2023, The Turning of the Tide
Over the past decade, we have witnessed a continuous rise in company valuations, accelerating between 2020 and 2022. However, this trend has come to an end.
Since September, Europe has entered a new "P&L leading era," where money no longer flows into vanish metrics, and investors are becoming more selective.
Valuation divided by 2 compared to what could be expected last year, very small investment tickets, first signals of down rounds… While this can be seen as a fair return to normalcy after a few years of insane growth, the coming months will be challenging for entrepreneurs with less than a 24-month cash runway.
This playbook aims to help founders to get the missing months of runway they need before their next fundraising. We hope you’ll find it useful!
Head of Startup Success @ XAnge
Quick Access
- Founders, why should you care about your runway in 2023?
- Playing with new rules with investors
- Put your oxygen mask before helping your company
- Identifying your runway situation
- Make sure you don’t run a spendthrift business
- Is your sales machine working?
- Playbook unfair advantages & events summary
- Extend your runway by reducing …
- Your non profitable activities (and focus on profitable ones)
- Your people costs
- Q&A: important things to have in mind for Germany
- Your offices costs
- Your stack cost (20%+ of savings on annual SaaS spend)
- Postpone PGE loans payment deadlines
- Find non-dilutive cash
- Improve cash collection process
- Pre-financing your CIR (min 92K€ cash in)
- Public grants and subsidies
- Factoring
- Revenue Based Financing
- Loans & Short term cash placement
- Playbook Additional Resources
This playbook has been created by:
Pauline / @Pauline Paquet Head of Startup Success 📞 06 63 74 53 84 ✉️ pauline.paquet@xange.fr
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Sarah / @Sarah Green Startup Success Associate 📞 07 62 62 74 83 ✉️ sarah.green@xange.fr
And with all the expertises of XAnge team and our proud partners:
Founders, why should you care about your runway in 2023?
Against a backdrop of geopolitical and energy crisis, the financing strategy of companies is undergoing a clear paradigm shift in 2023. You will be facing:
- Complex activity financing that is difficult to monitor (persistent supply chain disruptions with impact on working capital requirement, rising inflation, less visibility on business planning...);
- More restrictive and less advantageous access to non-dilutive medium-long term financing with increasing interest rates;
- The beginning of repayments of the PGE loans taken out in 2020 and 2021;
- Dilutive financing processes / M&A operations that are also becoming more complex and demanding.
“We recommend to companies to be ready not to raise funds in 2023. In other words, they have to have enough cash for 12 months minimum.” - Alexis, Partner @ XAnge
"This advice has two exceptions: either you are a successful business that has tripled its revenue for two consecutive years and then doubled it for two more years, or either you operate a business that cannot afford to stop developing, such as deep tech companies or businesses that require a minimum critical size to become profitable. In both cases, downsizing or postponing your next fundraising may not be possible.”
“Given this context, it is imperative that companies secure their cash position for the next 12 to 18 months, have a precise vision of their cash run way, and implement a cash management policy that allows them to be less dependent on external capital, demonstrate their adaptability, and have leeway in conducting their activities.” - Vincent Hugounenc - Director @ 2CFinance
Playing with new rules with investors
if despite your best efforts you still need to try to raise funds, know the new rules of this playground:
- Be lucid about your market attractiveness: either you are a climate tech or a martech, your current appealing power is not the same. Be ready to change fundraising direction into cash burn reduction.
- Get prepared: Investors are more likely to ask for a complete data room that includes mandatory cohort exports for example. They will have time to dig in as investment processes will get longer…
"The most important unit economics are: ARR/employee, NewARR/CashBurn and NRR/Client.” - Cyril, Managing Partner @ XAnge
- Let's return to basic unit economics: Unit economics based on complex calculations using a cohort analysis have not proven their performance. Investors will revert to P&L metrics that are less manipulable and can be done on their own.
- Get to know investors more than ever: Fundraising is a long term play, identify very early the right investor and build a long term relationship with them since the beginning of your entrepreneur journey. Make sure you talk with investors having funds to deploy.
If you have partnered with great VCs, you can also ask for bridge financing.
