Female Foundry Week 117: A B C D E F G. Power law and all. Where to look for AI talent. Female Foundry x TechBBQ.
Welcome to The Week 117, 2024 Edition of the Female Foundry newsletter!
Female Foundry - where investors and female founders meet.
In the news
Vienna-based Prewave, co-founded by Lisa Smith, raises a €63m a Series B round led by Hedosophia to enhance supply chain sustainability and compliance; Paris-based revenue platform Reveal, co-founded by Perrine El Khoury gets acquired by Philadelphia-based growth platform Crossbeam to deliver a seamless customer experience with a unified data network; Norwegian startup Fortifai, founded by Abbey Lin, secures a €502k Pre-Seed round led by RunwayFBU, Startuplab, and Belgian VC Impact Shakers Ventures to automate ESG regulatory compliance; Luxembourg-based climate Insurtech IBISA, co-founded by Maria Mateo, raises a €2.8m Seed round led by The Acumen Resilient Agriculture Fund (ARAF) and Equator to scale its parametric insurance solutions.
Spotlight
A B C D E F G.
The alphabet of rounds that served as an indicator of company’s maturity and diminishing risk is rapidly changing with the raise of AI. German graphene chipmaker Black Semiconductor raised €254.4m for its Series A a couple of weeks ago, the biggest European Series A round of this year. French generative AI company H raised a $220m Seed round just a few weeks earlier, far surpassing a typical €1-3m Seed round expectation and making a point that traditional alphabetical labelling of funding rounds (A, B, C etc) is becoming increasingly irrelevant, especially for early-stage companies, and especially in the context of the rise of AI.
Over the past decade, the landscape of early-stage startup funding has transformed dramatically. Median round sizes have more than doubled, and valuations for early-stage startups have nearly quadrupled (!). Consequently, there has been an increasing confusion and misalignment of perceptions of a startup’s maturity - where a seed round startup would resemble more a Series B or C, pushing it to scale prematurely. Rigid round labelling has had a few disadvantages to founders raising smaller rounds too, making those founders appear somewhat less interesting, and investors, where many VCs would miss out on lucrative investment opportunities by overlooking startups that don’t fit the conventional mould and their investment thesis.
As the venture capital model is being currently tested with limited availability of deployable capital and yet raising investment opportunities in the context of AI, a need for a more nuanced approach to communicate company’s stage, that fits current fast-evolving investment landscape and serves both founders and investors better, is also on the to-do-list. How will it evolve?
Fundraising
Power law and all.
I regularly meet founders who believe that targeting large funds is the best strategy for fundraising, thinking big funds have more capital that allows them to take greater risks. That’s false logic! Bigger isn’t always better! You might have already heard the term ‘Power Law’, on which venture capital is founded. If you haven’t, listen in, because understanding power law dynamics might prove very valuable to you as you map your fundraising strategy.
The Power Law principle indicates that a few investments drive the bulk of returns in venture capital, recouping the losses of many unsuccessful ones.
While in early-stage investing, it’s very hard to tell who those winners will be, as a VC you are going to prioritise investment opportunities that, at the very least, will be able to return the entire fund. Venture capital funds often tout cash-on-cash returns of 2x-3x. 3x in this case would be considered a good performance of a VC fund by its LPs. How does it apply to you?
Take a €50m VC fund aiming to take 10% equity per investment. With dilution over subsequent funding rounds, a single unicorn exit in its portfolio of say fifteen companies (€1bn valuation) would yield a fund return exceeding 1x. The math: in simple terms, at the point of exit, roughly 5% of equity stake x valuation of €1bn = €50m. And so, micro funds, because of their size, are willing to still support founders looking at exits between €50m-€250m depending on how diluted their stake is at the point of exit because the chances are they will still make a good return on investment. These VCs will work hard to help you even if you’re not going for an IPO or M&A exit with a multi-billion-dollar valuation.
Now, let’s take a much larger €250m fund. A fund of this size would require five unicorns or an exit of €5bn to merely break even! Do you see it?
Now, over to you. Why does this matter? Take it as given that large funds will always prioritise deals with the potential of €1bn+ exits. It’s not a matter of preference; they must do that for their own performance just to return the initial fund capital, making them not interested in founders targeting exits below that threshold. - Are you one of the future unicorn founders? Maybe. ..Maybe. A note here: out of 650,000 active tech companies in Europe today only 130 are unicorns.
Analysis
Where to look for AI talent.
Ever wondered where to find the best AI talent? Before you look across the Atlantic, you might be surprised. A newly released report reveals that Europe boasts a 30% higher per-capita concentration of AI experts among software engineers compared to the US, despite the US investing nearly 20 times more (!) in Generative AI than any other country. Zooming into the cities: London has nearly four times more AI engineers than any other European city, with Paris, Berlin, Zurich, and Madrid following. However, Dublin has the highest density of AI engineers, followed by Zurich. The sectors attracting the most significant investment (and therefore AI talent) in Europe are applications of AI within fintech, drug discovery, security, and robotics.
Community
Female Foundry x TechBBQ
Female Foundry is an official partner of TechBBQ taking place on the 11-12th September 2024 in Copenhagen and we have 2x startup €159€+VAT or investor €599€+VAT tickets to give away to the Female Foundry community!
To enter a FREE ticket draw, submit your interest below. Deadline: June 05, 10pm GMT. T&C of TechBBQ apply. I will announce the winners here next Sunday. Good luck!
Hiring
This week hiring:
Iris AI ➯ Senior Account Executive - SaaS | Bene Bono ➯ Community Management Intern | Pigment ➯ Business Development & Growth Marketing Intern | AmphiStar ➯ Business Development Manager.
Founder & Investor Meetups
Monday, July 01, Amsterdam ➯ SeedRun Amsterdam | Tuesday, July 02, Paris ➯ SUMMER EVENT édition BBQ à La Ferme | Friday, July 05, London ➯ LSE Generate Accelerator Programme 2024 - Demo Day | Saturday, July 06, London ➯ Hackathon for women in STEM.
Have a great rest of the weekend and see you here next week when I will make a special announcement!
Agata
Written by Agata Leliwa Nowicka, an investor, a startup adviser, a two-time entrepreneur, and a founder of Female Foundry based in London.
Suggestions? Drop me an email.
♡
Thank you to Alice and Robin for the research.
Check femalefoundry.co for more fundraising tools and investor content. View other Female Foundry articles.