Sifted - The cost of fundraising

Good morning there,

Did you know that it's not uncommon for startups to pay fees when they're raising a funding round? More than a third of the 107 European startups that responded to our latest founder survey reported paying some kind of fees to investors. I dig into that today, plus all the other key data points, including how many startups are under pressure to fundraise right now.

Elsewhere, Paris-based VC Partech has launched its eighth fund, we dig into UK deeptech's gender gap and take a look at a Spanish company that's created a startup within a startup.

                                                                 — Anne Sraders, senior reporter

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The cost of fundraising

“Currently raising a pre-seed. It’s taking much longer than anticipated!” 

That’s what one founder told me recently in a note. And if it seems like we’ve been writing a lot about fundraising in this newsletter lately, it’s because it’s top of mind for startups right now. We recently surveyed 107 European startups and found that 51% need to close their next funding round within the next six months; 65% are already chatting with investors. 

It’s not a long haul for everyone. While some founders are having a tough time of it, 39% of respondents told Sifted it took them less than three months to raise their last round, and 35% raised in less than six months. Nearly half of the respondents had raised their last round less than six months ago. It’s no 2021 timeline, but it’s better than some of the horror stories out there. 

Raising doesn’t come cheap though — 34% said they paid some kind of fees to their investors tied to the funding round. Although common, paying legal fees for new investors could set startups back between £3k-200k, our respondents said. Meanwhile, some founders also reported paying costs for EIS and SEIS fees (the UK schemes providing tax incentives for early-stage investors), due diligence, investment and shareholder agreements, plus fees to attend an investor’s accelerator programme, SAFE issuance and crowdfunding platform fees — which could range from 1% to 12.5% of the cash invested. 

Others are also putting their own money in — 21% of respondents said their company’s founders wrote cheques for their last funding round.

On a more positive note, a majority (57%) reported securing a higher valuation than their previous round. As a caveat, though, most of our respondents were at the pre-seed and seed level, which haven’t seen a huge plunge in valuations.

Our survey sample size was small but, overall, the environment heading into 2024 is clearly a tale of two markets: We’re seeing massive rounds raised by buzzy companies, particularly in AI, while, on the flipside, I’ve been told of others struggling so much that they’re even looking to super early-stage investors to infuse cash into their post-seed-stage startups. 

Unfortunately, I expect we’ll see a further washout of startups that are unable to raise that next round as we head towards mid-2024.

— Anne Sraders, senior reporter

📈 Startups and VCs are going to be stuck with high interest rates for a while longer. Yesterday, the UK's Bank of England once again kept interest rates steady at 5.25% — a 15-year high — cautioning that there’s still a way to go to fight inflation. The European Central Bank also left rates unchanged yesterday, saying inflation is “likely to pick up again temporarily in the near term”. TL;DR: It’s going to remain pricey to borrow money for some time. 

🤝 From seed to IPO: French deeptech VC Elaia Partners is partnering with Lazard, one of the world’s largest private investment banks, to launch a joint asset management firm next year. Based in Paris, the new investment platform will back European tech companies at all stages of development, from seed to IPO. 

• It will enable Lazard’s institutional and private wealth management clients to invest in non-listed assets, while Elaia — which focuses on early-stage and growth — will have capacity to expand its scope to cover companies in their later stages. 
• The new firm will be led by Elaia’s cofounder Xavier Lazarus and managed by a newly hired investment team. It is still subject to final agreements and regulatory approvals, which are expected to close in 2024.

💰 Partech launches its eighth venture fund. The Paris-based VC, a backer of French unicorn ManoMano, has announced a first close of €180m for its new €360m fund dedicated to Series A and B rounds in Europe.

• It's Partech’s eighth-generation venture fund — the previous one reached its hard cap at €400m in 2017 — and it will back business-focused software companies in fields ranging from fintech to cybersecurity, which have between €1-10m recurring revenue.
• A first lead investment in Italian hospitality management startup Smartpricing has already been announced and Partech expects the fund to back between 22-24 companies in total. 

