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Firm and Portfolio Updates October 2023

Welcome to the October update from Inner Loop Capital. We are pleased to share with you these major milestones and updates from our firm and our portfolio companies.

Firm News

Inner Loop was very pleased to attend the 8th annual RAISE Global Summit in the Presidio in San Francisco last week. This is the premier event for emerging venture capital firms and the LPs that are looking to back them. From over 700 applicant VC firms, only 100 received invitations to attend. I was thrilled to connect with many old friends among both the GP and LP ranks, and make many new friends as well. Thank you to organizer Ben Black of Akkadian and friends like Winter Mead of Coolwater Capital for helping to make the event such a success for all the emerging VC managers in attendance. And thank you to fellow GP attendees (and Gigasheet lead seed investors!) Argon Ventures for helping to assemble a brilliant group for our pre-event dinner.

New Investment: PerfectScale

In September, Inner Loop Capital Fund II closed a new investment in PerfectScale, an automated Kubernetes Optimization and Management Platform.

In September, Inner Loop Capital Fund II closed a new investment in PerfectScale, an automated Kubernetes Optimization and Management Platform.

Kubernetes is increasingly the default platform for managing containerized software. It originated from Google’s experiences in managing internet-scale systems, and has a large and vibrant open source community. As with all open source software of global scale (Linux, WordPress) there are many things it does very well out of the box, and many quirks, configurations, and frustrations that come with running it as the foundation of your business. All of these very large open source projects have generated business opportunities for companies to extend, manage, or simplify the operations of the open source. PerfectScale is building a compelling business doing exactly that in the Kubernetes ecosystem. The company continues to push the frontier of Kubernetes management, most recently releasing a beta version of its Automated Kubernetes Scaler. Perfect Scale is a Gartner Cool Vendor in Container Management.

PerfectScale is led by Amir Banet, a veteran of enterprise software and cloud management. Most recently, Amir was a Director of Product Management at SolarWinds. Amir began his career with a 13-year stint at application management pioneer Mercury Interactive and its acquirer (for $4.5 billion in 2006), HP. Amir is now based in Raleigh, NC, where PerfectScale is also headquartered.

As important as the technical innovations PerfectScale has brought to Kubernetes, Amir and his team are fully aligned with Inner Loop’s view that go-to-market innovations are critical for start-up success. PerfectScale has built a low-friction sales motion that has onboarded dozens of customers in short order. This includes their AWS Marketplace offering which allows for self-onboarding of a freemium offering and self-purchase upon upgrade. There are few things that build conviction for venture investors more than watching the closed customer list and the sales pipeline both grow in real time during a diligence process.

PerfectScale closed a $7.1m Seed round in September, led by Blumberg Capital, with participation from Inner Loop as a new investor. Although we are relatively small contributors to this round, I believe that Inner Loop has once again had an outsized positive influence for our portfolio company. Here, we introduced Amir to the investor that became his co-lead investor in this round. I am very pleased to now be working with Zach Sivertson of Mercato Partners’ Prelude Fund at a third portfolio company (also Evo Security and Phin Security). Zach’s ability to complete diligence and build trust with Amir on a very short timeline solidified the structure of this round. Our role in helping to make that match earned us an allocation in an otherwise significantly oversubscribed Seed round.

Thank you to Zach for his partnership, and congratulations to Amir and the entire PerfectScale team in securing this funding and continuing to build a great company in a critical layer of cloud management.

Other Portfolio News

xtype, a DevOps platform for the ServiceNow ecosystem, announced their additional funding led by Columbia Capital and Inner Loop. I continue to serve on the board of the company. xtype announced major milestones, including surpassing 75,000 deployments of ServiceNow instances by its customers, hundreds of downloads of its freemium app in the ServiceNow app store, and onboarding large new customers such as Zurich Insurance, Heineken, banks, and healthcare providers, amongst others.

xtype founder and CEO, Ron Gidron was featured in a series on founders in European Tech publisher TechFinitive. The opening lines of that feature could hardly do a better job of describing Inner Loop’s ideal start-up investments: “xtype is one of the least sexy products we are covering. No blockchain, no ridiculous claims, no glamorous offices. Instead, xtype does what so many less successful startups forget: it solves a clear, well-defined problem.” Thank you to TechFinitive’s Tim Danton for understanding xtype and Inner Loop Capital so well!

DNSFilter announced a $15m Series A Extension from prior Series A lead investor Insight Partners. Inner Loop’s 2019 Pilot Fund investment in DNSFilter has experienced significant holding value markups, now further extended by this new round. DNSFilter protects 27 million users across 30,000 organizations. Not bad for a little virtual-first start-up with a D.C.-based founder. Congrats once again to Ken Carnesi and the entire team!

Digma publicly launched the availability of its Continuous Feedback Developer Platform, and was met by overwhelming interest in the product. The company also announced its $6m Seed funding. Inner Loop had invested twice in 2022 prior to these announcements.

Deduce announced its expansion into protecting companies from AI-Generated SuperSynthetic Identity Fraud, along with a new $9m financing led by Freestyle Capital, with participation from Foundry and True Ventures.

Inner Loop originally invested in Deduce in 2019 from our Pilot Fund, and participated in this newest financing from Fund II. Inner Loop Funds I and II are explicitly structured to be able to take advantage of such “cross-over investments” when, in my judgment, the new investment is attractive on a standalone basis. I appreciate the support of our LPs and our LPAC in enabling us to have the flexibility to make these potentially high-impact, time-efficient investments.

