilities with their fulfillment systems. This allows e-commerce companies to automatically notify customers when their orders have shipped.

Y Combinator Experience

During their participation in Y Combinator, Du and Mojica were among the youngest founders in their cohort. Despite not being considered the most prominent company in the program, they chose to forgo the traditional demo day, having already secured funding.

Skipping demo day is generally discouraged, but the founders believe this decision proved beneficial, allowing them to maintain a degree of stealth and continue building their product until it reached a more mature stage.

Securing the $4 Million Round

The $4 million investment originated from a connection established after Alloy showcased its technology on Product Hunt. Bain Capital Ventures initially reached out, maintained communication, and subsequently conducted due diligence by evaluating Alloy’s potential with e-commerce startups within their portfolio.

Capital Allocation and Future Plans

The founders explained that they had barely begun utilizing their initial $1 million investment when they secured the additional funding. However, with plans to expand their go-to-market strategy, the additional capital was deemed necessary.

Alloy intends to pursue a Series A funding round in the future, but believes its current capital reserves will sustain operations for two to three years. They described their company as a “COVID baby,” acknowledging that some initial investors withdrew during the pre-seed stage, leading to a conservative approach to capital management.

Growth and Team Expansion

The fourth quarter of 2020 proved successful for Alloy, benefiting from the seasonal surge in e-commerce activity during the holiday season. The founders reported a significant increase in positive metrics, such as payments and signups, within their internal Slack channel.

Currently, the team consists of the two co-founders, three engineers, a designer, and a marketing specialist, distributed across four time zones in the United States, India, and the Philippines. Alloy plans to hire sales representatives, additional engineers, and a customer success manager.

Pricing and Scalability

Alloy’s software is priced between $200 and $1,000 per month, or more, depending on the specific needs of the customer. The company is now focused on scaling its operations and maximizing the impact of its newly acquired capital.