The golden age of startups in Silicon Valley is over. The number of technology companies largely funded but which fail to meet the high expectations continues to grow, making investors more cautious and encourages them to tighten the purse strings. A corrective effect does ensue in Europe?
Here are a few months, Peter Hinssen have praised the US startup Zenefits by presenting it as the perfect example of Californian technology company able to shake one of our traditional industries. Zenefits specializes in HR and offers an online user-friendly software for payroll companies. Since its launch in 2013, the start-up has received $ 580 million of financing, while in the final round of table in May 2015, the company was still valued at $ 4.5 billion.
But since the beginning of the year, things go well, and the co-founder and CEO Conrad Parker left the company in the wake of several scandals. And soon after, 250 employees were thanked. As Zenefits realizes a turnover of ‘only’ $ 60 million instead of $ 100 million planned, the company crossed the white line and began breaking the law. “We grew too fast,” concedes the new boss, David Sacks, who immediately reviewed the ambitions broadly lower.
Still Zenefits is not an isolated case. The euphoria that prevailed in recent years in Silicon Valley has given way to massive layoffs and drastic cost reductions. Valuations are at half-mast and financial rounds are proving much more rare. Observers say even a large share of ‘unicorns’ (these start-ups valued at over $ 1 billion) that have emerged in recent years are likely to disappear. So that even Dropbox and Evernote in its popular time, are in great danger.
Too many young shoots are focusing on expanding their customer base rather than focus on their cash flow, profitability and sustainability. They certainly managed to collect huge sums, but have failed to meet expectations.
Malaise in Europe
“The US technology sector, particularly the San Francisco start-up and surroundings, is highly pressurized,” says Robin Wauters, specializing in start-up on the news site Tech .eu . “Investors are now taking greater risks and certainly inject more money into young companies growing, but are inclined to back down when negative signals or cons-performance.”
Besides, this malaise is not limited to Silicon Valley. Numerous experts consider in fact, based on different signs that Europe may face the same problems.
Thus the London firm Powa Technologies, who won in 2 years $ 175 million, is for sale as it failed to attract enough customers. And Swedish start-up TrueCaller was forced to lay off 20% of its staff, despite a contribution of $ 80 million fund, while Swiftkey was bought by Microsoft for substantially less than what investors had expected amount.
“When it rains on Silicon Valley, he drizzle with us paraphrase Frank Maene Volta Ventures investment funds. The crisis in the US West Coast will therefore be reflected also at home. Even if you need to the outset state that we have never experienced the extreme types of the United States. ”
“These excesses were mainly the fact banks and hedge funds that have invested hundreds of millions of dollars in start-up. This phenomenon was clearly a much lesser extent in Europe, and has absolutely no hit Benelux. Both starters that investors were much more reasonable. ”
“The peaks are much higher in the States, and therefore also decreases confirms Michel Akkermans, serial entrepreneur (including Clear2Pay). The impact on the European market is much lower, although US technology firms may be less quick thinking of investing in European companies. ”
Similarly, Wim De Waele, the iMinds former boss who founded the FinTech Eggsplore platform in collaboration with Jurgen Ingels, believes he has much less been talk in Europe of ‘overinvestment’. “I have often said in the past that our Belgian investors were too conservative, but we must recognize that the exhibition deal with current events in the US and some European countries is thus minimal. Numerous Belgian start-up that received funding already generate a lot of revenue. ”
“The correction taking place in the US expected, he said. At one point, there appeared nearly 2 unicorns week in Silicon Valley, it had become a real game. SmartFin Capital, the investment fund Jurgen Ingels, threw down the gauntlet last year outside Belgium because we felt that valuations were exaggerated, because fashion unicorns. ”
Maene: “History of Unicorns was in vogue for a while, even in Europe, but in the meantime, we do not encounter any company seeking this status Very large transactions involving hundreds of millions of dollars, not. will be little more. But for smaller deals, such as those interested Volta Ventures, I anticipate fewer problems. the available capital is in fact greater than a few years. ”
For its part also, Michel Akkermans believes that there is sufficient capital available to us to limit the impact of unrest. “In Belgium, interest in startups has never been greater. Even if there is a slight slowdown, this interest will remain greater than a few years.”
Still, no one doubts that the crisis in Silicon Valley will impact the European technology landscape. “The valuations of startups will be down, even at home,” acquisse Akkermans.
“This does not mean that the start-up will not be able to raise funds, but that the sums advanced by the investors will be lower. This is also not necessarily a bad thing because contracts will thus be simpler with less fine print for investors who wish to cover. ”
“In addition, expectations are also more realistic. This kind of hero worship that we often encounter is exaggerated to me. The start-up can certainly get attention, but it should not be forgotten that is mostly a labor issue and that entrepreneurship is not for everyone. ”
In common with Akkermans, Robin Wauters fears that one sees less US technology companies in Europe. “As long as the pressure is high, the number of mergers and acquisitions will decrease on the Old Continent, which consequently limit the number of new business angels and start-ups with high growth potential as the number of exits in Europe will be lower. ”
Another consequence is that profitability will again become a priority for companies, rather than to seek aggressive growth and burn the capital. The business model makes it a comeback? “In a sense, yes, replied Frank Maene, and I find that this is a positive development.”
“The US position has always been ‘The winner takes it all’. Über one, one AirBnB and invest the maximum in these companies to ensure that the chosen platform will prevail Start-ups bought their market with the idea that nobody could dethrone them once they are No. 1. Now, there will be more room for # 2 and # 3 and the # 1 will focus more all the money.”
“Overseas, we talk about ‘unit economics’, where the cost of acquiring a customer, called’ customer acquisition value ‘or CAC, is lower than the value that can generate long-term customer or’ lifetime value ‘. at first, the CAC is necessarily higher than the long-term value as necessary to establish the company on the market and acquire sufficient notoriety. But if the ACC is still high, must be injected significant funds, which n is not good. ”
“Now we will again look at how to attract customers. And it is only when the ACC is less than the lifetime value that more funds will be made.”