Toronto-based Cognota has secured $5.5 million USD in Series A funding to fuel the growth of its operations software for corporate learning and development (L&D) teams.
Cognota—which began first as a consulting firm and then a knowledge transfer tool—has since evolved into an end-to-end corporate L&D operations (LearnOps) platform. The software startup, previously known as Synapse and ExpertKnowledge, rebranded to Cognota and launched its enterprise platform last year.
Now, armed with a new name, product, and fresh capital amid a challenging fundraising environment, Cognota has set its sights on expansion, as it looks to help more businesses both manage and measure the return on investment (ROI) of their internal L&D programs.
“Companies need to really be positioned as a pain killer right now. Nobody is buying vitamins.”
– Ryan Austin, Cognota
In an interview with BetaKit, Cognota founder and CEO Ryan Austin acknowledged that the road to get to this point was difficult, but expressed excitement about where the startup sits today, with a LearnOps product that he claims is the first and only of its kind.
“Starting a category is really hard,” said Austin. “There’s nobody to copy, you have to learn all of the hard lessons yourself—that’s sometimes the downside. The upside is that we now have created something new.”
Corporate L&D is the internal function responsible for developing the knowledge, skills, and capabilities of a company’s employees, encompassing any professional development a business provides to its workers, such as skills training or leadership development.
Founded in 2016, Cognota has built LearnOps software designed to replace the disparate tools companies use to manage L&D. The startup’s platform aims to streamline and improve the efficiency of companies’ L&D processes, from training intake to project and capacity planning, and content design. Cognota, which targets large companies like General Mills, Americo, EY, and Comerica Bank, also seeks to give customers more visibility into their training needs and the impact of L&D investments.
“With Cognota, what used to take months can now be done in days,” Grotech Ventures general partner Steve Fredrick said in a statement. Fredrick has joined Cognota’s board as part of the round, alongside Generation VP of investments Hamilton Petropoulos.
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Cognota already helps enterprise clients manage L&D. Measuring its ROI, said Austin, is the next piece of the puzzle. The CEO claimed that while corporate L&D teams spend hundreds of billions of dollars annually on training, they typically have no way to show ROI. Cognota hopes to change that with a new feature set the company plans to launch later this year.
Cognota’s all-primary Series A round, which closed in June, consisted of $4.5 million in equity funding and $1 million in venture debt from Comerica Bank. The equity portion was led by Grotech Ventures with participation from fellow new investors IDEA Fund Partners and Tyton Partners. It also saw support from existing Cognota backers BDC Capital, Generation Ventures, CEAS Investments, Neal Dempsey, and Jay Steinfeld.
This capital, which follows a recent grant from the federal government through FedDev Ontario, brings Cognota’s total funding to $11 million USD. This includes financing from three prior seed rounds under the names Synapse and ExpertKnowledge in 2020, 2019, and 2016.
Cognota’s Series A round comes amid difficult conditions for the tech sector. Interest-rate hikes to combat rising inflation have cooled investor interest in tech, making it tougher for startups to secure venture capital (VC) funding and increasing the cost of borrowing. During this downturn, the tech industry has seen VC investment fall, valuations drop, and many firms cut staff, explore costly down rounds or debt financings, restructure, or shut down altogether.
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Per PitchBook’s deal indicator, the current venture market is the most investor-friendly it has been in years, with complicated financings that feature terms and valuations that favour investors more than investees.
Austin noted that fundraising in this environment was both challenging and competitive. According to the CEO, Cognota ultimately secured five term sheets—but not all of them were created equal. “It was brutal out there,” said Austin. “We saw some of the worst term sheets—old, antiquated stuff that people haven’t seen in the past 10 years.”
It was important for Cognota to have no structural or liquidation preferences attached to its Series A financing. After Austin took issue with the onerous terms initially proposed by prospective investors and then nearly walked away from fundraising altogether, Austin said VCs returned with clean term sheets. “It was a good lesson learned,” he added.
“You have to be reasonable with where you’re valuing your business because if you try to just take the best deal, that might not be the best thing for the company.”
According to Austin, supplementing Cognota’s equity financing with government grants and debt also proved beneficial for the startup, helping it land “an up round in a down market with clean terms.” The CEO declined to disclose Cognota’s latest valuation beyond claiming it was higher than the firm’s August 2020 seed financing. At the same time, Austin said that Cognota turned down term sheets with higher valuations in favour of working with the right investors.
“You have to be reasonable with where you’re valuing your business because if you try to just take the best deal, that might not be the best thing for the company,” said Austin, who pointed to the danger of maximizing on valuation demonstrated by down rounds during the downturn.
As for how current economic conditions have been impacting Cognota’s business, Austin noted that while the startup saw some sales pipeline gaps during the summer, deals are still being signed right now for startups and products with a clear value proposition—including Cognota.
“Companies need to really be positioned as a pain killer right now,” said Austin. “Nobody is buying vitamins. You have to have a very clear value proposition around how you are going to drive efficiencies, save costs and time for these companies, and how you are going to enable your customers to demonstrate the ROI if they’re going to buy your software.”
Feature image courtesy Cognota.