"However, keep in mind that VCs usually only perform a "protection" bridge round once and will not accept to do it twice.”
Put your oxygen mask before helping your company
Creating a business is a marathon. As you read this, you may have been building your company for 4-5 years now, and the next chapter of your growth always seems to be bigger and harder. Chapter 2023/2024 is known as the "potential death" chapter, and it is a very difficult one. As founder, you will learn a lot about yourself and your ability to conduct such a period.
But be careful! Being alone during such a period is not a good idea. If you notice that you have difficulties sleeping, a negative impact on your diet, low energy levels, or a high stress level, it's time to take care of yourself and seek help to take a step back.
Identifying your runway situation
To identify your runway situation, it is first necessary:
- To produce a 2023 activity budget, including a "normal case" scenario and a "depreciated scenario", in order to anticipate any cash flow needs that may arise.
- To produce a cash flow forecast including key strategic assumptions, in order to:
- Detect any cash flow needs to be addressed in the coming months in advance.
🤝 Get helped on business planning and cash monitoring:
Get 20% off on the no. 1 SaaS solution that automates cash flow monitoring to save you time and increase financial efficiency.
🤑 BEST
24 Months
You’re comfortable in your business running and maybe are still hiring.
📊 GOOD
Can I benefit from RFB?18 Months
You’re safe for the next 18 months and are looking to extend your runway.
⌛ SO-SO
>12 Months
You’re in survival mode. Need to save money asap.
Make sure you don’t run a spendthrift business
Before putting efforts in extending your runway, make sure it worth it. There is few key P&L based unit economics able to tell you if you are running a promising business. Let’s assessed yours!
Are you spending more money to acquire new customer than customer revenue?
Do you have difficulties to gain new customers?
Do you attract and retain customers?
How to interpret the result?
🟢 >140 excellent
🟡 >100 good
🟠 >50 to 100 to be improved
🔴 <50 danger zone
How to interpret the result?
🟢 <0,5 excellent
🟡 0,5-1 good
🟠 1-2 to be improved
🔴 >2 danger zone
How to interpret the result?
🟢 >110-120 excellent
🟡 >100% good
🟠 90 to 100% to be improved
🔴 <90% danger zone
Is your sales machine working?
There are also specific metrics showing your ability to be profitable and predictable in your business ramp up. Stéphane, CEO @ AtScale share with us the Key Sales Unit Economics to focus on.
Sales team profitability
How to interpret the result?
So, if your sales rep costs 80k€ per year of gross salary, meaning 116k€ (adding in France 45% of taxes), it means that each sales rep should generate over 12 months 464k€ of ARR, when they are fully-ramped.
Sales time to hit full speed
How to interpret the result?
It’s a key financial metric to pilot new sales hires. The time to hit full quota should not exceed 3 months for SMB (ARPA €5k-€20k) and Mid-Market (ARPA €20k - 50k€) oriented companies. This can go up to 6 months for companies targeting the Enterprise segment (ARPA >50k€) companies.
Sales Cycle Length
How to interpret the result?
Finally, the sales cycle if you target SMB companies should be between 1 to 4 weeks, Mid-Market 4 to 12 weeks, Enterprise 12 to 36 weeks.
If you don't have those indicators post Series A in your excel sheet, something's wrong and needs to be improved. - Stéphane, CEO @ AtScale
Meanwhile extended your runway by optimizing and reducing costs, try to work on those metrics. They will be key to lead your business toward profitability.
Playbook unfair advantages & events summary
Find below a summary of all the playbook unfair advantages. There are dedicated to XAnge Family companies. Please, do not share this page outside of XAnge’s portfolio companies.
By filling this form, we will be able to share this opportunity to XAnge portfolio companies and network (+8K contacts).
Get 20% off on the no. 1 SaaS solution that automates cash flow monitoring to save you time and increase financial efficiency.
10% off on first year contract price (min €3K saved) on Vertice purchasing platform.
Negotiated discounts and specific support form key providers and portfolio companies
30-minute audit with Djelloul BENAIDA, Head of Development @ Neftys
30 min with Margaux Tedesco. She can help you on: Legal, employment law and layoffs.
