Female Foundry Week 101: Money on the table. Pricing for good margins. European valuations defy market conditions. In conversation with: Ayuna Nechaeva.
Welcome to The Week 101, 2024 Edition of the Female Foundry newsletter!
Female Foundry - where investors and female founders meet.
In the news
UK-based GlycanAge, co-founded by Nikolina Lauc picks up a €3.9m Seed round led by LAUNCHub Ventures and Kadmos Capital Ltd; UK-based Juniper, co-founded by Ambra Zheng, picks up a €1.7m Pre-Seed round led by Insurtech Gateway for its reproductive healthcare insurance platform; London-based Samphire Neuroscience, co-founded by Emilė Radytė, raises a €2.1m Pre-Seed round led by HAX for its PMS management device; Porto-based Connected, co-founded by Raquel Magalhães, picks up a €2m Pre-Seed round co-led by FundBox, Shilling VC and Iberis Capital to deliver universal connectivity from space; Barcelona-based WIVI Vision, co-founded by Eva García Ramos, secures a €4m round led by Adara Ventures to improve visual health.
Spotlight
Money on the table.
The global M&A market has been on a tumultuous journey over the past years - from a downturn in 2020 to a rebound in 2021, and then a sharp 19% drop in 2023. 2023 has been particularly turbulent, with a number of large-scale transactions falling through mainly due to the increasing scrutiny from antitrust regulators on both sides of the Atlantic. The cumulative value of these failed deals is mounting.
A few examples: In April, the European Commission in an unprecedented move ordered Illumina to reverse its $8bn acquisition of Grail. In May, Meta decided to divest Giphy for mere $53m after buying it for $400m, following an antitrust order from British regulators. In December, Adobe halted acquisition of Figma for $20bn, one of the most anticipated transactions in the venture industry, due to regulatory headwinds from both the European Commission and UK's Competition and Markets Authority. Just last month, Amazon abandoned acquisition of iRobot, a deal valued at approx. $1.35bn - a significant transaction in the consumer electronics sector - due to what Amazon called "undue and disproportionate regulatory hurdles".
The total estimated value of the 2023 abandoned deals - $70bn, almost 3% of the total value of all transactions globally in 2023, underscores the significance of mounting regulatory pressures on the tech industry.
And the ongoing regulatory scrutiny is not limited to completed or proposed transactions. Upcoming acquisitions and investments, particularly those involving Big Tech's foray into emerging technologies like generative AI, are also on the regulatory radar. And so, the heightened vigilance is expected to lead to a more cautious approach towards M&A in the tech sector in the coming years, damping the pace of M&A transactions and ultimately ..limiting exit opportunities for many investors and founders.
Fundraising
Pricing for good margins.
This week I want to go through a simple pricing framework. I regularly speak with founders who say that as they grow they also struggle with creating the pricing strategy that will maximise their profits.
Your product’s margins should improve as your company grows. And so, if you have already proven a product-market fit, the chances are that as you scale, you won’t have the same LTV and margins at 10,000 users as you did at 100 - your customer base will diversify, consequently making features and single pricing that worked for a niche, go-to-market early-adopters, not as well-suited at scale.
How do you take a product with strong traction and build a lasting business with solid profit margins? - To understand what typical profit margins are per industry read here. - There are different types of profit margins (operating, gross vs net), read this to understand the difference. Consequently, as you scale, you need to tailor your pricing strategies to maximise the revenue and minimise the costs (including customer acquisition cost).
How do you turn a high-cost, low ARPU customers into low-cost, high ARPU customers? Here is a simple framework. Start by dividing your customers into cohorts. Now, understand what ARPU and costs are for each cohort. Identify cohorts with low ARPU and high costs. Now, pick your strategy: e.g. reduce the size of high-cost cohorts, monetise them higher, or reduce their costs (it might be the hardest to execute). Now, use customer incentives to implement the change and lastly, further tailor your strategy to fit a profile of a specific cohort. If it all sounds a bit abstract, I have found this great article, that breaks down the process into smaller steps.
Remember, being close to your customers and understanding their wants and needs is crucial for this exercise. Companies that do it well, can increase profits and revenue even by lowering their prices.
Analysis
European valuations defy market conditions.
Despite the wave of extension rounds over the past 12 months in the European venture ecosystem, the median pre-money valuation showed an overall year-over-year increase across most stages, according to the newly released report. Interestingly, only the seed and venture-growth stages experienced declines in valuation, with venture growth also recording a lower median deal value in 2023. Consistent with the Female Foundry report, pre-seed emerged as one of the most resilient rounds - with the median YoY pre-money valuation up by 4.0%. The median deal value also increased 8.4% YoY to reach €0.6m.
While median deal value at seed stage increased 5.3% YoY - to reach €2m, seed-stage valuations have suffered. The median pre-money valuation at Seed stage dropped as much as 9.2% (€4.3m) in 2023. Perhaps surprisingly, the late stage saw the most substantial growth in its average deal value among all stages, with an 11.7% increase YoY. Although the median pre-money valuation at this stage saw a very small increase, there are positive signs of its resilience both in the short and long term.
Community
In conversation with: Ayuna Nechaeva, the Head of Europe for Primary Markets at the London Stock Exchange.
A few weeks ago, I sat down with Ayuna Nachaeva, the Head of Europe for Primary Markets at the London Stock Exchange and a great supporter of female entrepreneurs across Europe, to talk about exit conditions and what can be done to bring more female-led innovation to the fore.
Tune in! The extract of this conversation can also be seen in our newly-released State of Gender Diversity in European Venture report.
Celebrating 100 weeks of the Female Foundry Newsletter.
Thank you for everyone who’s taken part in the lucky draw to celebrate the 100th edition of the Female Foundry newsletter last week. The winners of the Female Foundry 100 weeks draw are: Maria (1aqkxK), Emma (LKod&F) and Anthony (LSdf0s). You can view the draw here. I will contact you shortly!
Hiring
This week hiring:
The Oater ➯ Development and Certification | Kamma ➯ Project Executive | Teale ➯ Key Account Manager.
See more jobs on the Female Foundry Job Board.
Enjoy your Sunday and see you next week!
Agata
Written by Agata Leliwa Nowicka, an investor, a startup adviser, a two-time entrepreneur, and a founder of Female Foundry based in London.
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Check femalefoundry.co for more fundraising tools and investor content. View other Female Foundry articles.