We are glad to announce that Commsignia, our portfolio company focused on Vehicle-to-Everything (V2X) solutions, announced the closing of an USD 15 million Series B fundraising round led by PortfoLion, Inventure, Day One Capital and Inference Partners, together with Partech, Credo Ventures, and Karma Ventures.
On the occasion of the round, Csaba Kákosy, DayOne partner - responsible for our early investment in Commsignia’s previous round - interviewed the CEO, Szabolcs (Szabi) Patay.
Csaba: Very few Hungarian companies reached Series B financing to date, so please pass on my congratulations to the whole Commsignia team. Seeing your progression since 2016 I know this journey was a lot harder than it seems. In the past few years you not only had to face the pandemic, the chip shortage, the war and market correction, but you’ve tragically lost your co-founder and CEO, József Kovács last year. How were you able to process the tragedy both personally and as a company? What have you the co-founders learned about yourselves in the past 1,5 years?
Szabi: I would like to take this opportunity to thank József for his contribution, his vision and his legacy in building Commsignia. This has also helped us to deal with the tragedy, as Commsignia is not a company with one founder, but four of us covered different areas in the management, with overlaps here and there, and strong teamwork. This is not very common in Hungarian culture, so I always feel that teamwork, cooperation and communication is something that we need to emphasize. This team structure has helped to build resilience for all of us and the team as a whole.
Such tragedies and traumas have a deep impact on all colleagues, especially the founders. You start questioning your life- and career goals, your motivation, your work-life balance, your life choices, and in many cases you end up with a much clearer sense of what’s important, why you actually do things, what drives you forward. We realized that we were committing ourselves at an extreme level, which had to be addressed. You need to focus more on yourself, your family, your friends. On your health, on sport. See goals and obstacles more objectively. You're always striving to achieve more as a person and a company, but the risk of losing a business, of missing a milestone really looks different in light of the potential costs and sacrifices you'll make if you don't remind yourself to stay balanced. As a result, you will be able to perform better in the long run, in a sustainable way. We learned to frequently remind each other that “it is a marathon, not a sprint”, meaning that high performance must be given consistently, in the long term. You have to be conscious about what is sustainable. I think this reminder can be important for other companies and other founders as well.
Csaba: Commsignia is not your regular B2B SaaS company. I know many, who shy away from considering investing in anything hardware related or not subscription based. What do you see as an edge building a hardware-software product? What advice would you give to an entrepreneur trying to kick start their own business in a similar market?
Szabi: Most startups have product and strategy pivots during their lifetime. Commsignia started as an automotive software company, but it became clear that we and the market didn't have the right hardware to test and demonstrate our solutions to our customers, and they didn't have the hardware to do research on. So we designed the electronics to enable this and started producing small quantities of 20-50 units. This was an immediate market success and generated meaningful revenue in the early stages of the company. Then we saw the V2X infrastructure roll-outs starting and realized that we already had the right equipment designed for this, which, with a little tweaking, could win projects and create value.
At the same time, our automotive software projects continued to require significant upfront investment, as the real profit in this area is realized from licensing revenues 1.5-2 years after the launch of a vehicle mass production development project. So in our case, the high-margin hardware business almost cross-financed our upfront investment in the automotive business, which in turn extended the runway ahead of us and limited the amount of cash we had to raise in our fundraising rounds. This multiple business unit strategy has been so successful that we have expanded it further, and today Commsignia has a clear ecosystem strategy, which means that we address all segments of the V2X ecosystem: automotive, infrastructure, micromobility and connected services with our software and hardware products, leveraging synergies and our accumulated expertise.
In my opinion, founders and investors should not shy away from hardware-software products, but should keep a few important aspects in mind. It is always the software and the service that differentiates. Hardware is, in most cases, just a tool to make the software functionality available and usable by the end-user customer. You need to think consciously about how you will scale volumes, especially in terms of procurement processes, discount schemes, hardware cost optimization, financing and capital requirements, logistics, and so on. It can be a delicate transition from early hand-built R&D focused prototypes, with higher costs and higher margins, to super-efficient mass production and logistics, where it makes sense to rely on global electronics specialist partners.
Csaba: This $15M round is quite significant on a regional scale. We are curious to hear, where will it take you, how will Commsiginia look 24 months from now?
Szabi: Through our seed funding and Series A round we have built our automotive and smart city business units to a global scale. Commsignia has become the number one brand in V2X communications. Series A led us to build a global sales presence, for example in the US, German, and South-Korean and Japanese markets, and we invested into developing our organization structure and processes, especially quality management, to meet the high standards of automotive software development. As a result, we have established relationships with the biggest car brands and leading tier-1 suppliers of automotive electronics and started implementing our solution into automotive mass production programs, as well as built a network of channel partners and generated huge turnover for the smart city infrastructure business.
With the Series B round we will take this to the next level. Our goal is to keep our leading position by winning the most of the upcoming automotive mass production programs on this early market and expanding our network of system integrators and distributors globally to boost revenues for our Smart City business unit. We have also launched two new business units. One is dedicated to Micromobility, which implements V2X for e-bikes and e-scooters, and a SaaS business unit for Connected Services, which provides data collection, analytics and various traffic management functions for the customers of all three other business units. Last but not least, we continue to invest heavily in research and development, patents and the next generation of our products to ensure an even brighter future for the company.
The last few years of COVID, war, recession, inflation, and the rising cost of funding have reminded everyone that for a startup it is not enough to have "just a nice story and vision", but that there are the same requirements and pressures to be able to generate revenue at excellent margins, to stay relevant, and to be able to find funding or exit. Startups that do not have a clear path to generate revenue and profits have a very difficult time to raise capital. Investors are much more conscious about revenues and burn rates, and so should be the founders and CEOs. Our goal with the Series B is for the company to become cash positive over the next years while maintaining a pace of intense investment into creating unique IP, and into building the future of the ecosystem and creating implicit value for shareholders in the valuation of the company.