Kitchener-Waterloo-based cybersecurity startup Cavelo has closed $5 million CAD in seed financing to fuel its United States (US) expansion plans as it looks to bring more financial services firms to its platform.
Cavelo sells software designed to help businesses reduce cybersecurity risk and achieve compliance. With cyberattacks rising, sensitive information more distributed than ever, and regulators catching up to the risks associated with corporate data breaches, Cavelo founder and CEO James Mignacca believes the timing is right for Cavelo to invest in growth.
“Companies have no choice but to be able to check the box when it comes to products like ours.”
In an interview with BetaKit, Mignacca noted that recent changes in data privacy and security requirements have proven beneficial for Cavelo’s business. “The real driver that we see is compliance,” he said. “Regulatory compliance is changing the difference between nice-to-have versus need-to-have, and the need-to-have is exactly where Cavelo plays.”
Founded in 2020, Cavelo has built a platform that scans, identifies, classifies, and reports on data that companies might want to protect in the event of a breach, such as credit card and passport information. By helping businesses locate and determine who has access to sensitive data, it aims to simplify compliance reporting, vulnerability management, and risk remediation.
Cavelo caters to businesses and organizations of all sizes. Its customers include undisclosed financial services companies, law firms like Chaitons and WeirFoulds, and the City of Guelph and other municipalities. Cavelo’s channel partners span IT services vendors, managed service providers (MSPs), and compliance consultants.
The startup’s all-equity, all-primary capital seed round closed in October and was led by new investor Inovia Capital. Cavelo’s financing also saw follow-on participation from MaRS IAF-spinout Graphite Ventures and other undisclosed strategic angel investors. This seed round comes over two years after Cavelo secured $1.3 million in pre-seed funding in early 2021 led by MaRS IAF, and brings Cavelo’s total funding to over $8 million.
According to Mignacca, Cavelo plans to put the majority of its latest capital towards sales and marketing as it looks to bring more financial services firms in the US to its platform. To support these efforts, the startup intends to add eight more people to its 17-person team with hires in Kitchener-Waterloo and New York.
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While Mignacca declined to disclose Cavelo’s latest valuation, he claimed that the company’s seed financing came at a higher valuation than the company’s 2021 pre-seed round. “Given the climate in the investor community, this was good for Cavelo and our existing investors as well as Inovia coming on board,” he said.
According to Mignacca, Cavelo has seen a lot of success to date serving customers like private equity firms, hedge funds, regional banks, and insurance companies—regulated firms that are prime targets for cyberattacks given the information they handle. With this round, Cavelo plans to double down on financial services.
“It wasn’t part of our business plan to raise money now,” said Mignacca. “We started to really see a lot of growth in the US, specifically the New York Area related to financial services and the SEC compliance act, and so we thought that it made sense for us to pour fuel on the fire.”
After getting connected with Inovia through Flare—a Montréal-based cybersecurity startup and Inovia portfolio company—and meeting with the venture capital (VC) firm, Mignacca said Cavelo quickly realized that Inovia was a “really good potential partner” with a strong understanding of what Cavelo does and the space it serves.
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Inovia principal Taha Mubashir told BetaKit that cybersecurity is a key investment area for Inovia, which has two partners with experience working in the industry.
“Our thesis is that cybersecurity is no longer a big company problem, it’s an every company problem,” said Mubashir. “The way, historically, that smaller businesses and middle market businesses would think about cybersecurity is, ‘Well, it’s not going to affect me, they’re going to go after the big ones.’ That’s no longer the case.”
Inovia invested in Cavelo through its $420-million fifth early-stage VC fund. While Cavelo declined to disclose its revenue to BetaKit, Mubashir noted that the company has “substantial amounts of revenue that would probably classify them as more than a seed.” Mignacca said that Cavelo aims to use this seed capital to set itself up for a larger Series A round within the next two years.
“Cybersecurity is no longer a big company problem, it’s an every company problem.”
– Taha Mubashir, Inovia
Cavelo has identified channel partners like MSPs as a means of serving its customers. Companies with cybersecurity needs but not enough resources and talent in house to meet them typically outsource this work to MSPs or managed security service providers (MSSPs).
“There haven’t been vendors that have created good tools for these outsourced service providers for them to be successful,” argued Mubashir. He added that Mignacca—an eSentire alum who has built an MSP and sold his previous company, RootSecure, to an MSSP in Arctic Wolf—“understands this intimately well.”
Mubashir described Cavelo’s market opportunity as “huge,” noting that spending on solutions like Cavelo is growing alongside cyberattacks and compliance needs.
“Companies have no choice but to be able to check the box when it comes to products like ours,” argued Mignacca.
Feature image courtesy Cavelo.
