Female Foundry Week 51: The case for Generative AI. Splitting equity among founders. How early VC valuations work. Private & public return gap widens. The shift in growth equity mindset. IPEM.
Welcome to The Week 51, 2023 Edition of the Female Foundry newsletter!
Female Foundry - where female investors and founders meet.
Hey, Happy New Year! It’s great to be back and start this crisp and clean year with you. Are you looking forward to the next 12 months as much as I am?
Here are the female founders that announced their raises while we were away.
In The News
Paris-based advanced AI and robotics technologies startup Ganymed Robotics, co-founded by Sophie Cahen, fetches additional €15 million through a Series B extension round from The European Innovation Council (EIC) Fund; Also Paris-based Sonio, co-founded by Cecile Brosset Dubois, raises a €10 million Series A round to improve prenatal care also through the European Innovation Council (EIC) Accelerator; UK-based Rest Less, co-founded by Sara Stephens, secures a €6.8 million Series A round led by Moneta Venture Capital for its platform empowering over 50’s to live their best lives.
Spotlight
The case of generative AI and my predictions for 2023.
There have been quite a few contrasting VC predictions for this year laid out across the internet, and given the current volatility, the market can go in multiple directions in 2023. One of the trends that caught the attention of VCs in the last weeks of 2022 was generative AI and its potential applications. Pitchbook data shows that in 2022 alone $1.37 billion was poured into generative AI across 78 deals, representing an increase of over 425% from 2020. Here is a good article that explains the technology and another one that outlines its present and potential applications in business. We are definitely only on the cusp of what can be done with generative AI, and the future is exciting! Read full story ➯
On my side, this year, apart from generative AI, I’m curious to learn more about DeFi and borderless payments, understand better the climate tech landscape, explore new developments of applications in blockchain, and I will be closely following the shifts in the fundraising landscape to learn about arising investment opportunities early. Today, I predict that #1: The economic climate will get worse before it gets better - VC funding will rebound not earlier than in Q3 this year. #2: VC appetite for clean tech will intensify - LPs will expand exposure to this segment, making it the fastest growing. #3: This will be a tough year for exits, we will see an increase in M&A activity and even fewer IPOs. It’s now set in stone here. Time will tell what will come true!
Fundraising
How to split equity among founders.
One thing is clear, the earlier you have an open conversation with your co-founder about deciding on how to split equity, the better. Having a conversation does not mean taking a decision, it means building trust. And trust in one another is essential to a successful co-founder partnership. In general, an investor expectation is to see an equal ownership among co-founders, representing equal motivation for making the company successful. Check Michael Seibel’s (Y Combinator) opinion on this here. Therefore, there has to be a strong reasoning behind splitting equity dynamically or unevenly, as assigning more value to one founder over the other, might misalign incentives, diminish productivity and lead to future conflicts. With that in mind, what are the common approaches that are less likely to raise red flags when it comes to dividing equity among co-founders? Read full story ➯
How early stage startup valuations actually work - the VC perspective.
With a growing number of founders facing down rounds, there has been an increased attention to startup valuations, as if a valuation was a perfect and fixed measure of, and a predictor for, a startup success. However, startup valuation is an art of approximation and can only yield a relative number. It represents a snapshot of a company’s potential and so it becomes quickly outdated. For VCs, arriving at the “right” valuation especially for pre-revenue startups is always a tricky process that largely depends on the firm ownership targets and ...its culture. Things become clearer over time, when more data about the startup is available, its traction to date, its market, competition, and technology, which often happens at the later fundraising stages. Still, understanding the estimated value of a startup is an important element of the decision-making process for investors. To understand a VC mindset for a startup valuation read here ➯.
Also, see the indicative valuations per round here (I would discount them by at least 20% given the 2023 economic situation), the latest Q3 2022 averages here, and the logic behind some of the most known processes.
Are you currently going through a down round? It might not be the worst thing. Read here ➯
Analysis
The gap between private and public market returns widens.
We have been seeing the gap between private and public returns widen since Q3 last year. However, as the latest research shows, the current state of affairs might be the worst since the dot com bubble bust over 20 years ago. This week’s FT article analyses the implications of the situation and identifies the driving forces behind it. It cites the Harvard economist, Andrei Shleifer, who famously said that “there are three ingredients to financial crisis: consensus optimism, leverage and illiquidity”. Currently, private markets exhibit all of these three qualities. Read full story ➯
The market downturn changes growth equity mindset.
Low interest rates and high valuations of tech companies seem to be things from the remote past. The current market downturn has led to a shift in the growth equity investors mindset - most early VCs have now retreated to earlier stages and large PE investors no longer see startup growth as a substitute for cash flows, leaving many later-stage founders with limited funding options, relying on growth equity investors and smaller PE firms. What does it mean to founders, and what do these two distinct type of investors want to see before pulling out their cheque books? This article explains the current growth equity investor mindset very well and lays out key investor expectations. Read full story ➯
From the Community
Are you a female emerging manager raising a fund in 2023 or on a partner track?
European Women in VC and Emerging Women Fund Managers have secured a special rate for IPEM's Limited Partner and Private Equity conference in Cannes from the 23rd-25th of January.
The three-day conference brings together Family offices, Private Equity and Fund of Funds investors. The full rate is €2,300, to access the EWFC group rate of €700, please complete a short registration below.
Hiring
Check Female Foundry Job Board, and join female-founded startups.
Odin ➯ Vice President Operations | Noala ➯ Growth Lead | Irius Risk ➯ Engineering Manager
That’s it for the first week of 2023! Have a great weekend.
Agata
Written by Agata Leliwa Nowicka, an investor, a two-time entrepreneur, and a founder of Female Foundry based in London.
Suggestions? Drop me an email.
Check femalefoundry.co for more fundraising tools and investor content. View other Female Foundry articles.