#1 - A tumultuous 2023 & a roller coaster 2024
yet another recap post, but hear me out on this one...
Well well well, guess who finally bit the bullet and started yet another newsletter talking about “macroeconomic insights in venture & climate” - jokes aside, here’s the first edition of my newsletter with a recap and some long, hard looks at the 8 ball giving hints into what the year might have in store for us. No more faffing about, I’ll let you get on with it, enjoy the read!
Tale of Two Halves:
My year can easily be put in two halves, the first “event”ful half where I attended weddings, engagements of family and friends. On the other hand I also took confidence in my role at Elaia in leveraging communities, being the brand’s voice in certain areas as well as compounding all my learnings about VC while also stepping up in leading community efforts for baby vc.
This half was about hitting my stride on a lot of things but also quite a bit of questioning as I was picking up lots of weak (and strong) signals about something else hitting its stride: climatetech.
It has always intrigued me, and kept me digging deeper into how we can utilise the digital & physical world to create tangible, positive change in the world - especially since a big part of my childhood included an acute exposure to climate change growing up in Dubai.
Hitting My Stride:
This is also around the time that Alexandre & I had an idea of building some sort of investment vehicle geared towards impact/climate startups. Apart from the fact that he’s one of my closest friends and that we’ve done the same business school together, he also leads the Hauts-de-Seine Chamber of Commerce’s impact incubator program. In addition, there was an increasing appetite from some alumni of our business school to begin investing in climate & impact based startups at the earliest stages.
Having all these things in parallel, there came a point where I was faced with a Morpheus-esque choice: either choose to create your own fund (a chance that doesn’t generally come knocking twice) or continue being an operator within a Tier-1 fund. Well, you can guess what happened next.
Before jumping into the creation of my fund & how we got its name, I would like to take a moment to thank once again everyone at Elaia for supporting this young'uns dream, and massively appreciate our continued friendship.
Edenia: recreating utopia
The second half started after I left Elaia & started architecting what this fund could look like and what would be an offering that investors would find interesting, especially given our backgrounds. Alex & I found the name of the firm, funnily when we were on a train ride to his birthday celebratory trip.
We chose to call it Edenia - after the Garden of Eden as we would like to recreate utopia on earth through funding ambitious, early stage startups helping save the world through climate innovation. Yes, I know it comes off as tacky but the intentions are genuine, and so are our efforts ;)
Soon after, we hit the ground running with the founding team in place (Thierry, Tatiana, Linda, Alex and I). I started to activate/reactivate my entire extended network with a fire in my belly for four things: finding investors, co-investors, founders and technical experts (you can still help me with it :p). In this frenzy, I had a reckoning with the reality of building a fund, if it were easy, everyone would’ve done it but continued on the path saying to myself: “qui ne tente rien, n’a rien”.
Intricacies of building a fund:
Creating a fund model is a fun(ish) theoretical puzzle that you play around with in your head and on a spreadsheet to make sense of all the parameters you’re going to adjust to ensure you’ve adjusted the risk well enough to be able to manage it in the future while not impacting performance and making your reputation as a fund manager all in one.
Going from a fund model to a fund thesis is a step change where you go from hypotheses and distil them into an easily understandable, concise message to all stakeholders so you maximise the chances of you getting responses from the right people who resonate with your thesis. For Edenia, we decided to be a culmination of a few things: pre-seed & seed, climatetech & impact, tech & deep tech, France & Europe.
Lessons learned:
Once this exercise is done, you’re constantly in a ping-pong battle with yourself on meeting founders and negotitating allocations with them, selling your product to investors, meanwhile trying to build solid relationships that will potentially last a decade (or more if you’re lucky). So here are a few lessons I’ve picked up about building a fund:
Having a network is one thing, but effectively leveraging it and maintaining it is a whole nother beast.
Being a VC is about network, network, network. Your IRR is almost directly linked to how great your network is, as a good hire, a good investment, a good exit can be life changing for all stakeholders and it usually sparks from a single conversation that you had with someone with a weak link but when you’ve learned how to maintain your network well, it becomes a superpower.
The responsibilities & tasks of a VC evolves drastically from an Analyst to a VP/Principal to a General Partner.
It seems obvious but the biggest differentiating factor between a large firm with clearly delineated roles vs. you starting something on your own is that you end up doing an analyst’s job as well as one of a GP (General Partner) as long as business keeps progressing. One second you’ll be looking into the latest research paper into mycelial networks and the other pitching your fund strategy over lunch to a potential investor, also replying to founders on the deal progress and ramping up your team members on certain sectors Pre-IC (Investment Committee).
Dealflow pipeline > deal making skills
Of course both are equally as important but at the end of the day, you can be an excellent dealmaker with killer negotiation skills but if your dealflow is subpar, it will directly affect your portfolio construction. That is why you have such an overflow of VCs reaching out to you every so often because seeing everything is paramount, matters less if the deal doesn’t get done. Your IRR is only as good as the deals you see and the subsequent process you go through.
If this resonates with you, or someone you know, feel free to share this post.