30min with Vittorio de Vecchi Lajolo. He can help you on Legal for german layoffs.
30-minute audit with Charles Bonduelle, Operation manager @ BibbyFactor
45-minute coaching with Cécile Plessis. She can help you on: Legal, compensation, HR internal process, hiring process and layoffs.
30-minute audit of your ability to negotiate your lease.
30-minute audit of your SAAS with François Gougeon from Vertice
Extend your runway by reducing …
Your non profitable activities (and focus on profitable ones)
Deciding to shut down a business unit is never easy. Here are some key questions to ask yourself before doing it:
- Is this business unit break even? Are sales paying for their salaries and direct costs?
- Is this business unit highly strategic for my short and mid-term play? Does it have high-value synergies with others today or in the near future?
- Does our leadership team invest enough/too much time to make it work?
- Do we have enough money & time to invest to make it work? If so, for how long?
Don't forget that 90% of the time, if a new business unit or new geo is not taking off, it's a people issue.
“Assuming that you have a proven PMF with your core product in your domestic market and that you have top players internally who can support new sales reps in the new business unit, and except if you're operating under serious legal constraints in the new market, it's down to a people issue. By that, we mean that not enough work has been done to speak with prospects to adapt the product to a new market, or new sales reps don't have a sales playbook, have not been trained on the sales playbook, they lack basic sales skills etc.” - Stéphane, CEO @ AtScale
To launch a new market or product, you need to start with seasoned sales (3-5 years proven experience as AEs). If you have opened a new geo or launched a new product with junior reps, or reps not based in your headquarters close to the knowledge of the central team, shut it down, it won't work.
🤝 Get helped on business efficiency:
Get 20% off on the no. 1 SaaS solution that automates cash flow monitoring to save you time and increase financial efficiency.
Being non profitable does not necessarily mean that all customer and/or product segments are. Therefore, it is important to define which segments and calculate their profitability. Then, you can make the decision to stop serving the segments where you are experiencing the most losses. This means no longer signing new similar contracts and potentially terminating current contracts. Before cutting off, always try to increase the selling price. You can also set a minimum price below which you refuse to sell or negotiate with your customer for a business contribution.
“At Agicap, at the beginning of 2022, we reached a historic milestone with the launch of 2 new products: a supplier invoice payment solution and a customer payment collection and reminder solution. We could have decided to stop the development of these products to reduce costs. But instead, we increased our investments to accelerate their launch to the market. A few months later, a significant portion of our new MRR in France comes from these 2 products, which greatly increased our average basket.” - Clément Foltzer, Head of Sales @ Agicap
Your people costs
Learn how to optimize your:
🤝 Get help on Labor costs:
✅ Grow
🟰 Maintain
→ Freeze hiring
→ Replace turnover
↘️ Downsize
→ Don’t pursue trial periods or short terms contracts
→ Don’t replace turnover
→ Ultimately, layoffs or reduction in force
To identify either you have to maintain or downsize your headcount, you have to critically examining your organizational structure. Before taking actions, here are some advice to help you pin down:
Decision-making funnel for considering a reorganization:
Here are the 4 steps to perform:
Don’t think short term: Rethinking your company is often overlooked by startup founders. It involves fundamentally reconsidering how your team operates for the next year or longer. Implementing changes takes time, particularly if layoffs are involved.
Analyze what works and what doesn’t the current organization: It's important to realize that the situation that prompted the desire for a reorganization is a consequence of your current state and its dysfunctionality.
Don’t remove positions you may need later (⚠️ avoid this mistake⚠️ ):
When considering removing functions or activities, weight the long-term impact and ensure alignment with your organization's goals and values.
The risk in removing a function is that you may need it again in six months to execute your strategy. Rehiring will take time, money, and a period for ramp-up. Therefore, consider reallocating functions before removing them if you anticipate needing them again in the near future.
Respect the Span of Control:
The Span of Control is the ratio of employees reporting directly to a manager. In a changing organization, you may need to alter your managerial relationships. A good average for span of control is between 5-7, although it can be much larger for some teams (engineering, customer success…).
