An ecosystem under pressure: a new reality for fundraising?

Speakers:

• Willy Braun — founder of Galion.Exe
• Arbia Smiti — founder of Rosaly
• Eva Sadoun — founder of LITA.co
• Fred Plais — founder of Platform.sh
• Florent Guillermain — Societe Generale Corporate and Investment Banking

Issues

• After an exceptional year 2021, and in the current climate of uncertainty, how should one approach raising funds in 2022—23?
• What are the “beauty standards” of the new market conditions?

Issue

• Understand the new rules of the game to convince investors, and reconcile the expectations of investors and entrepreneurs.

Market evolution report

• The amounts invested in risk capital fell between 2021 and 2022 (-50% of the amounts raised, -30% of transactions and an increase in the average ticket in the United States in Q3);
• The year 2021, exceptional at all levels, creates a basic effect that disrupts reading a bit;
• However, today, The money is there : over the first 9 months of the year, 150 billion dollars were raised by funds in the United States, more than in the whole of 2021;
• The investment capacity of the funds has increased tenfold in ten years;
• However, economic risks are difficult for investors to anticipate at this stage.

Points of attention or don's

• When the climate is tense on the financial markets, American investors go home and reinvest on their territory;
• Faced with the difficulty of modeling inflationary risks on start-ups, investors are moving towards models that are most disconnected from everyday economic rationality;
• BtoC models are less popular than BtoB models, especially since we still don't know how inflation will impact demand;
• In the United States, impact is not yet an investment criterion. In Europe, there is a growing demand for this type of fund (especially pension funds and pension funds), but investors continue to demand growth and profitability above all.
• The revision of valuations creates situations that are difficult to manage: dilution, a lot of protections (ratchet, liquid pref participating or >1) that are jumping or stock options that no longer have value and lead to talent retention problems, etc.

Key learnings or do's

• We must forget the period 2020-2021, put an end to the high valuations of 2021 and return to “normal” levels (2019) instead;
• Even if they don't say it, the funds set themselves a number of files to be financed each month;
• The conditions of the financing model are changing: it is therefore necessary to adapt your development model;
• Investors like predictable models (low costs, low CAPEX, few Churn, a lot of predictability on earnings);
• Instead of pure growth, investors are now interested in the efficiency of growth: we must therefore provide them with real signs of profitability;
• Roadshows on average last longer, with more instructions (especially on cash/growth/unit economics);
• In this period of transition between hypergrowth, profitability and impact, it is necessary to recreate the dialogue with investors to understand their expectations;
• The entrepreneur must be very agile, know how to adapt as quickly as possible to changes in market conditions that he does not control by acting on the elements he controls, that is to say the management of his business;
• Adaptability, agility, innovation and ambition are the key elements for a fundraiser today.
• There are financing instruments other than equity, with in France in particular debt (BFR/Postes clients/immo), venture debt, RBF, decarbonization financing, PPR (which takes over from PGE)

Eva SADOUN: “We need to take a step back from the “big fiesta” of 2021: hypergrowth as the sole evaluation criterion, 2% of the funds raised by purely female teams, 15% by mixed teams, 30% of the fundraising budgets invested in software on American companies and 40% on GAFA. It was not a party for everyone.”

Arbia SMITI: “I went through two phases for my fundraising. During the 1^era Phase, I was very optimistic, like all entrepreneurs who see that the money is there in quantity. I had a good record, some KPIs, a great team and I did not understand the reasons for the refusal. My record was good, but others were better. In the 2^th phase, I reviewed my entire strategy, my pitch, my valuation and I went looking for totally different investors (American), who knew this unprecedented market in Europe, even if they seemed at first glance the most difficult to convince, because they were foreign to the French market. In the end, I managed to get up at the worst possible time.”

Fred PLAIS: “The fundraising started in September-October 2021, with a 1^Er closing with two European investors during the good times, in March 2022, and a 2^ND Tour with an American investor in May, after the fall of Nasdaq. We ended the worst week with Morgan Stanley. We thought they would find some excuse not to make the deal. They finally signed because they are investing for the long term.”

Eva SADOUN: “The entrepreneur is not just a cash machine. Businesses are not created for investment funds, but to change the world. Build resilient businesses that will serve the world of tomorrow. Investors will adapt.” ‍

Florent GUILLERMAIN: “Your ambition as an entrepreneur is not linked to the amount you raise, but to your project.”

‍

‍