A mini accident?
Observers and analysts have been waiting for the tech bubble to burst on the markets for 20 years. That some bubbles explode in flight, therefore, is not surprising, much less after the two years of pandemic in which all digital companies, driven by confinement, have rode the wave of changes in consumer behavior.
The dark shop and other home delivery sector is consolidating at great speed in a context of abysmal losses. Big pandemic winners like Zoom or Peloton are disappointed. And the big innovation lender, SoftBank, lost more than $ 15 billion and announced a 50% cut on its future investments.
Craft Ventures advises startups to reduce their burn rate to last 24 months with available liquidity. YC has written to all the founders in its portfolio advising them to do their own math to maintain the same duration. The message is therefore: “We don’t know what’s going to happen, so let’s prepare for the worst!”
This pendulum effect after record years, both across the Atlantic and into French technology, is nonetheless welcome: by dint of talking about fresh money and record valuation, in the press and post-work of French technology, ecosystem players have overlooked the real problems.
The good news
This is good news then. Because the flow of money doesn’t encourage inventiveness, innovation, creativity, break-up, oblique gaze …
From high-level hiring to marketing spending, from sometimes unstructured growth to price discounts, the money available hasn’t encouraged the drastic choices that are, which must be the daily life of a business leader.
Instead of talking about fundraising and valuation, which are financial concepts for financial people, we will have to talk about turnover, number of customers, retention rate or profitability. Concepts that had almost disappeared from the information made available by unicorns, which communicated only in the millions collected, billions valued and number of employees. Finally, we will once again talk about real business, from service provider to customer, from supplier to manufacturer, from partner to partner.
Of course, fundraising can be essential, especially in the case of a strong need for technological innovation that requires capital. But lately, withdrawals have often been spent on marketing efforts to first, and then only, be in a niche or market category poorly served by existing operators.
The winner of a category will no longer necessarily be the startup with the most charismatic or ecosystem-related founders, but the one that truly responds to the needs of the market. This is also good news, because the so-called “bootstrapped” startups, therefore profitable, will finally be able to emerge. And they deserve it as much as unicorns do.
He’s going for a walk
Investors have said it: if we foresee the worst – and we have to do it – we must be able to last 24 months with current liquidity and turnover. So there are business plans to manage, with a lot of expense – and associated income – assumptions that won’t bring in any new money. For some already funded startups, an additional round with their existing investors may be considered (but likely under the same conditions as the previous round, which will lead to greater dilution).
We will have to agree to grow more slowly but spend less money – be it in marketing, development, geographic expansion, recruiting … Choices will have to be made. Action plans will need to be written, then rewritten regularly. The founders and founders will monitor their consumption rate, their cash flow, their inflows and outflows even more closely.
One last piece of advice
If the last two years have taught us anything, it is that opportunity arises from every crisis. It’s a good time to listen to your market again, talk to your customers, check the relevance of this or that development direction … or even rotate intelligently at a lower cost. In France we don’t have oil, but we have ideas!
Laura Bokobza assists managers in developing their businesses. He is a member of the board of directors of Finaqui, the association of business angels of Nouvelle Aquitaine.
Finaqui’s requests were renewed on 1 March. Chaired by Guillaume-Olivier Doré, the Board of Directors is made up of thirteen other members: Laura Bokobza, Lucie Corvisier, Shirley Jagle, Stéphanie Griffiths, Laurent Galinier, Grégoire Baggio, Axel Champeil, Sylvain Baret, Matthew Stolz, Stéphane Baleston and Peyo Boursier-Longy.