Network management startup Encapto raises $3 million to fuel global expansion while eying off IPO
Wednesday, July 25, 2018/
It has humble beginnings in the internet kiosk space of the mid-2000s, but network management startup Encapto has now raised $3 million in funding, and founder and chief Darryl Clarke has his sights set on global expansion and an initial public offering.
Although Encapto approached the capital raising process looking for a portfolio of investors, in the end, one investor, Cygnet Capital, “took the whole lot”, Clarke says.
“It’s nice to have just one person to answer to,” he tells StartupSmart.
Cygnet has taken a 27% equity stake in the startup, and Clarke says he was “quite happy to divest some of that, given the upside”.
“Never underestimate the power of capital,” he adds.
Back in 2005, Clarke was running internet kiosks throughout shopping centres in Australia, and soon branched out to offer Wi-Fi hotspots too.
Eventually, he stopped sourcing software to do this from overseas, and hired some developers to start writing his own. Off the back of this software, in 2014, Clarke founded Encapto.
It’s a “globally reusable platform”, Clarke says, offering a simple way for managed service providers to implement Wi-Fi and network products “on a massive scale”.
Devices connected to the network can be automatically configured and connected, all with added security services.
These are “typically enterprise products that require enterprise skill sets,” Clarke says, but Encapto provides a simplified interface designed to make them manageable for non-technical users — often small and medium business owners.
“Small businesses have the same requirements for security as large enterprises, however, they don’t have the skill set,” he says.
To reach this “underserved market”, Encapto works through managed service providers, which include the software platform in product bundles.
This is the way these business owners prefer to purchase services, Clarke says.
“It’s all about bundling these days,” he says.
For the managed service providers, Encapto “provides enormous value and allows them to capture a large part of that market”, he adds.
Blue skies ahead
Clarke labels the investment from Cygnet as “expansion capital”.
While Encapto already has operations in India and the UK, the funding will be used towards expanding further in Europe, and entering the US market, taking up what Clarke calls a “blue-sky opportunity”.
The startup has been self-funded up until now, but Clarke says the time was right to “double down on the expansion.”
Already, the startup has been in conversations with “several” large service providers, globally, but Clarke declines to share any more details on who they might be.
The expansion follows a year of software development and product improvement, which ultimately saw Encapto land some key clients, including Telstra.
“We’ve managed to demonstrate our strategy and go to market with the service providers and now we’re looking to expand that, and to continue our journey,” he says.
Part of this will also involve investing into more research and development of the software, and making sure the startup has enough people on board to provide “comprehensive support for our clients”, as it grows.
And this is all gearing up to an IPO, which Clarke expects to happen 12 to 18 months from now.
“[First,] we would like to demonstrate the traction we’re seeing in the service provider market,” he says.
“We would like to see another two or three service providers on board within this financial year.”
A little help
In his own words, Clarke is “no spring chicken” and has significant experience when it comes to running a business. But until now, he was new to the process of raising capital so his number-one tip for other founders looking to raise capital is to “get good advice”.
Encapto worked with a mergers and acquisitions partner, who helped Clarke put the startup’s story together, and put him in contact with prospective investors.
“Find an exceptional M&A partner who has great contacts … who will assist you in getting your pitch deck together and position the business correctly,” he advises.
Pitching is “extremely difficult,” and having someone “in your court” who knows the market, and who can point out any gaps in the pitch can be invaluable, he says.
“An investment contract is a complex beast. Certainly I wouldn’t have been able to navigate it on my own,” says Clarke.
He also tells startup founders not to be afraid of taking on capital, especially when it also means bringing experts on board.
“Most people underestimate the power of capital and the expertise of a team,” he says.
“Strategic investors are probably quite valuable in those early stages.”
Passionate about the state of Australian startups? Join the Smarts Collective and be a part of the conversation.