two tracks for two different situations

To support their development, it is common for start-ups to raise funds. Behind this operation is, above all, the need to finance an identified development project, inserted in the business plan in connection with the product / marketing / sales / HR / etc. roadmaps, and that allows accelerating growth. However, in some cases, the funds raised may be insufficient. The question then arises of raising new funds or backing up with another company.

Several points must be monitored to choose the option that best suits the start-up situation.

Fundraising: yes if it is to finance a project included in the business plan

In the case where the start-up is on the way and where the funds come to finance a new portion of projects to conclude and further accelerate the implementation of the business plan, it is interesting to carry out a 2nd or 3rd fundraising. This is what has driven the fundraising done by unicorns turned startups like EcoVadis, Spendesk, Lydia, ContentSquare, Qonto, Ankorscore or Exotec. It can also be discussed with new investors or with shareholders who have already entered previous funding rounds, as Shippeo did in late October. The manager must, in this second scenario, be careful not to be too diluted in the follow-up of the operation.

If, on the other hand, the need for capital stems from structural or conjunctural difficulties, fundraising is not the right path. An investor or shareholder, in particular during the 2nd or 3rd rounds, will expect an even more significant return on investment. And demands from him will be even greater if earlier promises are not fulfilled. Additional pressure will therefore be placed on the team not only to raise the bar but also to satisfy shareholders. However, this team can also wear out due to difficulties already experienced and unresolved problems…

Backing: to give a second boost to the start-up

In this case, what to do? The first option often studied is to support the start-up with another company. To assess its relevance, it is essential to assess the value of said start-up. It is measured based on your strategic assets, both tangible and intangible (eg intellectual property). These assets, even if not valued yet, are recognized because they are potential sources of revenue and levers to relaunch or accelerate growth. It was, for example, what led Warmango to join the Belgian group Van Marke in April 2022. [1]or even Liberkeys who did it with Crédit Mutuel Arkea [2] in June 2022.

If the startup value justifies the support, it is important that the startup prepares for more than one title. First, from the “method” point of view, present a solid dossier that attests to a situation under control and prepare the negotiation, whose terms in view of the start can be very critical. Then, from the business point of view, because the support can bring to light new projects that the startup had not identified and that it is important to promote for the company. Finally, from a personal point of view, because joining forces is often experienced by the founder as a failure and a highlight of his failures as a business leader.

And if neither fits the initial situation

If, on the contrary, the value of the strategic assets – and, therefore, of the start-up – is low, a ballast will not be interesting. It will be difficult to get a fair price during the transfer. In this case, it is more appropriate to review the start-up’s operating structure so that it can deliver part of what was promised, while replenishing its cash and strengthening its equity. Among the possible paths: working on an indisputable value proposition, a precise and operational 3-year plan, development of additional sources of income, a plan to secure “key people”, etc.

The choice between fundraising and support is therefore not so easy to make. There is a real diagnosis to be made in advance about the activity, the execution of the business plan and the growth potential of the start-up. Due to the complexity of the operation, the current context of uncertainty and the dose of emotion that arises when a business project does not go as planned, it is important to have professionals who have already managed this type of operation as start-up bosses and will be able to co-manage the start-up. up with its founder to secure and protect its growth challenges.

About I&S Adviser – www.isadviser.com
I&S Adviser created the first French network of operational partners, experienced entrepreneurs who operationally support the founders of start-ups, SMEs or ETIs and help them achieve their growth goals.
Based on their feedback (both from their successes and failures), these “do-it-yourselfers” commit to operating results and take risks with the company’s manager.
Federated under a single brand, the operational partners of I&S Adviser intervene at the request of the entrepreneur or an investment fund, in 5 themes: “Business Staging”, international development, “check-up of the existing”, creation of digital business models and the development of three-year plans.

[1] https://www.journal-du-btp.com/la-start-up-lyonnaise-warmango-entre-dans-le-giron-de-van-marcke-106548.html
[2] https://www.maddyness.com/2022/06/08/credit-mutuel-arkea-liberkeys/

By Hervé Yahi, operating partner at I&S Adviser

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