Recently, we had the chance to sit down with Maxime Le Dantec, Investment Associate at London based VC fund Balderton Capital, to talk about the ‘back-to-school’ period for VCs, as well as how later stage startups are coping after a difficult year.
How have you handled COVID so far? A lot of VCs declared they were open for business, but we witnessed a massive slowdown of deals happening over the past 4 months?
At Balderton, we did initially observe a slowdown in the number of companies reaching out to us for funding. During the first months of the pandemic, before anyone had a view of the economical consequences of the crisis, many VCs were less willing to invest despite pursuing conversations with entrepreneurs. For that reason, many startups decided to postpone their fundraising, and as a result, we saw less opportunities in the market.
During normal times, we invest on average in one company per month. Despite closing a number of deals over lockdown, we did not meet this target in the first part of the year. In June, the situation started returning to normal and in August, we saw a compensating effect as companies which delayed fundraising hit the road again. We were very active in August and made a bunch of investments. As of September, it has indeed been very busy for us as everyone is going back to work and we’ve hit a peak in the fundraising season.
As part of our COVID study in June, we surveyed almost 1000 companies and Series B in particular seemed to be the most impacted, with 34% of them laying off companies against less than 20% on average in earlier stages. Are startups particularly vulnerable at this stage? Why?
When a startup is at Series A or earlier, most of the team is made of product and engineering people who solely focus on building the offering. At a later stage, a large part of the new hires are in sales and marketing. Startups that have just raised a Series B have a good understanding of their target customers, they have traction in the market and are mainly investing to accelerate customer acquisition to meet demand.
With the crisis, this demand suddenly drops and customers close their doors. The first casualties in this situation are the sales and marketing teams, especially the newcomers who are no longer needed but weigh on the company’s operating costs.
(We went back to check the data of our study and indeed, most layoffs happened to be in sales and marketing functions).
You have a deep focus on European startups with a global vision – how do you think the current context will impact European tech in particular vs the rest of the world?
I don’t see any particular continent truly gaining an advantage over others during this crisis. The US might be losing some of its attractiveness as the El Dorado of tech when you see how it has handled the pandemic and how politics can decide the fate of a foreign business, as with the sale of Tiktok’s US business to Oracle (Oracle’s CEO is a Trump supporter…). But the reality is that the US still has the largest software market and is an unavoidable destination for many entrepreneurs looking to become a global leader.
Have you changed the way you source, assess and close deals?
We did some fully remote investments and so had to learn how to build relationships with founders through Zoom. It is way more difficult, but we try to put the time we used to spend travelling towards spending more time with founders. Each time we meet a new company we try to understand how the Covid crisis has impacted their business and whether the trends we are observing are here to stay.