Following a $45 million raise earlier this month, restaurant technology firm MarginEdge Co. is planning for a busy 2023.
The firm, now headquartered in Merrifield but set to move into new offices in Ballston in January, hopes to roughly double the number of restaurants it works with each year. That also means it’s projecting to double its total revenue in 2023, much like it did from 2021 to 2022. It brought in $7 million in 2021 and expects about $14 million for this year.
Its software — which allows restaurants to manage things like invoice processing, inventory management, recipe tracking, budgeting, performance tracking and bill payments in one place, serving restaurants that operate up to 30 locations each — is currently in about 4,000 individual restaurants across the U.S. In 2023, it plans to expand to Canada, the first country it will serve outside of the U.S., in part due to the recent Series C funding.
Serial entrepreneur and MarginEdge CEO and co-founder Bo Davis — who sold his educational software company Prometheus to Blackboard in 2002 for $9.6 million — reflected on raising venture capital money as recessionary fears rise and growing through partnerships with other companies. The conversation below has been edited for space and clarity.
What will this funding go toward? The financing round gave us a lot of extra dry powder, as they say — the ability to continue to scale up. We’ve been investing over the last couple of years really heavily in product. And so our product team grew from a dozen people to 45 people pretty quickly through our series A and B rounds. And our Series C round is going to be a little bit more focused on the go-to-market sales and marketing. We’re going to go from 45-ish people in sales and marketing to probably closer to 80 — and closer to 110 by the end of next year. That’s about a 40%, 45% increase in sales and marketing headcount next year. We’re excited about it because the market is just so big, right? We’re growing.
Locally, we really aren’t seeing many folks raise new rounds these days outside of some industries like government contracting and cyber that are really big in our area. What have you seen and was it harder to raise this funding in the current economic environment? It was definitely harder. I mean, there’s no question the venture capital and private equity markets have pulled back very meaningfully from where they were last year. We did a Series B around the same time last year, and it was markedly easier to get it done. This year, one of the challenges for entrepreneurs, for founders, is that the private equity firms, the VC firms have raised large funds, and they have the same staffing rate. They’re not cutting back on their staffing. So they have the ability to look at a lot of deals but they’re writing a lot less checks and so their velocity slows down.
What’s that meant for companies like yours? To get the same sort of pull-through, you have to talk to more firms. So we ended up speaking to a fair number of firms in this round, and we ended up with a partner we really like. And I think the reason we were able to get the deal done — it was a large round and it was not a down round — is that we were able to find a partner who really understood this market, understood restaurant tech. They’re invested in companies in this space, they know it and believe in it, and so they’re able to think a little bit broader and a little less cyclically and invest in where we’re headed, rather than just staying myopic about what the market is today.
When you say they’re able to think a little less cyclically, what do you mean by that? So, for example, one of the things you hear shockingly often when you talk to venture capitalists is that they are really focused on only investing in SaaS [or software-as-a-service] technology companies, right? Which is like — that’s everyone. That covers lots of verticals and lots of technology. Then, when the overall market pulls back, they’re pulling back also because they’re not looking really specifically at what segments are strong. Cyber, for example, has done well through this period, right? That’s because people who really specialize in cyber are looking at the bigger picture and where cyber is going. They’re willing to invest even when the overall venture capital market is slowing because they feel very confident about cyber. So that same idea applied to restaurant technology. Ten Coves [Capital], the lead for our round, understands restaurant technology deeply.
What opportunities do you see in your industry right now? Restaurants obviously have had an amazingly crazy two years, right? One of the things that is critical is that we help them with a lot of those core issues around cost management, knowing what your profitability is in near-real time rather than over a longer period. That’s made our software more attractive. And this has driven a lot of growth — 140% [revenue] growth in 2021, about 100% growth in 2022. And we think that’s going to continue because the market dynamics really are driving it.
Are you looking to offer your platform internationally at some point? We are actually going to be launching formally in Canada in January. That’s going to be our French version of the software so that we can support Quebec and Canadian accounting systems, Canadian taxes, basically all of the back-office stuff specific to them.
Tell me more about that. One of our biggest partners is Gordon Food [Service], which is the fourth-largest food vendor in the United States, but they’re actually the largest food vendor in Canada. When we agreed to the partnership together early this year, we agreed that they needed support in Canada, in addition to the United States. Canada has some really specific needs as far as the restaurant back-office stuff. Again, I mentioned the taxes are different and invoices are French, and accounting systems are different, point of sale systems are different. So this year, we’ve been hard at work on building out that Canadian version, and that will launch beginning of the year. The nice thing is, if you’ve been around the software world, you know the first internationalization project is the hard one.