2024: A Whole New World?
On these lessons, let’s now bring out the crystal ball and see what we could potentially expect in French and European Venture this year and maybe the next:
Retailisation of Private Markets:
Given the ZIRP era (2020-H1 2022) prices and institutional capital being locked into the 2015-2019 vintages that will soon look for liquidity if the search hasn’t already begun, fund managers have increasingly started looking at alternative means of raising capital to be deployed: private individual investors. We needn’t look further than France itself, enacting into law a similar tax deduction status for startups called the JEIC/JEIR - Jeune Entreprise Innovante de Croissance/Rupture (not unlike the UK’s EIS/SEIS programs) which will unlock €500 million or more in additional funding & tax breaks for startups doing significant R&D.
On top of that, there is a democratisation of startup & secondary investing through a plethora of providers like Roundtable, Caption, etc. making this all the more easier for tech employees & other individual investors to diversify their portfolios.
Additionally, if we are to go further upmarket, Blackstone recently launched their largest ever PE investment arm for wealthy retail investors at $1.3 billion. Competitors like Apollo, KKR, Carlyle & Brookfield have all launched similar vehicles in recent times.
The Year of Consolidation:
PE will reign supreme as startups that raised cash in the ZIRP era will be soon running out of that cash, and bridges done in 2022 won’t suffice anymore. We’ll see more & more rollups, trade sales, take privates, etc. to stabilise inefficient businesses as markets will look to become more & more efficient. We saw the first hint of what it could look like in 2023 but the real game will be played this year.
When before we saw deals with little to no structure at all given the FOMO, now it will be a whole another story. We saw a glimpse of the return of structure in 2023 in many flat rounds, when this is extrapolated to retail PE products, we will increasingly see complex portfolio construction.
On the other hand, we will also see more consolidations on the VC side as we’ve already started seeing in the past couple of months with many of our peers closing shop (e.g. Countdown Capital), choosing not to raise a next fund (e.g. Stride), or merging to bring AUM together & pool resources (e.g. La Famiglia & General Catalyst).
To dig deeper, the ‘middle of the road’ VCs who have between €150 million and €1 billion will have trouble raising big flagship funds like we saw in 2020-2022 which usually is their first or second one in such a fund strategy. The smaller ones will specialise and play the vertical expertise/Monte Carlo approach with higher portfolio sizes to offset risks associated with investing earlier, whereas the large funds will have their portfolio of specialised funds approach (climate, AI, digital health, etc.) with a common platform serving them.
Through this consolidation to be expected in the coming 18-24 months, there will be a steady increase in liquidity generated & reinvested in new funds, but these funds will have to earn every single penny through their performance. Nevertheless, macroeconomic indicators suggest that the 2024 & 2025 vintages will be promising ones if we are to take lessons from the 2011-2013 vintages that brought Europe many of its unicorns.
Climate & Hardtech headwinds
The days of growth at all costs are gone, it has had a severe impact on SaaS by slashing valuations, etc., but the headwinds will affect climatetech & hardtech startups more, given that the thresholds for proving technological readiness will be tightened, roadmaps challenged, unit economic assumptions reviewed - all amidst a pressure to reach the market as soon as possible.
Although it seems like a dire situation, the next 2 years will be make or break in terms of climate investments as we will start approaching tangible deadlines until first results will be expected for the 2030 targets set by governments and enterprises. This will push climatetech & hardtech startups to be more resilient and ensure the ecosystem’s scalability for the next 10-20 years when we will enter the commercial phase of climatetech.
Climatetech maturity will also mean that first successes/failures of the new climatetech era will be witnessed & lessons will be learned as nations begin to grapple with their sovereign “Net Zero'' strategy and acquisition of innovative climate technologies will increasingly become geopolitically sensitive, as we’re already seeing in the energy sector.
Private, Curated Communities:
On a slightly unrelated note, this will also be the year when private communities (professional or hobby-related) will explode, as people long for steady, consistent friendships and take better efforts to maintain them. The birth and rise of amo, heart hands, Retro, BeReal, etc., are tending in the direction of “intimate + curated”, making our lives into a living, breathing pinterest board. It’s also labelled as the loneliness economy where Hugo Amsellem has a lot of resources & is backing ambitious founders in this space.
Another example can be in-person dinner clubs, like DM Dinner Club (a community I took part in building) , Timeleft, Dixner, etc.
Conclusion:
If you’ve read all this, you’re a real one 🫶
In all honesty, I’ve been having some difficulty getting to write & polish long form content as I haven’t done that for at least half a year so this is a promise from me to you that I’ll continue pushing myself and biting the bullet on getting thoughts & insights on the world of venture, climate, and other curiosities out as much as I can. If you feel that I can improve upon it, I’d love your feedback in the comments or by replying to this newsletter <3
Further Reading:
Sifted: Climatetech in 2023
Equal Ventures: Seed is the New Series A
Lux Capital: Q3 2023 LP Report
Not Boring: Momentum, Consolidation, and Breakout
With 🫶 from Paris,
Saish