Female Foundry Week 95: Oversight exposed. The uncharted path to exit. The Seed is falling down. First insights: Female Foundry x HSBC Innovation Banking.
Welcome to The Week 95, 2023 Edition of the Female Foundry newsletter!
Female Foundry - where investors and female founders meet.
In the news
German biotech startup Quazy Foods, co-founded by Berenike Zimmer, snaps a €800k Pre-Seed round prom multiple investors to harness microalgae for human nutrition; London-based Relay Technologies, co-founded by Nicole Mazza, bags an £8m Seed round co-led by Project A Ventures and Prologis Ventures for its last-mile delivery solution; Finnish Linio Biotech, co-founded by Riina Uusmies, secures €4.2m round for its skin regeneration product; Paris-based Malou , co-founded by Louiza Hacene, bags a €10m Series A round co-led by henQ, Bleu Capital, for its PR management platform; Dutch RespiQ, founded by Mira Gleisberg, raises a €4m grant to accelerate breath diagnostics technology.
Spotlight
Oversight exposed.
Sam Altman is back on deck, and now, as the dust begins to settle, it's easier to make sense of the vulnerabilities exposed by last week's meltdown. The aspect I want to focus on is the board. How common is it for a for-profit organisation to be governed by a non-profit board? It is very, very uncommon. In OpenAI's unusual structure, a nonprofit board oversees a for-profit arm, backed by Microsoft and other venture capital firms. While the reasons behind, and the ultimate fallout from, OpenAI’s meltdown are still taking shape, it’s clear that OpenAI's unique corporate structure played a role.
OpenAI was founded in 2015 as a nonprofit organisation with a noble mission: “to build general-purpose artificial intelligence that benefits humanity, unconstrained by a need to generate financial return”.
But building AI is not a cheap endeavour, so in 2019, OpenAI launched a for-profit arm, run by Altman, that went on to raise $13bn from Microsoft. Putting it into context, this year, VCs have invested $21.5bn into AI companies globally, and ‘only’ $5.1bn in all of 2022. The Microsoft investment has essentially given it implicit control over OpenAI. Sure, the board retained all governance rights, but it is the investors who have brought in the money.
As rare as it is for a nonprofit board to govern a for-profit company, it's even rarer for these relationships to work effectively due to the fundamental imbalance of power. Have you seen the recent headlines about Apollo CEO Marc Rowan, hedge fund founder Leon Cooperman, and other billionaires who have threatened to stop donating to top universities due to those schools’ responses to the crises in Israel and Gaza? It's a similar setup. Or consider how Sam Bankman-Fried used effective altruism to shield himself from scrutiny.
Don’t get me wrong, not all non-profit/for-profit relationships turn sour (check: Patagonia and Axios), but as long as OpenAI's structure remains the same, conflict can be expected, and the prospects of achieving 'artificial intelligence that benefits humanity' remain vulnerable.
Fundraising
The uncharted path to exit.
Yet another busy week! I had intro calls with fifteen female founders this week and met many more at our Carta x Female Foundry dinner on Tuesday - I am sharing the pictures from this memorable evening below.
On different occasions this week, two founders asked me whether thinking about possible routes to exit is something they should be considering, even if they are early in their startup development journey. My answer? Absolutely.
Having an understanding of who to sell, at what point in time, ahead of the rime not only allows you to shape your product strategy for maximal value creation but also gives you an opportunity to stay updated on your market’s trends and dynamics. It is interesting to see how the golden era of unicorn creation has impacted the founder mindset. IPOs is not the only definition of company’s success and trade sales account for a vast majority of all startup liquidity events - and given the stagnant IPO market, and coming market consolidation, they will be on the rise over the next months.
Should you then put an exit slide in your Pre-Seed/Seed stage fundraising deck? Well, it depends. If you operate in a specialised market where it would be difficult for an investor to picture your liquidity event, or if you want to reinforce the fact that although your market appears niche, it yields lucrative exit opportunities, definitely. If the deck depicts Google, Apple, Microsoft .. OpenAI or any other clichéd player, then No. It might hurt you and indicate your lack of focus, imagination, specialised market knowledge or realism. Pick that one up once you have been delivering 4x YoY growth and proven the unique value proposition.
Analysis
The Seed is falling down.
Since the market's peak in 2021, all investment stages have witnessed declining valuations—except for one: Seed. Recently published data shows, however, that even the Seed stage is now being affected. What is driving this shift? The Seed stage valuations have, so far, largely been protected by continuous deal flow activity and the competitiveness fuelled by larger, multi-stage funds. Nevertheless, these funds are now consolidating their strategy and pulling back from Seed investments.
While the shift might be good news for smaller funds that previously had to compete fiercely for early-stage deals with larger funds, these smaller funds themselves are facing significant fundraising challenges and therefore becoming more selective in their investment evaluation process.
The Seed is falling down - we are expected to see more stagnation to the early-stage market that will most likely drive the valuations of the newest companies down, marking the end of the era of the so-called ‘Seed Blip’.
Community
12th of December | Female Foundry x HSBC Innovation Banking
Join me and an array of fantastic speakers at the Female Foundry x HSBC Innovation Banking in-person event, which we're excited to host in London on the 12th of December. Here is our first speaker announcement:
Join us for an evening of celebration and get the first glimpse of the data we have been discovering as part of the State of Gender Diversity in European Venture initiative we are leading, before the official report launch in January!
Reserve your spot by following the link below:
Female Foundry x Carta | Dinner 21 November
It was fantastic to meet many of you at the Female Foundry x Carta dinner on Tuesday. What an enlightening evening of great discussions, laughs and connections!
Here is the snapshot of the evening.
Hiring
This week hiring:
Finway ➯ Customer Support Manager | EvaluAgent ➯ Channel Account Manager | Human Forrest ➯ Support & Community Champion.
See more jobs on the Female Foundry Job Board.
Founder & Investor Meetups
Wednesday, November 29, Berlin ➯ ESG Fintech: Meet & Pitch, Paris ➯ Apéro Startups | Thursday, November 30, Amsterdam ➯ Entrepreneurial get together.
Impact Shakers have just opened applications to its latest cohort, check the programme ➯ here.
Have a great rest of your Sunday! 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.