After two years of euphoria, French Tech faces new challenges. To get through the winter, several professionals in the sector share points to watch out for and give their advice.
The return of the “extensions” of the round table
The end of the recreation has come. Fundraising is slowing and valuations are being revised down. So, to avoid running out of liquidity, start-ups need to anticipate, especially those that raised eighteen months ago. Among the avenues favored by the young shoots is the “extension” of the round table.
This funding method consists of raising funds from its existing investors under the same conditions as the previous round. Since the share price is the same, the valuation will then either be stable or increase slightly. “It’s simpler than redoing a real fundraising process. But if the valuation is too high, it could still be a problem for investors, “he notes Marc MenaseFounders Future founder.
Fortunately for start-ups, venture capital funds have completed record fundraisers in recent months, such as Alven (€ 350 million), Xange (€ 220 million) and BlackFin (€ 350 million). Foreign funds have also been filled, such as the American Headline (950 million for three funds) and the British Felix Capital: “The funds are well equipped in Europe but they will not be able to help their entire portfolio”, observes Benjamin Bitton. partner of 2C Finance, a financial consulting firm specializing in technology.
Cash at all costs
Another word that has come back into fashion in recent months: “bridge”. This is an emergency loan that allows you to hold out until the next fundraiser. This option therefore has a more negative connotation than an extension of the tour de table. “We don’t have to build bridges to nowhere. Often, the “bridge” distracts business owners when they have to rethink their strategy. Some will get away with a bridge, but it shouldn’t be the norm in the ecosystem, “said Xavier Lazarus, partner of Elaia.
Fairness is not the only way to replenish your coffers. Start-ups can also resort to debt from traditional banking operators, specialized funds (we call it “risk debt”) or fintechs. Silvr, which offers loans based on its current or future income, is receiving far more requests than at the start of the year and from larger start-ups.
“The best think about the future, which is the right attitude. Others come to visit us because an investment fund has withdrawn, the conditions for raising it are not good or it has no more liquidity … this is not a good thing, ”says Nima Karimi, the boss of Silvr, who refinances his clients. on average every six months. “It’s like a cash line. On the other hand, we are not firefighters but a financing solution complementary to equity ”, warns the co-founder.
After the pomp, the savings. In this context, many start-ups will have to cut staff to maintain their liquidity and last over time. The United States and parts of Europe have already led the way, particularly in fintech and fast trading. In France, some start-ups are beginning to suffer, such as Sunday (90 redundant people) or Bellman (job protection plan).
Never a happy time for an entrepreneur and for employees, staff reductions still help start-ups weather the storm, especially those that have failed to refinance. “It is important that it is put at the center of a precise strategy and not a hot or stressful reaction, or simply a splash”, indicates Géraldine Le Meur, head of LeFonds.vc. And to specify: «For example, it is necessary to decide to suspend this or that project and separate from the teams to achieve a better trajectory. “
Above all, specifies the serial investor and entrepreneur, to be as transparent as possible with his employees on the situation of the company and on the need to keep 18 to 24 months of cash. advice followed Florent Malbrancheof the start-up Brigad, which in May 2020 had to lay off about forty people, or half of the workforce of the time.
Due to the health crisis, he found himself short of income overnight. “There is no money left and the first cost center is the staff. To resist, there was no choice. It was an economic logic, ”he recalls.
The entrepreneur, like his partners, reduced his salary from 30 to 40%, explained the situation to his collaborators in detail, cut off probationary periods as a priority, let those who had planned to leave leave and kept an “over-committed team, capable of leading the fight”.
The other main challenge: helping laid-off employees find work. Swedish fintech Klarna had, not without controversy, published (with their consent) the list of people thanked. For his part, Florent Malbranche, who in the meantime has been hired and is experiencing a renaissance, had dedicated the HR department to the reclassification of employees in tech.
“It is a small ecosystem, with often highly qualified profiles. For example, they can turn to the start-up’s client companies ”, emphasizes Géraldine Le Meur. In the United States, the “Layoffs.fyi Tracker” site lists technology layoffs across the Atlantic. Start-ups can advertise the names and skills of the people fired. In France such a tool does not exist but it is customary to circulate lists behind the scenes.
Buy or get redeemed
As often in times of crisis, it is time to shop. Technology investment bank Avolta Partners noted a “noticeable acceleration in the number of M&A cases over the past six months.” The funding crisis obviously explains this phenomenon, but also the maturity of the technological ecosystem. “The number of acquisitions made by scale-up is exploding, we have seen the first big IPOs in Paris in 2021 and private equity funds are increasingly active in the sector”, underlines Arthur Porré, co-founder of ‘Avolta Partners.
For its part, the Elaia fund has carried out a dozen transactions within its portfolio since the beginning of the year. “It’s a record. We could have sold more expensive last year, but we’re still making money on every line,” says Xavier Lazarus.
Start-ups are increasingly opting for “dual track”, a process that consists in soliciting both investors and potential buyers, which allows them to meet both financial and industrial players. “As valuations drop, start-ups will become more edible for large groups,” says Marc Ménasé.
Put it all back together
“Prepare for the worst”. Here is one of the tips provided by the famous American incubator YCombinator to the start-ups in the portfolio. Venture capital funds have also sent their guide to getting through the winter. In France, Founders Futures concluded its Letter to the Founders with a quote from driver Ayrton Senna: “You can’t exceed 15 cars on a sunny day… but you can when it rains. “
The seed fund indicates that it is necessary to focus on the most profitable products, review its acquisition channels and reassess the degrees of urgency of all projects. “The start of the school year is the key time to prepare budgets and set the tone for your strategy,” observes Marc Ménasé.
“The classic mistake is believing that you can keep accelerating. The leader must accept and make his employees accept that they will go slower. You need to speak regularly with your board of directors, your bank, your employees to streamline growth and make it more positive for cash flow, “adds Benjamin Bitton. Goodbye hypergrowth, hello profitability.