The boundary between CAP-DEV-LBO funds and VENTURE funds is shrinking

The environment for growth companies - start-ups and scale-ups - has evolved considerably in recent years, especially in France, a country aspiring to the status of start-up nation. Everything is going faster, further, higher and this is due to a number of reasons:
entrepreneurs are more experienced and better trained in entrepreneurship, business models are more mature, and business opportunities are more numerous thanks to the digitalization of the economy, the financing chain being more massive and efficient, and there being more frequent industrial exits In response to this situation, private equity is getting organized and wants to play a leading role by contributing with greater strength and taking advantage of this massive value creation over the long term. Indeed, a need has gradually emerged in the financing chain halfway between venture capital and growth capital. And this has attracted covetousness.

Thus, venture funds are willing to invest for longer periods of time with larger amounts of capital deployed. This is due to the following reasons:
● the sums under management are increasingly large and the average investment size
is, therefore, more consistent;
● the market has matured with start-ups becoming scale-ups, a market segment that
did not exist (or hardly existed) 10 years ago;
● these funds aspire to mitigate their risks by accompanying more mature companies,
which they have known for a long time.
As for traditional growth capital/LBO funds, they want to capture the extension of growth
companies more quickly with a slightly lower risk profile than their standards. This movement
reflects several phenomena:
● LBOs are a crowded asset class, competing with other tools (mezzanine,
unitranche), with lowered IRR targets and less obvious value creation in recent
years;
● subscribers to these funds want to be able to benefit from exponential multiples (at
x50 or x100), which only venture investing in tech can offer;
● scale-ups have an acceptable risk profile with proven business models, especially
SaaS, offering, in essence, high revenue visibility.

This has led to the involvement of these players in the emergence of "tech" growth equity funds. We find, for example, Capza Growth, Sagard NewGen, Infravia Growth, Isai Expansion… These players know how to address the specificities of these fast-growing companies (which are not necessarily profitable yet although close), diversified shareholdings, and different execution challenges that are different from those faced in the earlier stages.

It was all the more important that these stakeholders in France emerge. Anglo-Saxon funds had already taken hold of the subject and for a long time appeared to be the only ones able to respond to this issue, such as Kennet Partners, PSG or Expedition Capital.

This porosity between these two worlds is a godsend for French growth companies with access to partners who are able to address all of their needs and more. Because these companies have also evolved; it is no longer simply a matter of financing their organic growth, but also to finance their external growth, partial liquidity for their shareholders, and increased incentives for founders.

New playing fields are opening up: valuations based on revenue multiples (for growth capital and LBO players), the inclusion of non-dilutive instruments, the purchase of partial shares from founders relatively early in their career… the new one stop shop paradigm.

And now who' next? The debt funds, of course, with several categories to distinguish:
● venture loans will, in all likelihood, make strong progress in France in the image of
what Wormser is proposing;
● asset-based financing, adapted to certain categories of start-ups and scale-ups;
● convertible bond funds, as Entrepreneur Invest has achieved;
● and the latest? the ARR-based loan, which consists of financing companies with
private debt based on the visibility of recurring revenues (Average Recurring
Revenues).
Some may see this as a complexity for entrepreneurs. It is above all a widening of opportunities for entrepreneurs who have all the tools to develop future French entrepreneurial success stories!