Evo Security, identity security tailored for MSPs and their customers, raised a $1m Seed Extension from new investor Strategic Cyber Ventures. Our new co-investor Chris Ahern has done an excellent job of summarizing the opportunity Evo has in front of it and their recent progress which compelled SCV to invest. Inner Loop has been invested in Evo since 2021.

Gigasheet is doing a great job of sharing their expanding value proposition, feature richness, and success with customers. This new mission statement from CEO Jason Hines will make your jaw drop. In the eight months through July 2023, Gigasheet processed 5 trillion data points for more than 40,000 users. Gigasheet ingests 190,000 cells of user data every second. Not bad for a little virtual-first start-up with a Virginia-based founder. Congrats to Jason and the entire team!

Configure8, an Internal Developer Portal, has had a number of important product and partnership announcements lately, including this integration with Splunk. Configure8 was also recognized in the Gartner Hype Cycle for Internal Developer Portals. Configure8 participated in DevOps Days Ukraine, and posted this video in support of the Ukraine-based members of their development team.

Cerebro Capital was granted a final patent on its AI-Derived Anonymous Marketplace. As CEO Matt Bjonerud explains, this allows Cerebro to personalize small and medium-size corporate loans up to $100m from lenders across their marketplace, without sharing sensitive data from borrowers.

Sublime Security demonstrated how their platform can address the growing rise of “Callback Phishing”. Once again, I find myself constructing investment theses from learnings that reach back nearly 20 years.

In 2003, on the heels of a recent investment in email security company Postini that we were happy with (later acquired by Google for $625m), David Cowan of Bessemer and I set out to make an industry-leading investment addressing the rising challenge of phishing. After a year of looking, we decided that phishing was fundamentally a social engineering trick, and there were no coherent technical fixes available for it at that time. Instead, we looked to address the problem at the transaction layer. We invested in financial security company Cyota, which was acquired in less than a year by RSA for $145m, and whose CEO went on to become the Prime Minister of Israel.

The reason Sublime Security can now address evolving phishing attacks today in ways that the 2003-era technology could not is due to how Sublime has built its email security platform for maximum customization. When founders Josh Kamdjou and Ian Thiel pitched me in 2019 on building the most flexible and customizable email security solution ever created, I quickly inferred the implications for protecting what remains one of the most important threat surfaces for global businesses. Sublime’s ability to address an attack that wasn’t even named when they launched their company is a testament to their foresight in understanding what their customers would need for the next decade and beyond.

Support for Portfolio Founders and Companies During a Time of War

Inner Loop is based in Maryland and manages a predominantly U.S.-based startup portfolio. Nevertheless we have been profoundly affected by the shocking events in Israel this month, and the resulting full-fledged war in Gaza.

Founders or core team members of two of Inner Loop’s portfolio companies are based in Israel. At least three more of our companies are founded by entrepreneurs with deep ties to Israel, and who are currently based in the U.S. This month has been very difficult on everyone with ties to Israel, Gaza, and the greater region. Inner Loop has aimed to be available to support our colleagues however we can, both operationally and emotionally. We hope to be a helpful partner to all of our colleagues and friends in this very difficult time.

One of our founders shared the town hall address from Daniel Schreiber, CEO of Lemonade, a venture-backed company with significant operations in Israel. This video has contributed to my understanding of the situation and what our affected colleagues might need from Inner Loop at this time. I am sharing the video here for our mutual understanding, with the strong warning that Mr. Schreiber spends a meaningful portion of his address verbally describing the horrific events of October 7 in disturbing detail.

Inner Loop is not a political organization. Nor are the events that sparked the current war up for political interpretation or debate. I am no expert on the dispute over control of the lands, borders, and shrines of the Middle East. But Israel is a nation recognized as such by 165 other countries, and as far as I know, none of them dispute Israel’s right to the lands where the terror attacks of October 7 took place.

The events of that day shock the conscience, as I suppose they were intended to do. What military or strategic purpose they might have served are entirely beyond my reckoning. In an age of international terrorism and mass shootings at home, horrific spasms of violence are all too common. But to have atrocities that seem rooted more in the 11th century than the 21st perpetrated by the governing body of a territory aspiring to become a recognized state is a wholly different thing. I agree with our President: As far as I am concerned, no such organization can claim any legitimacy to power or governance, and nations who are threatened by it are justified, and perhaps even duty-bound, to remove its grip on power.

The war that has resulted is also heartbreaking. Millions of people with no connection or a tenuous connection to the brutal regime in Gaza are being displaced and are living in fear, and thousands are dying. These dual monumental heartbreaks cannot be compared or ranked, and I grieve for all who are so profoundly affected. Human history, on all continents, is a nearly unbroken chain of self-inflicted tragedy and grief. But history also points toward the only sustained source of peace and development we have known: Stable nations who are respectful neighbors, sharing a mutual recognition of each other’s humanity and security concerns, and led by governments who commit to resolving disputes peaceably.

It’s the framework for Israel and Palestine that most major parties signed onto over 30 years ago, with at least one glaring exception. If it once seemed plausible that there might be stability even as that party controlled Gaza for the last 16 years, it certainly no longer does. I grieve for the horrible civilian toll that is still ahead as that regime is rooted out. I can only hope that a more peaceful and stable future for everyone in the region comes as quickly as humanly possible.

Justin Label
Managing Director
Inner Loop Capital

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