- Designed your target organization depending on the strategy for the coming 12/18 months, you need to work on your target organisation to be able to turn your vision into reality ; You can use the Organizational Realignement Plan
- Identify the skills and know-how required: Your goal is to define with your team (manager, HR and any other relevant third party) your current and open headcounts and split it in 3 categories below.
- Balance your headcount depending on your strategy, cash and organization resources.
MUST HAVE
NICE TO HAVE
NOT NEEDED
HIRE
→ New team members → Quiet hires by using Providers/Freelance for specific needs.
TRANSFER/PROMOTE
→ Use existing employees to fill needed positions. Recruiting from the outside can cost more and ramp up will be slower.
LAYOFF
→ When positions are not needed anymore.
Before considering layoffs, here are some options you can consider to reduce your HR costs (source: How to prepare for and communicate layoffs - Pyn):
- Delay or freeze hiring: Can you move hiring resources to a different quarter? Look at the headcount to delay or reprioritize hires.
- Reset the senior/junior employee ratio: Depending on the company, senior leaders should make up less than 5% of the headcount of your organization. If it is significantly higher, explore ways to close the gap between the compensation of senior and junior staff.
- Decrease perks, travel, and expenses.
- Salary cuts: Especially at the senior level and for those with variable on-target earnings.
If you need to conduct layoffs, you can use the following criteria to help you decide (source: What criteria should be used in selecting employees for a workforce reduction? - SHRM):
- Seniority: last in, first out.
- Employee status: deprioritize part time, freelance and other non core employees;
- Merit-based (or performance-based): are they A players?
- Skills-based: do they have the skill and know-how you need for your target Org?
- Multiple criteria: you can also do mix between the different options above.
Below is a list of the different kinds of levers that French law can provide for a layoff shared by Margaux Tedesco.
75 jours
Max 100 jours
During economically stable times, dismissals for personal or conduct reasons are more common. However, during times of economic crisis, companies may resort to dismissals for operational reasons in order to reduce their staff.
Ordinary (unilateral) terminations, mutual termination agreements closed on the employer’s initiative
30 days
The maximum probationary period is 6 months and the notice period is 2 weeks.
Extremely serious and urgent operational reasons may in principle also justify an extraordinary termination (termination for cause) with immediate effect, but it’s absolutely exceptional.
Applicable notice period: minimum 1 month, increasing over time as of § 622 BGB.
Extremely serious and urgent breaches of duty may in principle also justify an extraordinary termination (termination for cause) with immediate effect.
Applicable notice period: minimum 1 month, increasing over time as of § 622 BGB.
Extremely serious and urgent personal reasons may in principle also justify an extraordinary termination (termination for cause) with immediate effect.
Applicable notice period: minimum 1 month, increasing over time as of § 622 BGB.
Q&A: important things to have in mind for Germany
Below is a list of the different kinds of levers that can help you to communicate and supporting departing employees.
Your offices costs
Usually, offices is the 2nd cost item of a company P&L. In addition, rent indexations will be higher (from 2 to 3% to 6 to 8% in 2023). It’s time to optimize rent with maximum profitability.
To determine a target area, you need to take into account:
“The determining factor is your forecast reliability: I will then look for the market opportunity that matches the best with my needs and obtain more or less flexibility.” - Jérome Justin, CEO @ Ival
“Today, most of companies implement lower ratios employee/available seat. Coworking spaces now provide 1.2 badges per seat because they also have large additional spaces where people can work without occupying a private office.” - According to Jérome Justin, CEO @ Ival
There are amazing tools such as:
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🏠 I’M LEASING
Once I have determined my target surface area, if it differs from my current surface area, I compare the "stay or leave" options.
- I conduct an audit of my lease.
- I compare rents, charges, and taxes with market prices.
- I negotiate.
→ Do you have a higher rent than market practices? If so, you can easily negotiate with your lender. Paris Centre is still in demand because many companies prefer to rent smaller but central offices rather than larger ones in the suburbs.
However, some landlords prefer to secure against rental risk in exchange for a lower yield... In other words, if you commit for a several years, I can try an approach even in a tight area.
