OTA Sync: Switching from product-based to performance-based organization & closing a 1.3M EUR seed round without cold calling

Note: This interview has been edited and condensed for clarity.

OTA Sync is a B2B all-in-one property management system for hospitality facilities with less than 250 rooms. It targets a lucrative niche that legacy systems can not adequately serve. 

The company was part of the second Katapult Accelerator cohort. 

Before joining the program, the startup raised 250k EUR. 

During the program, the startup team met with Silicon Gardens, an investment firm that subsequently invested 250k EUR in them. 
Presto Ventures decided to invest in the startup after following its progress before, during, and after the program. They led the round with a 500k EUR investment. 
The Serbia Innovation Fund approved an additional 300k EUR as a co-investment grant. 

We interviewed Djordje Jevtic, co-founder and CEO, about their journey of building a sustainable business and their experiences in raising investment. 
        

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Note: this interview was produced in September 2024. As startups are likely to pivot and change, take into consideration to reach out to startup Founders for the most recent information on their stage/growth/results achieved so far.?

You raised the seed round in two phases on purpose. Why??

We announced the round in 2022. Back then, we raised 100k EUR from TS Ventures Fund , 100k EUR from Angel Investors from Inicijativa ?Digitalna Srbija“ , and a follow-up in the round from Startup Wise Guys . In 2023, after determining our needs during the Katapult program, we raised the remaining 750k EUR from Silicon Gardens and Presto Ventures .?

When we started raising capital in 2022, we weren’t sure how much our company was worth, so we raised only what we needed. The hype was still afoot. Startups have been raising tens of millions because they had an idea, but that did not make much sense to us.

We had around 20k EUR monthly revenue and a 10x revenue valuation multiplier. The investors said most startups had 15-20x multipliers, which we knew was unrealistic. It’s not healthy to get an investment with those multipliers because the investors have expectations startups can’t fulfill.?

Even then, in 2022, several VCs wanted to invest in us immediately, but we suggested staying in touch for the next 12-18 months. Among those VCs was Presto Ventures, a firm that would become our investor.?

Since we were unsure if we calculated our company's value correctly, we decided to wait and avoid the consequences of having an undervalued or overvalued company on the rest of the round. The 250k EUR we raised bought us enough time to learn how to calculate the valuation properly.?

During the Katapult program, with mentors, we calculated that our seed round should be 1.3M EUR. We already had 250k EUR. Knowing we would get 300k as a co-investment grant from Katapult, we needed around 770k EUR to close the seed round.?

You were thinking sustainably. Where did you learn that??

I went to business school. I knew that in most cases, buyers evaluate the business with 4-6x revenue multipliers. Startups raised rounds with 20x revenue multipliers. It didn’t make sense.?

Then I asked myself: “Can we raise with these multipliers and expect to leave this business to our children? Can this business sustain itself in the long term? Are we creating lasting value?”?

Then we talked to some investors who started drilling us questions about customer LTV (lifetime value), CAC, etc. When we stuttered, they said:?

“Nobody should invest in a company that doesn’t have this calculated.”?

And they were right.?

Unless you invent something no one has ever thought of, you are building an evolution of something. If that is the case, you need to have the numbers. You already have competition, and the market exists. You should know how it works.?

Then, we decided to analyze our finances, marketing, sales, and processes, fix everything, and create a business plan. With all of that, nobody could catch us off guard.?

We were raising so much money. We needed to explain why we needed that money and what we would do with it. This proved to be a good approach. I wouldn’t say raising the rest of the funds was a piece of cake, but we already had the data room and analysis. We only needed a couple of days to update the numbers for the last month, and that was it.?

Investors told us we are a rare startup with a pitch showcasing the metrics. Many startups go as far as series A without managing and reporting on the business by the numbers.?

You and your co-founder, Ilija Milovic, have backgrounds in hospitality. How did that contribute to your being here today??

