A cartoon for children. With its wild vision of the future, its unicorns – these companies valued at more than a billion euros – frolicking on the markets, the manger stuffed with magic money, the years 2021 and 2022 seemed for tech to come straight out of ‘a Disney. Change of scenery in 2023, where the scenario turns more catastrophic The Walking Dead. The “zombie” start-ups begin to wander, haggard, faced with the difficulties of refinancing. In the first half of 2023, fundraising by venture capital fell by 50% year-on-year in the French ecosystem, to 4.3 billion euros, warned in a report published a few days ago by the audit and consulting firm EY. An important marker.
This method of financing, born in the United States in the 1940s, has grown in France over the last ten years. As their name suggests, venture capital firms – venture capitalist in VO – finance the idea of genius, from time to time the touch of madness, with the aim of increasing their stake tenfold a few years later. But the successive cold spells on the global economy, with the rise in interest rates and the war in Ukraine, have changed the situation somewhat since last year. The “round tables”, as they are called in the sector, if they are not becoming rarer in volume, no longer offer the same guarantees. American funds, in particular, have been numerous to distance themselves, whereas they previously provided a crucial windfall of money. According to the investment company Newfund, the latter, who participated in 40% of the sums raised by French start-ups in 2021 and 2022, with an over-representation above 50 million euros, saw their commitment drop by 5 % in the first quarter of 2023. “For the United States, Europe is a continent at war,” explains a senior manager of a company well placed to become a future unicorn. Take the risk, but not too much.
“Big plants” to come?
Scale-ups, these young, mature companies, are suffering the most from the situation. Many of them succeeded, during the “Disney” era, in raising a lot of money. And some expected, logically, to raise even more in the following years, according to a logical cycle of increasing financing which is broken down into several phases, from seed to series A, B, C, and beyond. The final stages are characterized by sums exceeding 50 or even 100 million euros. It is at this level that the venture capitalist Americans. “We are going to arrive in the next semester in the time of big plants,” warned the investor Jean de la Rochebrochard (Kima Ventures), on the microphone of the Tech’45 podcast, at the beginning of September. In truth, the tension has already risen a notch in recent months. The debt-ridden insurtech Luko was swallowed up by a British group just before the summer. More recently, the nugget of medtech BioSerenity has entered into receivership, indicated the Paris commercial court. Not pet names.
Attention is now focused on the thirty French unicorns, whose herd has more than doubled since 2020. Which ones can claim to retain their precious valuations? Like Schrödinger’s cat – alive or dead, depending on your point of view – it is not easy to know if they keep their status until they have left in search of a new round of the table. “As Warren Buffet said, it’s when the sea recedes that we see those who swim naked,” smiles Franck Sebag, from EY. The data specialist, Dataiku, was among the first to launch a fundraising of $200 million last winter, half the amount of the previous one, which resulted in a slight drop in its valuation. The king of crypto security, Ledger, took advantage of the FTX scandal to regain strength and raise 100 million euros, which allowed him to keep the value of the company on the line in a sector less fashionable. And for the others? Most companies try to limit their cash consumption, unbridled during the Roaring Twenties. PayFit (fintech) or Ynsect (agrotech) have made layoffs, just like Meero in the photo. Investors are pushing, behind the scenes, to accelerate their march towards profitability. “It has become imperative to look at how the management team has consumed its jackpot, its precise metrics, such as its ‘money burned/revenue’ ratio,” confirms Maximilien Bacot, director of the Breega fund. This belt tightening is not suitable for everyone. Antoine Hubert, director of Ynsect, left the ship, as did Thomas Rebaud at Meero, and Nicolas Cohen at Ankorstore. “It’s complicated to pivot so drastically when you’ve always spent lavishly,” remarked one entrepreneur.
Revenge of the Beavers
The drying up of funding should hit certain areas of activity harder. THE marketplaces, these online businesses have the double disadvantage of relying on long-term profitability, and on sales to individuals undermined by inflation. In Web3, and in particular virtual reality, the start-up Lynx recently confided to L’Express its difficulties in convincing investors, who are reluctant to challenge the powerful Gafam in this area. Let us also mention fintech, particularly valued during the 2021-2022 period, today much more fragile. “Traditional banks and insurance companies have made enormous progress in digital technology and have already caught up in this area,” notes Stéphane Olmi, manager of the investment bank Gimar & Co. The sub-sector of open banking, focused on financial services, is saturated.” A “Black Friday” is not impossible, continues Stéphane Olmi, i.e. a period conducive to takeovers and consolidation. All sectors combined, the expert on financial markets and economics professor at EM Lyon Jean-Pascal Brivady invites us to carefully examine the vitality of the funds, in order to predict possible difficulties. The Japanese SoftBank, notoriously dry, led the financing rounds of Sorare or Vestiaire collective , two other French unicorns, in recent years. Will he go back to the pot in the short or medium term? One example among others.
Faced with the “unicorns”, the current period definitely has an air of revenge for the “beavers”, these companies which have chosen not to go through venture capital. “The lack of post-fundraising media coverage is annoying, but given what’s happening at the moment, we have no regrets,” says Leslie Garçon de Weem, who specializes in connecting businesses and self-employed workers. , and which displays 30 million euros in turnover without the slightest round of financing. Many tech savvy people don’t view the end of magic money as a disaster. “Saying that levies are becoming rarer forces efficiency,” believes Franck Sebag, of EY. According to its study, 90% of start-ups have already reviewed their plans since the start of this crisis, and nearly 50% say they can become profitable within three years.
“The best money comes from customers, not funds,” Maya Noël, from France Digitale, the start-up lobby, keeps repeating. In the event of a problem, other methods of financing exist: borrowing saw a jump of more than 50% in 2022, concomitantly with the start of difficulties in venture capital, according to the consulting company GP Bullhound. For Jean-Charles Samuelian, founder of the unicorn Alan, the moment is ripe for consolidation, for rapprochement between companies, for the emergence of future heavyweights. “The pretty companies that survived the Dotcom bubble and the 2008 crisis are today tech giants.” “Great exits” on the stock market, along the lines of the semiconductor giant ARM, cannot also be ruled out.
Finally, some rounds of funding continue despite everything. The funds retain “dry powder” because the priming still works well. Particularly in supporting so-called SaaS solutions, hosted in the cloud, whose profitability is quickly accessible. Bets are also turning to generative artificial intelligence, which is booming: gems like Mistral or Poolside have recently gleaned more than 100 million euros. How not to mention, finally, the manufacturer of batteries for electric vehicles Verkor, which has just announced a record raising of 2 billion euros. Green. “We are returning to the basic principles of finance: supporting innovations that will create value and jobs, which have an impact,” notes the business angel Alexandre Berriche.
And why not, from now on, with tricolor backgrounds. Verkor’s super raising is partly ensured by venture capital, and led by the French investment company Meridiam. “There are significant efforts on the part of the State, and of Europe, to increase the size of our own funds and to massively finance start-ups. We are now targeting sums reaching several billion ‘euros’, explains more broadly Paul-François Fournier, head of innovation at Bpifrance. The ecosystem also expects the positive effects of Tibi2 plan : more than 7 billion in private funds for the development of technology companies. Paul-François Fournier predicts that large fundraising rounds will once again become the norm in 2024. The unicorn machine is certainly a little stuck, but it is far from being down: France is still hoping for a hundred, in its meadow, by 2030.