Good morning Sifted reader,

Happy Monday! On the agenda today, we have VCs sourcing and classifying deals using generative AI and a wave of French startups selling up cheap, plus:

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The big French fire sale: record numbers of startups are selling at big discounts

As startups’ cash reserves dwindle, a fire sale has taken hold in France. M&A advisory firm Avolta recorded 201 exits in France in the first half of 2023 — up almost 10% compared with the same period last year.

But the meat of the matter is in how much those companies are being sold for.

The €738m total value of all of those deals is an eye-watering 71% less than the 184 that closed in the first half of 2022. Average deal size has collapsed from €40m to €10m.
“Companies burned cash, they spent on marketing, they recruited profusely, they made bad decisions, they bought big offices and today they find themselves with a model that isn’t sustainable. They still need cash but no one can back them anymore, so it’s a fire sale,” Olivier Saint-Marc, senior analyst at M&A advisory firm Avolta, tells Sifted.

It’s not bad news for everyone. Startups with a bit of spare cash have been snapping up competitors for a bargain price.

At the start of the year, French aerial drone manufacturer Delair bought up underwater drone startup Notilo Plus, after the latter entered bankruptcy proceedings when it couldn’t raise extra cash.
Online marketplace unicorn Mirakl also has deals dropping on its desk. It’s getting a growing number of pitches from companies facing a cash crunch, says CFO Eric Heurtaux.
The key for companies in that position is to maintain discipline, he says. “We are not gamblers and we will not just buy something because it’s cheap,” he tells Sifted. “I’m more eager to pay more for good targets than to buy at a very cheap price a company that is not the best fit for us. The deals are too critical for us to just bet on the recovery of a struggling company.”

🛍️ Getir valuation reduced 4x in new $500m funding round. The speedy grocery company’s post-money valuation is $2.5b n — a fraction of the $11.8bn it was worth when it last raised money in 2022, per reporting by the Financial Times.

🏦 UK digital bank Zopa has raised £75m in debt — the round follows another £75m raise in February.

💸 Will generative AI revolutionise the way VCs find deals? As more powerful GenAI models have become widely available and easily accessible, investors are turning to the tech to source deals like never before. Sifted spoke to Moonfire, Speedinvest, Blossom Capital and Episode 1 to find out how they’re integrating generative AI into their workflows.

Funding for Quantum startups on track to hit record levels in 2023

👾 Quantum funding is on track to hit record levels in 2023, according to Dealroom data. Funding so far this year sits at $414m — compared with $423.7m across the whole of 2021 — and there are still more than three months left to play with.

While finding practical applications for quantum has always been the sector’s Achilles’ heel, the tech is getting better and investors are beginning to cotton on to the potential it has across fields like AI, cybersecurity, defence and drug discovery.

Though European funding lags significantly behind the US, the EU and the UK plan to invest $8.3bn in quantum projects by 2025. The region also has an abundance of quantum researchers, as the latest Sifted briefing reveals.

📺 Subscription plans reign king among mediatech startups — according to a survey by investor Raw Ventures. Of the 400 startups that the VC surveyed as part of its pitch day, 80% operated with the business model. More than half (58%) of startups were from Europe and, in Spain, 61% were focused on local markets.

💬 “Keep the champagne on ice. This is disaster averted, nothing more.” — Zoe Peden, partner at Ananda Impact Ventures, thinks the fanfare around Britain rejoining Horizon Europe deflects from the damage done by leaving in the first place.

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Setting up a VC fund 101

Despite a tricky fundraising environment putting the mockers on many emerging managers’ best-laid plans to launch their own funds, a number have managed to cobble together backers to launch an investment vehicle in 2023.

Their advice for first-time managers:

Draw up a solid investment strategy, including the types of startups you want to invest in and the number of portfolio companies you want — that will help you work out who to tap for funds, says Gloria Bäuerlein, a solo GP and founding partner at Puzzle Ventures. You “need to understand who [your] limited partners (LPs) or investors in the fund are likely going to be”.
Understand the legal landscape — “When contemplating the establishment of a VC fund in the EU, it’s imperative to understand the potential legal structures and the accompanying regulatory landscape. Central to this is the emphasis on investor protection, a cornerstone of the EU’s financial regulatory framework,” says Lena Thiede, cofounding partner at Planet A.
And then there’s hiring the right people — the core of the team should be investment professionals who know the startup landscape inside out, says Inka Mero, founder and managing partner at Voima Ventures — which has recently raised its third fund.

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🔥🔥🔥

Open Cosmos, a UK spacetech company that is building satellites to gather data, has raised a $50m Series B round.

🔥🔥

Inari, a Spanish infrastructure provider for the insurance industry, has raised a $5.2m seed round.
Twig, a UK-based biotech startup that uses AI to develop sustainable alternatives to ingredients found in everyday products, has raised £3m from investors including Project A, Seedcamp and Zero Carbon Capital.
Flagcat, a French webtoon studio, has raised €2m.

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