I started working in hotels during high school, so I knew how they functioned. I worked in Regent in Porto Montenegro, which had over 100 rooms, and in a small hotel in Kotor. My family is also in the vacation rental industry. They provide accommodation and have been doing it since the 1970s.?

Ilija ran a 30-plus apartment agency in the Bay of Kotor, cooperated with hotels in Montenegro, and consulted them. He advertised them digitally and offered non-customized software to connect all their operations to it. There was a massive demand for this service-based business back then, and he was paid a commission.?

For context, you need to understand that until 2016, in our home country, Booking and Airbnb were technologies that 70-80% of the market did not know existed. Businesses counted on their old guests from Serbia or Bosnia returning. At the entrance to the city, there was a big sign that said “hotel,” and that's it. That was all the sales they needed.?

When Ilija and I started working together, we expanded to Serbia and started getting feedback about what was wrong with the software. This led us to conclude that we should build our own.??

We generated revenue from services before we had software. Then, we switched from offering services to offering a product that solves the problems our customers reported.?

Before entering Katapult, you were a part of another accelerator - Startup Wiseguys. What was the main benefit??

We signed up for that accelerator in 2021 when we understood we had a product. At that time, we had revenue, customers were satisfied, and they provided feedback. The revenue we generated was enough for us to split the money and pay some expenses, but that was it. We needed funds to finish building the product.?

Besides the money, the biggest value from that program was understanding that we have a startup, not a traditional company. Before that program, we communicated that we were building a business that would be huge in 20 or 50 years, with 45% YoY (year-over-year) growth. Mentors told us that we needed to speak of the results we expect to make in 5 to 8 years and adjust our vocabulary to the startup world. The numbers had to be more attractive, and growth needed to be faster.?

Why did you sign up for Katapult, then? What is the benefit of going through another accelerator??

The main thing investors told us during our previous acceleration experience is that we need mentors.?

Investors are available for a limited time; we can meet once a month. Investors told us we needed mentors who would provide ongoing support and be available when needed.?

One of the investors told me that one of the leading IT companies in Serbia pays over 35k EUR per month for the mentorship of its C-level executives. The top 4 to 5 executives get mentors a few levels above them to have regular sessions about strategic problems - discuss and brainstorm.?

We needed free access to mentors. If nothing else, someone will know someone if we join a high-quality network. That is why we applied for Katapult.?

You met your seed investors in Katapult, right?

Yes. We met Silicon Gardens through the Katapult program. Presto approached us when we raised this first part of the round, so we knew them from before.?

Presto Ventures told us they followed us during and after the Katapult program. The program meant a lot to them and helped them monitor our progress during those 3-4 months.?

How did participation in Katapult help you during negotiations with investors??

The co-investment grant gave us a massive advantage over startups that don't have it.

Investors think like this: If they invest only 300k EUR, they reap the benefits of a 600k EUR investment without investing the full 600k EUR. Their investment doubles, and they're the only ones getting equity. Other startups have only how much they raise; their runway is as is. We had more. When we closed a million, it wasn’t a million; it was 1.3 million EUR.?

Another thing is security. When investors see that institutions like 世界银行 , European Union , and Fond za inovacionu delatnost stand behind our business and that we are part of a credible program, there is less need for their active role in our company. They know we have credible mentors with domain knowledge to help us, which speeds up the process.?

Why did you prefer an investor who is not actively participating in managing your business??

I heard that 50% of startups take an investor as a board member in a seed round. That can be formalized through a contract. Other times, they require approval for every spend over 10k EUR. What is 10k EUR when someone generates 50k or 60k a month? That's a quarter or fifth of the revenue. Startups should be able to spend 20% of their revenue without the red tape.?

You are also expanding to other markets. How is Katapult helping you there??

We entered the Latin American market and are growing rapidly there. We are currently focusing on contracting a strategic partner in the U.S. We are negotiating with a serious company that can help us grow there.?

Certain partners in LatAm were more trusting because they knew an institution like The World Bank was backing us.?

What were the other benefits you had from participation in the Katapult program??

