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  • Writer's pictureYannick Oswald

Summer Musings

Updated: Aug 8, 2023

We are officially in the summer days when things slow down. I find August is always an excellent period to take some time to reflect on the first part of the year and think about what’s coming next. This year this is even more important than in previous years. For me, this summer marks the beginning of a turning point in the exuberance of the last years. Quite a few things point to more cheery days ahead.

Entrepreneurs are heroes, perhaps more so than ever.

I can’t emphasize enough how crazy the last 3.5 years have been. Starting a new business is always a challenge. But founders had to deal with so much more than just building their businesses…

It is also a good reminder that there is no room for long-term pessimism. Pain is temporary, but technology will always drive massive waves of change and global economic empowerment. It is tough not to get blinded by the moment, but one must see the ample opportunities ahead. As we shared with our investors last week: ‘From Covid to a significant economic downturn, the last few years have taken a heavy toll. And the industry will be paying the price for the next two years. Slower growth and too much cash raised tell the story of lost opportunity as many companies come to recognize that real value creation will take a few years more.' Many have dealt or will deal shortly with difficult and energy-draining restructurings instead of focusing on building their businesses.

If we look at the big picture, things ahead don’t look so bleak. Let's dive in.

1. Valuations seem to stabilize at 'normal' or pre-Covid levels.

Instead of saying valuations in the private markets went down, I think it is more accurate to say that they finally returned to some level of normalcy. In the early stages, they even stayed relatively constant. The last 3.5 years have just been abnormal. As the recent news around the once high-flying startup Hopin shows, valuations really got out of hand from Series B onwards. After raising a whopping $1 billion in funding at a $7+ billion valuation over the last 3 years, the company did a firesale of its main assets recently. Some businesses had incredible early traction and raised solid early rounds. But then things went nuts, and pure hype followed... There is no way this could have ended well. Hopin was an outlier, of course, or as Jason put it: Hopin was the ultimate SaaS momentum play.’

If your company has good economics, can grow at a good rate, and is not dramatically overvalued, this could be a golden period for you as you soak up amazing talent and land great customers. If you are not there yet. but have enough resources for another 2 years, then you can also focus on setting things straight. Otherwise… regardless of where the macro is going, the valuation reset is coming. no matter what. Investors are doing their job again, carefully picking startups. With more focus on performance metrics earlier on, the bar returned to pre covid levels. Growth and burn are not two separated worlds, but are being looked at again in combination. Discipline is paying off again, for entrepreneurs and investors alike.

2. Mission driven founders are back.

It is not surprising that the number of startup shutdowns has increased, with a slight trend towards later-stage startups taking more share. It is hard out there these days.

What surprised me, though, are some of the underlying reasons I observed. As I had to learn the hard way myself, some founders decide to stop when things become tougher, even if cash and time to execute are at hand. I guess all the stories of quick and large fundraising rounds of the last years pushed many people with the wrong incentives to join the industry, and this is on the founder, employee, and investor side. People are usually loyal to a mission, a leader, and/or culture. If all three elements are missing, then it is game over. Teams come in all flavors. But those in it just for the money will churn.

I also witnessed the return of the mission-driven founders. The market is calmer than usual, but the average quality of the founders reaching out these days is very high. It feels like we are back to the true passionate ‘techies’ who discovered an insight and go ‘all-in. They don’t care about the macro or the fundraising environment. They are obsessed and have conviction. As the chart above shows, the good news is that great companies are still getting funded. What changed is that deal volume went down. Investors are picky again with invested venture dollars invested back to 2020 levels.

Finally, many of those founders come from all over Europe. The hype disappearance in the key tech hubs impacts them less. Many are reaching out through this blog. And this is precisely why I am doing this: to be a resource for and get in touch with founders and employees of early-stage startups.

3. Public tech stocks will be back in a not so distant future.

The technology sector is now in a prolonged 18-month downturn. What’s next...?

End of 2022, I shared our outlook on this blog: ‘By Q4 2023 / Q1 2024, public markets will acknowledge again that tech companies are some of the best businesses out there. Private market funding should follow a year later. Most tech companies are still performing extremely well; they just need to get their house back in order…’

Here are some good news: The Nasdaq is up considerably this year, nearly 40%. The rapidly lowering inflation and the increasing expectations of a soft landing (in the US) injected confidence. This means that rates might peak soon. In Europe, while inflation is also way down, the economic picture looks less exciting, and some speculate that rates might go down again. We’ll see; nobody knows... but things are heading in the right direction for tech.

So far, this upward trend is mainly driven by the top 10 tech companies. The big guys are back. Most tech companies cuts costs over the last year, and so did the smaller ones. The question now is when this trickles down to the small and mid-cap companies, the best proxy for late-stage private markets.

Slowly but surely the street is acknowledging that many tech stocks are strong and have a great outlook. Q2 earnings are looking good so far (except for a few consumer stocks as excess covid savings seem to be fading now). Record amounts of capital have been injected in the economy over the last years. And in these last months, it went into the 'safe top stocks' à la Apple which are profitable and have a solid balance sheet. But there is a ceiling for them as well. If you want to outperform pure interest rate driven products or the obvious stocks in the short to mid-term, investors will have to pick again, and small and mid-cap tech stocks will be an obvious target. Early 2024 stock guidances will be the ultimate test for these smaller cap stocks.

Only when this happens will private markets, especially the growth stage, become more active again. They react to the public markets and lag them by a few quarters. The same logic applies to IPOs. We haven't seen a software IPO in nearly 2 years (!). It is fair to assume that we are getting closer and closer to the IPO window opening again. Finally, the 'vultures' are back and setting up vehicles to buy secondary stocks in the private markets - a good sign that we might have hit the bottom (here the example of partners of a global venture firm, quite ironic...). So, I stick to our initial prediction, we are more than halfway through this downturn - by the end of 2024/early 2025 private markets should be back.

We are living in exciting times...

Writing this post, I can’t hide my excitement for the coming years. The mix of innovation we are witnessing couldn't be more fascinating, from new interfaces, new core technologies, to massive societal trends. Just compare the last 5 years with the previous 15 years. The amount of new technologies maturing is incredible. Looking back, some of these things and the hype will seem nuts. But I can tell you that many passionate teams are building stuff around them. Passion not only keeps the light on, but makes it brighter...

Here is a picture of another founder dinner I joined recently. My friends Sam and Amaury organized it in Brussels. I loved the location. The ‘Flagey building’ is an icon of the city for the locals. I spent a lot of time during my studies in the bar on the ground floor of this building. Being on the roof was special and brought back quite a few fun memories...

Life is awesome


Other content I found useful

- Excellent news from our company The Bank of London. The company has chosen my home country Luxembourg to set up its European HQ.

- Great post on the Death Valley of Saas by my partner Roy: How to dodge the pitfall and thrive. SaaS metrics are crucial to understand, especially when scaling. This is a great read, plus a concrete example, on ensuring the foundations are set to scale a software company and avoid falling into the trap of linear growth or even worse.

- Interesting read on the current state of France's economy by The Economist. I’ve been saying this for the last few years, France is doing a few things very well these days, and is clearly leading the European Union today.

- Brilliant article on our company K Health by Forbes: 'This AI Chatbot has helped Doctors treat 3 Million people - and may be coming to a hospital near you...'

- Good benchmarks on what is a good and great free-to-paid conversion rate by Lenny.

- The hype around LK-99 is probably unjustified, unfortunately. The room temperature superconductivity revolution will have to wait another day.

European VC Europe



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