D4S_8235

Ivan Farneti, Expert in Residence for Seedcamp and long time venture investor, has shared his thoughts on a recent article published by the New York Times, looking at how European startups, like the US, are beginning to feel the pinch, with lower valuations and new capital becoming harder to come by.

The New York Times article, titled “European Tech Scene Begins to Feel Silicon Valley’s Woes”, was making the rounds across social media this week and was picked up in the Seedcamp office too, where the team has definitely started to see signs of this happening.

This Economic slowdown certainly isn’t great news, but this is hardly a surprise. It is not the first time we have seen this correction in Europe’s tech scene. For those old enough, this is the third time.

The signs are always the same. Public stock markets falling, tech IPOs trading below issue price, 50-100x revenue valuations by private markets (therefore private company valued much higher than public market peers), non VC-expert/trained money coming in (Hedge Funds, Family Offices, Corporates), US investors flying to Europe not just for holidays, and, at a micro level, more companies raising very large rounds on unproven metrics and fundamentals.

The first time the US tech market fell big it took Europe more than one year to follow suit. The second time it was faster, just six months later. This time, it is happening in tandem with the US.

This is not the time to run for the hills. This is the time to be found ready and get pencils sharpened on both sides of the table.

pablo (31)

Startup CEOs should have gotten the internal memos and calls by now. Budgets and business plans are normally signed off in December and a first forecast may need to be prepared already, mainly looking at the rate of expansion for not-yet-profitable companies using more caution. New CapEx, new hires, new office openings etc. should be re-reviewed in the cash flow forecast, with an eye to when the business will need to get back to raising capital.

Down rounds may and will happen, and they need to be managed. Some drama is inevitable, but open discussions as early as possible can reduce it. Anti-dilution provisions (if in the shareholders agreement) may shift some value. If the size of the interim financing is not too big, the effect of the weighted average anti-dilution provisions could be surprisingly quite small. Expect fundraising discussions to take longer, due diligence to be more detailed, so it makes sense to be sensible and start much earlier.  Board discussions and legal/tax advice may be needed if, as a result of down rounds, option plans go under water and need to be cancelled and strike prices reset.

VC funds will need to review their reserve allocations, more critically and more frequently. Founders should ask about reserves to their investors, enquire if they can rely on any dry powder reserved against their company.  As interim internal rounds can be effective at bridging businesses without exposing valuations.

The good news is that these corrections do not last forever. Markets forget and forgive and bounce back. And focusing on efficiency and productivity for a while has never killed any company.

So be prepared and sharpen your pencils. Game on!

Stay updated with the latest news, events and podcasts from Seedcamp and sign up for our newsletter

 

 

 

In the ‘Seedcamp Podcast Series’ we talk with key people in the tech startup industry to hear their stories, key advice and learnings from their experiences.

Dimitar Stanimiroff, Managing Director of Stack Overflow Developer Insights at Stack Overflow, a Q&A site for programmers with over 4 million members, joins Carlos and Dave for this deep dive into hiring. Discussing everything from the hiring process, how to overcome challenges, hiring from within and how to recruit technical talent if you’re not technical.

Dimitar was the first European employee of Stack Overflow. He launched Stack Overflow Careers in Europe, scaling the team from 0 to 60+ people across the UK, Germany and France. Dimitar is currently the MD for Developer Insights – Stack Overflow’s Talent Mapping, Analytics and Business Intelligence unit. Prior to joining Stack Overflow, I co-founded OVIA (now WoPow), a pioneering video interviewing technology.

 

 

If the above player doesn’t work for you, you can also listen directly from our Soundcloud page

More from the podcast:

In the ‘Seedcamp Podcast Series’ we talk with key people in the tech startup industry to hear their stories, key advice and learnings from their experiences.

Will Herrmann, Head of Commercial Operations for Hassle.com, joins Seedcamp’s Dave Haynes in this podcast which follows Hassle.com’s recent exit, having been acquired by Helpling. Following a session with some of our startups, Will discusses everything from scaling company operations, following Hassle.com’s Series A round, to valuations and M&A.

Prior to joining the Hassle.com team, Will spent a decade at Accenture, where he specialised in the operation of Programme Management Offices. He is a specialist in PMO leadership, mobilisation and improvement, prohect planning and financial management.

If the above player doesn’t work for you, you can also listen directly from our Soundcloud page

More from the podcast:

In the ‘Seedcamp Podcast Series’ we talk with key people in the tech startup industry to hear their stories, key advice and learnings from their experiences.

Jon Bradford has played a key role in shaping the European tech ecosystem. Through his involvement in many accelerators (Springboard, Techstars, Ignite 100) and numerous supportive initiatives, he has had a big impact shaping the infrastructure that helps develop and build great startups across Europe.

Carlos sits down with Jon in this Seedcamp podcast to talk through his personal journey, share insights into the many lessons learned from accelerating early-stage companies and what the future holds for him next.

Jon is the Co-Founder of F6S and Tech.eu (and is currently unemployed). Previously, he helped to launch Techstars internationally as the Managing Director of Techstars London.  He has also helped to launch accelerators from Montreal to Hyderabad. In a previous life, Jon trained as an accountant with Arthur Andersen, and subsequently has worked in various start-ups and turnarounds.  He has worked in London, throughout Europe, Australia and also the United States.

If the above player doesn’t work for you, you can also listen directly from our Soundcloud page

More from the podcast:

 

Last October, we were happy to announce a group of new faces joining the Seedcamp team as we bolstered our skills across the board to make sure we continue to support our Founders with world-class expertise. Today, we’re delighted to add two more names to our growing list of Experts in Residence. Joining Keith, Scott and Taylor, we are now very excited to welcome Ivan Farneti and Yoav Ben-Ari to Seedcamp.

Ivan Farneti joins Seedcamp with 16-years experience investing in early-stage technology companies across Europe and the US. Ivan spent 13-years at Doughty Hanson Technology Ventures, prior to which he was Vice President at Deutsche Bank. This isn’t the first time Ivan has been involved at Seedcamp, having been a board member back in 2012 till 2013 and he has been an active mentor since 2008. In 2013 he stepped away from VC and became an entrepreneur, leading Glory Sports International. As an EIR, Ivan will support our Founders with expertise on fundraising, board dynamics, development of marketing positioning, strategy and commercial business development. His current interest is in Foodtech, and companies across the food innovation value chain, from farm to fork.

D4S_8235

“After so many years as a venture investor, I had the chance to sit on the entrepreneur’s side of the table for a few years. My new perspective on company growth and the relationship with the capital market is ‘experience equity’. I’m really excited to be working with Seedcamp again and to advise its portfolio companies.” – Ivan Farneti

 

 

Yoav Ben-Ari recently left Google where he headed up business development for Cloud Platform in Europe. During that time he helped many startups get their business going and built Google’s global startup programme giving him a great insight into the common issues young companies face. As a founder of both bootstrapped and funded companies Yoav has intimate knowledge of the challenges faced when trying to define and scale your product and has seen both failures and successes. Yoav is passionate about product, starting with the underlying tech and user-value points all the way to go-to-market strategies. He’ll be working with Seedcamp teams on their products, and longer-term strategies.

04833ef

 “Having worked with Seecamp for several years through my work at Google, I’m really happy to now take part and actively help. I look forward to meeting more of the companies and find new ways to contribute to their success.” – Yoav Ben-Ari

 

 

To stay up-to-date on the latest Seedcamp news follow us on Twitter, Facebook or LinkedIn.