Has the startup bubble burst?, Financing

No one is invincible, not even the tech giants. After Amazon, Meta and Snap published poor results in late October, nearly $800 billion in market cap went up in smoke. The “little ones” of technology also suffer from investor disenchantment. In the first three semesters of the year, startups raised $366 billion worldwide, or 26% less than in the same period in 2021, according to the specialized website Crunchbase. The third quarter of 2022 was the most significant, with only 81.1 billion raised, against 171.9 billion a year earlier (-53%).

New unicorns, these start-ups valued at more than a billion dollars, are becoming increasingly rare: 280 have appeared since the beginning of the year, against 460 in the first three quarters of 2021. These numbers are relativizing… way. The mega fundraisers announced in the first quarter of 2022 were effectively completed at the end of 2021. “The slowdown in investments started in March April and was felt in July”, underlines Philippe Botteri, partner at Accel, one of the stars of capital – overall risk.

The difficulty of putting a price

Fundraising rounds over $100 million are almost absent, while those in the tens of millions — series B and C in the parlance — are done at valuations equal to or less than the last raise, with bonus clauses that don’t always benefit the contractors. “In series B and C, investors no longer know how to price a start-up, suddenly no deal is done,” observes Marc Ménasé, founder of Founders Future, a French seeding fund.

The next few months will not be happier if some of the funds and experts in the industry are to be believed. But until when? “Some talk about a restart in January, others in June. It’s very hard to say,” notes Sophie Sursock, partner at Move Capital, a growth equity fund specializing in technology solutions for companies. All eyes are on the US leading trends, but no signs of recovery are on the horizon.

For now, on the side of US, European or Asian investors, it’s a wait-and-see attitude, even those with deep pockets. If they start investing, they will support their portfolio companies first. But they can’t do it for everyone! “If you’re in the middle or bottom of your fund, you’re screwed,” said one investor.

Keeping an eye on EBITDA

The only way out for the start-up that couldn’t get in: finding a new outside investor… which will require historic shareholders to put the pot. The snake biting its own tail or the vicious circle. A choice.

If funding continues to dry up, cash-strapped start-ups will soon be short of options. “There are still startups that live in a utopia thinking they will find money. If they don’t take the necessary measures in terms of restructuring, they will explode in full swing”, estimates Marc Ménasé, who, like many investors, no longer looks only at the “hypergrowth” line in a start-up file, but also, and above all, its Ebitda.

It is certainly not required that the funding applicant be profitable immediately, but it is now critical to come up with an economic model that guarantees profitability in two or three years.

To be profitable, it is necessary to reduce certain expenses and lay off some employees. But in some cases this is not enough. You have to go through the rescue box. “It’s the supermarket now,” confirms Benjamin Bitton, partner at 2C Finance, a financial consultancy specializing in technology. Start-ups seek to be supported by a large company, a private equity fund or another start-up🇧🇷

trends that will stay

But unlike fundraising, which takes a few weeks to complete, an M&A takes several months. The effects, therefore, will only be felt throughout 2023. And the more the months pass, the more prices will fall, which will cause certain founding bosses to come back with empty wallets because of the preferred shares that favor the last investors who entered the market. capital. A lot of work for nothing…

Aside from these funding issues, it’s a whole card game that will be reshuffled. 🇧🇷 It is quite healthy and will allow you to purge, separate good business from the means “, emphasizes Marc Ménasé. “The fundamental trends that have driven the technology ecosystem, such as cloud and automation, are here to stay. New and beautiful startups will continue to be created in the coming months”, suggests Philippe Botteri. It was after the internet bubble that Facebook was born and after the 2008 crisis that Uber was born.

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