→ Did your lender made mistakes? 40% of the leases have anomalies. If an error is committed such as error in the indexation of the rent, re-invoicing of charges not provided for in the lease, ... Then possibility to recover the cash over 5 years.
30-minute audit of your ability to negotiate your lease.
By filling this form, we will be able to share this opportunity to XAnge portfolio companies and network (+8K contacts).
🏠 I’M CO-WORKING
WEWORK, MYFLEXOFFICE, DESKEO, MORNING, GUSTAVE COLLECTION, WOJO, SPACES, NEWTON OFFICE… They are all developing new co-working spaces. Check the newest ones, the price will be more attractive. Example :
![[PAR] WeWork Promotion Spéciale: 3 mois offerts pour 12 mois d'engagement](https://images.spr.so/cdn-cgi/imagedelivery/j42No7y-dcokJuNgXeA0ig/0f1b46a3-7b74-4b82-974e-eb9182ea8d4d/1/w=640,quality=90,fit=scale-down)
“Geographic location is a key factor in recruiting and retaining talent, which is why companies prefer to take less office space but more central one and with additional services.” - Arnaud Paquet, Real Estate Fund Manager @ AXA Investment Management
Your stack cost (20%+ of savings on annual SaaS spend)
Did you know that SaaS pricing inflation is growing 4x faster than market inflation? Between 2010 and 2020, global annual SaaS spend increased from $13b to $157b.
SaaS spend increased by 26% in the months following the initial lockdown in 2020, and has only continued to grow in the years since.
We know that on average, companies spend $4,552 on SaaS per employee / year. This figure is significantly higher for sales teams, with organizations spending around $9,000 / year on SaaS for each sales employee.
90% of SaaS buyers are overpaying by an average of 20-30% a year. With $1 in every $8 going to SaaS in the modern organization, paying the right price for software could easily extend your runway by a few months.
30-minute audit of your SAAS with François Gougeon from Vertice
10% off on first year contract price (min €3K saved) on Vertice purchasing platform.
Negotiated discounts and specific support form key providers and portfolio companies
Additionally to stack cost reduction, and depending on your business, you can try to reduce your main providers costs.
Postpone PGE loans payment deadlines
Companies can freely receive assistance from "la Banque de France", thanks to an anonymous process, to negotiate a PGE reimbursement schedule with their bank.
The duration of the extension is assessed on a case-by-case basis depending on the situation of the company. In general, the extension can be up to 2 additional years compared to the initial schedule (which is normally limited to a maximum of 6 years), providing a possibility of loan repayment over a maximum of 8 years in total.
In exceptional cases, the duration of this extension can go up to 4 additional years compared to the initial schedule, which is a maximum of 10 years in total, without any additional premiums.
Find non-dilutive cash
Improve cash collection process
In 2022, companies are facing an explosion in the length of payment delays, increasing from an average of 11 days in 2021 to 17 days.
The payment of clients is not in the control of sales reps. Hence, the Cash Collection team should be on top of this topic. If your company is small, it's the responsibility of the CFO to do the job of cash collection.
“AEs should be targeted on ARR. Period. On large opened and overdue invoices, the person in your company with the closest connection with the client (usually Customer Success) should of course strongly assist your CFO in collecting cash. However, bear in mind that each hour focused on collecting cash by your Customer Success team is not focused on upselling clients. ” - Stéphane, CEO of Atscale
Some advice for your sales team by Agicap :
- Always ask for a deposit.
- Automate the follow-up of your unpaid clients with tools such as: Agicap 😁
- Follow-up with your clients immediately in case of non-payment, first by phone then by email. Don't wait for several weeks thinking they will eventually pay.
- Do not sign new contracts with clients who have outstanding payments until they are resolved.
Get 20% off on the no. 1 SaaS solution that automates cash flow monitoring to save you time and increase financial efficiency.
Pre-financing your CIR (min 92K€ cash in)
30-minute audit with Djelloul BENAIDA, Head of Development @ Neftys
Public grants and subsidies
There are more than 2000 grants and subsidies available in France. All companies are concerned, startups and scale-ups and SMEs. The main funders are: BPI France, Territories (Regions), National agencies (ANR, ADEME, etc.), Europe (Horizon Europe).
