Consumer-facing startups refine their own funding model

French Tech is not known for generating many nuggets that become giants by addressing consumers directly. But a study highlights the peculiarities of these startups whose cash flow needs are very different from their B2B counterparts. Only 35% of French start-ups that have raised between €10 and €50 million are talking directly to consumers.

Predictable and less random, B2B businesses remain investors'favorite targets. According to the study just unveiled by Cambon Partners, 65% of French start-ups that have raised between €10 and €50 million are aimed at professionals. In the match between B2B and consumer-oriented start-ups, the advantage goes to the former, which are mostly (68%) based on a subscription platform model (SaaS).

The fact remains that consumers take much less time to raise large sums of money. It takes them an average of four years to sign a first round of financing of more than $10 million, almost two years less than their B2B counterparts.

This is an expected result, according to Jean de la Rochebrochard, Managing Partner of the Kima Ventures fund. "When they reach their target, which is not necessarily easy at the beginning, consumers can achieve almost exponential growth curves. And so those that
succeed generally finance themselves faster and stronger than B2B start-ups with a more linear trajectory," he analyzes.

The sales cycle influences the pace of funding. "B2B start-ups sometimes take more than a year to sign their first customer and deploy a product. Whereas at the start-up stage, the results of nuggets aimed at the general public can materialize quickly. It's easier to invest a few hundred euros on Facebook to win over consumers", adds Romain Dehaussy, partner at Cambon Partners.

If the growth is there, a point far from being guaranteed because of the volatility of the consumer, the financial needs of B2C activities are generally higher during the first years. Once their attractiveness has been demonstrated, innovations in these sectors (games, commerce, transport, etc.) can be transposed internationally by taking advantage of the power of the Web and especially social networks.

However, you need to have the marketing resources to do so. It is therefore no coincidence that foreign funds are slightly more present in the double-digit financing rounds of B2C start- ups (62% versus 57%). International VCs are only involved in deals worth tens of millions, at
least in series B deals.

According to the survey, the majority of these "consumers"(65%) are built on the commission business model (percentage on the transaction) which is only viable if the volume of activity becomes massive. This is a costly race to acquire customers, but the B2B
SaaS platforms are not involved. For example, Fintech and Insurtech, the fields that are currently attracting the most VCs, according to the study, with 20% of B2B start-ups funded, ahead of advertising-marketing (11%) and mobility-transportation (8%).

Under these conditions, the success of start-ups geared towards the professional world is more likely to come from the engineering talents of their founders. Three quarters of them have at least a scientific and technological background, compared with only 44% in the B2C sector. You are more likely to find a polytechnician in the B2B sector than among consumer start-ups, where the marketing dimension is more important. Is it a coincidence that the latter are almost all based in the Paris area? This centralism is slightly less pronounced for businesses dedicated to professionals, with 82% located in Paris or the surrounding area.