There are a couple:?

1. We still have a mentor. He wasn't in Katapult, but a Katapult mentor, Vuk Gubernic, connected us with our current mentor.?
2. We connected with people who were innovators in our industry 10 or 20 years ago. They built the legacy systems we are now transforming. It was a great way to understand how it was for them when they had a startup.?
3. Some feedback crystallized into a decision to move from a product-based to a performance-based way of running a company. No one outright said to do it, but we heard it from various sides and pieced it together.?

How did you know you had a product-market fit? And what does it mean to switch from product-based to performance-based organization??

When you have a product-market fit, as we do now, you work a lot less on the product and focus more on scaling and sales. Our processes needed to keep up with that change.?

We saw that we could sell the product to everyone as is. That meant we had a PMF.?

Now, almost everyone is connected to performance. The whole company has KPIs, every team within it has KPIs, and every individual has them. Everyone gets a chance to earn a bonus. However, if someone fails to deliver for a certain period, it is questionable if they will stay with the company. Sales sell, and marketing attracts leads for sales. Our development and support teams are the only ones connected to the product.

Another sign of a PMF is that we don’t need to offer freemium. All our users are paying customers. Our software is closely related to our customer’s income; it’s a revenue-generating tool. Customers can easily calculate how much more money they have because of us. They start using our software in the morning when they open offices and finish using it when they are done for the day, but the software continues to process the data. When we have a situation where payments are late, we shut them down. In 5 minutes, we get a call. That, for us, is a product-market fit.?

Can you share some metrics of success since you left Katapult?

Since we finished the Katapult program, we have grown by about 130% in a year, which is a satisfactory metric for us. We have also grown in number of clients and revenue per client.?

Another great metric is “revenue per employee.” Our business's growth doesn’t require us to scale our team drastically, so our average revenue per team member continues to increase.?

By optimizing marketing campaigns, we have significantly reduced the customer acquisition cost (CAC). It was around 1,000 euros; now, it’s less than 600 euros. We have also reduced our marketing spend on LinkedIn and other social networks. We redirected the funds to Google ads, which performed better for us.?

What would be your main advice for startups?

1. Define your business model and how you make money. Even ChatGPT has a business model. Nobody is currently more innovative than ChatGPT. You should pay attention to CAC, revenue, how you make money, how much, who pays, and who gets it for free. You have to ground yourself and figure out how to manage a company, not a playhouse.
2. Economic background is great, but you still have to learn. I saw in Startup Genome Scanner that 70-80% of founders in Serbia have a management or economic background. Remember that having some business experience does not mean you have a business background. Most founders have a tech background, meaning they must learn how to do business in-depth. Figure out what you don’t know as founders and chase someone who can teach you.?
3. Serious investors are rare. Don’t count on every investor to be a serious one. I have seen many start-ups claiming: “They will invest in us. We had a call, and they told us they like everything.” That doesn’t mean anything. Even a term sheet is not a guarantee of investment. But we can say that a term sheet qualifies a serious investor. Be picky about your investors. It's better to have a few of them and choose who you like than to get attached to anyone who shows interest.?
4. Raise money before you need it. We have enough funds now and don't need to raise, but we have a certain number of investors with whom we talk for Series A. When they call and ask to speak to us, I tell them we will talk in 40-60 days if we have nothing new. When I have something to show, I schedule a call and show them what we have been working on and the results we have accomplished. This is how I inform them about changes and nurture the relationship. When the time comes, from that internal database of investors we communicate with, I know which 10-15 people I can call. We don’t send cold emails to 1000 addresses.

About the program:         

The Кatapult program of the Innovation Fund (Fond za inovacionu delatnost) is the first valid acceleration program in Serbia, combining intensive, three-month mentoring with co-investment. Katapult is a part of the SAIGE Project, built on a decade of successful cooperation between the Government of Serbia, the European Union (EU u Srbiji), and The World Bank, to bolster innovative entrepreneurship and scientific research.