Pilot's Strategic Funding Choices and Growth

Recently, we covered fintech company Pilot securing $100 million in a Series C funding round, effectively doubling the company’s valuation to $1.2 billion.

The investment round saw participation from Bezos Expeditions – the personal investment vehicle of Amazon’s founder, Jeff Bezos – and Whale Rock Capital, contributing $40 million. This followed a $60 million raise spearheaded by Sequoia approximately one month earlier.

Previous Funding Rounds

Prior to this, Pilot completed a $40 million Series B round in April 2019, co-led by Stripe and Index Ventures, which established the company’s valuation at $355 million.

While both funding events were significant and deserving of attention, it’s often insightful to examine the narratives surrounding these raises and analyze the underlying financial details.

Let's delve deeper into the specifics.

Turning Down Larger Investments

Based in San Francisco, Pilot aims to provide affordable back-office solutions, including bookkeeping, to startups and small to medium-sized businesses (SMBs). It’s reported that the company received term sheets offering twice the amount of its Series B raise – $80 million – but deliberately chose not to accept such a substantial capital injection.

Furthermore, it’s been suggested that an investor who ultimately led a funding round for a now-defunct competitor initially proposed a $60 million investment in Pilot as a follow-on to the Series B. This is believed to refer to ScaleFactor’s $60 million Series C raise in August 2019, led by Coatue Management, before ScaleFactor ultimately ceased operations.

Prioritizing Sustainable Growth

According to CFO Paul Jun, Pilot strategically declined opportunities to maximize short-term growth by turning away both new customers and additional funding. The company instead focused on making essential investments to ensure scalability, reliability, and operational efficiency.

Co-founder and CEO Waseem Daher further explained that their previous venture, Ksplice, was bootstrapped before being acquired by Oracle in 2011. He also highlighted that the founding team comprises MIT-trained computer scientists.

Capital Deployment Strategy

“The primary reason for raising capital is the belief that it can be effectively deployed to foster company growth,” Daher stated in an interview with TechCrunch. “Raising funds without a clear plan for their utilization is counterproductive. Excessive capital can encourage inefficient spending habits.”

Despite considerable institutional interest in 2019, Pilot consciously chose to raise $40 million rather than $80 million to $100 million, as this was the amount of capital they were confident in deploying successfully.

Key Financial Metrics

Jun also disclosed several financial figures beyond the recent funding amount and valuation.

• The company has experienced a tripling of revenue annually since its inception, with the exception of 2020, which saw a doubling of revenue.
• Pilot reported a monthly cash burn of $800,000 in 2020, starting with an initial balance of $40 million.
• The startup boasts a 60% GAAP gross margin. Daher emphasized, “We are confident in our long-term unit economics, which will sustain this business without resorting to offshoring or outsourcing that could compromise quality and client relationships.”

Ultimately, companies are not obligated to accept all offered capital, and in certain instances, doing so may not be the most advantageous course of action.