🇫🇮 Finnish quantum startup IQM expands to the US. The Espoo, Finland-based company, featured by Sifted as one of 25 deeptech startups at the heart of Europe’s tech sovereignty, yesterday announced a partnership with the University of California, Berkeley, to co-develop next-generation advanced superconducting quantum processors.

• "In the long term, we aim at gaining a major foothold in the US market, driven by our unique technical capabilities,” says Juha Vartiainen, global affairs officer and cofounder of IQM.

➕ Startup Inception. Spanish startup 011h is trying to solve the problem of digitalising the construction sector in an unusual way: by creating a startup within a startup.

• On one side, it is an app that designs blueprints of the most efficient and sustainable way to build a building, and on the other, it is an actual construction company that builds those designs using carbon-neutral materials. 
• The reason for this approach is down to a bottleneck that's held back the sector from being fully digitalised for years: existing startups are focused solely on software to digitalise specific parts of the construction process, without venturing into building. And those who build are mostly stuck in their ways, with little room for error when experimenting with new tech.
• “I was convinced that to deliver the sort of change the construction industry needs, we had to start from a blank piece of paper and that was very difficult for large companies,” Lucas Carné, the cofounder and co-CEO of 011h, tells Sifted's Cristina Gallardo.

👀 We were feeling nostalgic, so we took a look back at the top 10 fastest-growing companies at the end of 2021… and what’s become of them. Find out which companies survived. 

🏢 Want to raise from family offices? Ask these questions.

🤖 Closing the skills gap: How to build an AI strategy that works for your startup. (Sponsored by Pluralsight)

Deeptech startups have become increasingly hot for investors in recent years. But according to a new report on UK deeptech from the Royal Academy of Engineering and UK data provider Beauhurst, the gender gap among founders in the deeptech space is massive. 

• The vast majority (some 77%) of deeptech startups have all-male founding teams. 
• Only 7.5% have all female founders.
• That “disparity may also reflect investor attitudes and the need for more robust support for women entrepreneurs”, the report reads. 

Berlin-based Urban Sports Club, a sports and wellness platform that gives users access to a variety of classes, raised €95m in funding. Verdane led the round and was joined by investors including HV Capital, b2venture and ProSiebenSat1.

London-based Qogita, a wholesale ecommerce platform, raised €80m in Series B funding. Dawn Capital led the round and was joined by investors including Accel, LocalGlobe and Bessemer Venture Partners.

Lausanne, Switzerland-based Vandria, which is developing therapeutics to rejuvenate cells to treat age-related and chronic illnesses, raised $20.6m in Series A funding. ND Capital led the round.

London-based Meniga, which provides digital banking services and tools to banks, raised €15m in Series D funding from investors including Groupe BPCE, Crédito Agrícola and Omega ehf.

Riva del Garda, Italy-based Smartpricing, which offers revenue management software for hotels and apartments, raised €13m in Series A funding. Partech led the round and was joined by investors including Azimut Digitech Fund.

London-based Arcane, which developed an AI co-pilot to automate marketing functions, raised €5m in seed funding. Accel led the round and was joined by investors including Cocoa, Firstminute Capital, Kima Ventures and Seedcamp.

Cologne, Germany-based Metycle, an online platform for secondary metal trading, raised €4.7m in seed funding. Project A led the round and was joined by investors including Partech, Market One Capital and Dutch Founders Fund.

London-based Jenesys, which developed an AI co-pilot for back-office accounting, raised $1.1m in pre-seed funding. Twin Path Ventures led the round and was joined by investors including Fuel Ventures, Antler and Hatcher+.

Stockholm-based FineCell, which produces dry cellulose powder used in things like beauty products, raised €1m in funding. MetsäSpring led the round and was joined by EIT InnoEnergy.

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