The digital factory: In an uncertain economic context, marked by the decline in fundraising globally, can we be sure that France has been, at least in the first two quarters of 2022, quite resilient compared to the rest of the world?
Bertrand Dufour: In truth no. The first quarter of 2022 in particular was very misleading. Many of the collections that happened at the end of 2021 were simply carried over to 2022, which is what gives this impression of resilience, but in fact everything was signed in October or November. In fact, many companies were just waiting for the right moment to be the 25th unicorn.
But even so, there are not as many layoffs in technology in France as in U.S ?
The US technology market is ahead of Europe in many ways. By the end of November, there were 90,000 job cuts. In the month of January alone there were 50,000, of course the number is impressive, but also the methods of dismissal used, at least directly in the United States. To say “Tomorrow you will receive an email, if it’s in your professional mailbox you stay with us if it’s personal you’re out”as Elon Musk did, is unthinkable in France.
But make no mistake, many tech companies have also become redundant in France, it simply shows less. First, because we have a very different way of dismissing workers, and second, because it is much more complicated to terminate contracts. Instead, we opt for conventional breaks or opt out of recruiting.
Are these layoffs unlikely to make investors even more cautious and anxious?
Not necessarily. It also creates a positive signal for investors with a recapitalization option for technology companies. Savers welcome the fact that there is less payroll to cover.
Furthermore, I believe that these waves of layoffs are also a way of reacting to salary inflation, of putting an end to the wage war that has been dragging on for several years in tech and that was beginning to be complicated to manage for the area. By taking a protective approach, by showing that there is not room for everyone, we restore a form of balance.
What are the sectors that suffer the most?
The Covid period has given strength to the e-commerce and organic sectors for a while. It was believed that the market was starting an infinite rise. However, they did in fact experience a great evolution, but which was followed by a great fall, because people finally returned to their original consumption habits. Shopify is a good illustration of this: the company had hired hard during Covid, doubling its workforce, but finally had to put those people out.
On the other hand, the technology sector that is doing well is software, especially in B2B, because it allows you to think in terms of turnover and not margins.
There is still money in the market. How is this used?
IT valuation has never been so low, lost 7400 billion in 2022 on Nasdaq. This is the first time since the arrival of the Internet that it has dropped below the S&P500.
Those who continue to invest, therefore, do so differently. The evaluations were divided by two, three or four. We left the “start-up nation” side, where everyone spent their time explaining that they had found The Magic Trick. We’re moving out of the “brilliant” era, of artificial growth, and we’re moving back to a “truth culture.” We are looking for profitability, to do really interesting business. A few years ago, we created an idea, then we created a product, now we created a market, contracts, profitability. Leave the time of arrogance and make way for that of rationality!
What types of businesses will take the remaining money?
I prefer to say that those who will not be able to benefit are those who suffered during Covid, who increased their debt and failed to show that they had validated a solid business model, those who were infused by AIDS or PGEs when they were already insecure. Indeed, not all companies are mature enough to give hope for the concrete results that investors demand today.
For small startups in the Series A phase, there are also opportunities to be seized, because incidentally, the fact that large companies are suffering, laying off workers, having valuation problems, means that those who know how to show a little solidity can attract very interesting. For example, attracting Google to its Series A was unthinkable a year ago, it is today.
What strategies should start-up founders adopt to hope to raise funds in the current context of scarce investments?
It’s better to cause envy than pity, so we avoid saying “in six months I’m getting it, I need help”, it will not work. A rationalization plan must be put in place. For companies that have problems with margins, margins must be stabilized and guaranteed to be solid enough. You have to stabilize your track, show that you are economical, be able to say “I know how much I spend per month, it’s under control and I always manage to develop my business.“
The difficulty is also in the famous multiples. It can be difficult to maintain a story in light of declining ratings. If tomorrow I have to finance myself, my valuation was 50 million, but today it is 15 million, what should I do? To avoid this, we are currently doing more bridging files, with subscription bonuses with issuer bonus redemption option (BSAR). They allow you to define an evaluation range that is only validated when another operation comes into play.
Instead of worrying about how much the company is worth, investors are told: “If you enter today, you will have a discount on the assessment that the next ones will enter”. This allows you to return to a higher valuation when the market recovers a bit.
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