Venture capital funding has dwindled significantly following a banner year in the tech investment space.
According to Thomas Cuvelier, partner at Paris-based venture investment firm Alven, the bulk of the blame lies with rising interest rates which have impacted not only later stage VC investing but early-stage as well.
This has led to a strategic pivot from growth in favor of profits, he said, adding that the assumption that companies will get funded even if they grow at all costs no longer holds.
“There’s a major focus on profitable growth which was wasn’t the case in 2021. Now we look at [a company’s] unit economics much more carefully than before,” he told PYMNTS.
He also noted that companies that raised funding at very high valuations are now forced to “justify these valuations or even grow into [them]” to appease investors and attract new funding.
Ultimately, he said that has the current volatile market has led to a tightening of the purse strings as the industry braces itself for the next 24 months.
“We are a bit more cautious when it comes to funding, and we’ve also told companies to be more careful about the runway and to be overall more [financially] conservative,” Cuvelier noted.
Hope For Crypto, Grocery Investments
In June of this year, Alven, which was an early investor in unicorns like Ankorstore, Qonto and Stripe, raised a new 350-million-euro fund — its sixth fund — for seed and Series A investments in European firms.
Part of the fund was expected to be used to further Alven’s exposure to “promising growth sectors” such as blockchain technology, Cuvelier said at the time, pointing to their investments in companies like Kaiko, a provider of cryptocurrency market data for institutional investors and enterprises.
The digital asset world has since been thrown into chaos following the recent collapse of crypto currency exchange FTX, sending shockwaves through the global cryptocurrency market.
Acknowledging that the ongoing turmoil may have deterred some investors, Cuvelier expressed confidence that the “overall thesis in cryptocurrencies will stay for the long term.”
The fact that crypto investors are more cautious now and focusing more on top tier high-quality companies is also an added plus, he further said: “Last year, people were throwing money at companies that were flawed and [perhaps] weren’t doing proper due diligence on companies [before investing].”
And while that extra layer of caution will likely lead to a slowdown in crypto investment space, Cuvelier said the upside is that only the best companies providing genuine value to the ecosystem will survive the crisis.
“In the end, we think it’s good news for the ecosystem. We will see less scams, and companies won’t be able to hide frauds with massive rounds of funding,” he explained.
Another sector that Cuvelier remains bullish about is the grocery sector, mainly aggregators, which have been hit hard by the ongoing global economic crisis.
Alven exited Frichti to Gorillas earlier this year — one of more than sixty exits the firm has completed — and with that perspective, he said q-commerce or just-in-time groceries will continue to have a future as long as there is still end consumer demand for their services.
He noted, however, that grocery sector players “grew too fast” — another reason why investor preference will continue to move from growth towards a greater focus on profitability.
“From a unit economics basis, a lot of those companies were not very profitable,” he said, adding that companies will have to “consolidate and grow towards profitability [a lot more] quickly now.”
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