Some grants and subsidies are co-managed by several funders. For example: Innov'UP can be instructed in first reading by BPI France and granted by the IDF region.
The grants and subsidies most commonly used by tech startups and scaleups are : French Tech Scholarship, ADI (Recovery advance, PRDI), Innov'Up (IDF region), Aide au Développement Deeptech (ADD).
Added to this list, there are innovation competitions, which are based on the same mechanism as grants and subsidies, with a stricter selection of applications : iNov (PIA), iLab, iDemo, Innov'Up Leader PIA, EIC Accelerator (Horizon Europe).
"We have observed that access to medium to long-term non-dilutive financing has become more restrictive and less advantageous with the increase in interest rates.”
🏆 Top 10 Grants and Subsidies according to Jérémy Ohayon
Grants and subsidies (Top 10) | Funders | Frequency/Time in the year | Startups | Scaleup | SMEs |
Bourse French Tech | BPI France | As time goes on | X | ||
ADI (PRDI ou Avance récupérable) | BPI France | As time goes on (best time : just after fundraise) | X | X | X |
Prêt d'amorçage (PAI) | BPI France | As time goes on (best time : just after fundraise) | X | X | |
ADD (Aide au développement Deeptech) | BPI France | As time goes on | X | X | |
iLab | BPI France / MESR | Every year, 1 call / year | X | ||
iNOV | BPI France / Ademe | Every year, 1 or 2 calls / year | X | X | X |
Innov'UP | Région IDF / BPI France | As time goes on | X | X | X |
Innov'Up Leader PIA | Région IDF / BPI France | Every year, 1 or 2 calls / year | X | X | X |
EIC Accelerator | UE | Every year, 2 or 3 calls / year | X | X | X |
1er Usine | BPI France | New grant (1 or 2 calls / year) | X | X | X |
Factoring
- Invoice financing
- Credit Insurance (and creditworthiness information)
- Recovery service
French Factoring market has more than doubled between 2012 and 2022, settling at €380 Billion.
30-minute audit with Charles Bonduelle, Operation manager @ BibbyFactor
Revenue Based Financing
“In a turbulent financing ecosystem, leveraging the best solutions for your cash flow is mandatory. Maximizing each source of financing must be done to address the various cost items you have.Revenue-based financing becomes a structural partner of your business alongside bank debt and equity.” - Charles, Strategic Partnerships Manager @ Silvr
Loans & Short term cash placement
Current interest rate: 6/7%
Fix and progressive rates, banks can lend money to startups along other banks. It’s a classical solution for extending runway.
Current interest rate: 4.5-5%
“As for PGE, the SVB episod remind us that it’s important to have a strong relationship with traditional banks and diversify cash allocation. It’s also true for loans. If you don’t have a strong relationship with traditional banks, it will be more difficult to get one then.” - Pauline, Head of Startup Success @ XAnge
What? High risk loans with high and composed interest rates. They can include options to buy companies shares and involve very strong warrants allowing to get the money back in case of incident. Venture loans are usually for loans of +20M€. The European Investment Bank is the most used/preferred venture debt actor (and public one) when considering venture debt.
Current interest rate: 7-15%
There are two ways to make profit of your cash:
- Via “Current account”: currently average 1.5-2%.
- Via short term placements (“comptes à termes”): Interest rates of short term cash placement are more and more interesting (currently 3/5%).
PROS 🟢 | → Guaranteed (contractual) rates over an average term;
→ Possible withdrawal at any time at rates determined at the start, subject to a notice period of 32 calendar days;
→ Capital guarantee at any time;
→ Possibility to split the invested amount into several accounts to facilitate possible withdrawals before end of engagement period;
→ No fees. |
CONS 🔴 | → In case of early repayment before end of engagement period, short term account will be closed and penalty applies.
→ Interests are not capitalized and will be paid at the end of engagement period or at early withdrawal. |
To know more about cash placement, contact:
thomas.bourlot@bnpparibas.com 06 63 46 11 82 Maxime Andrieux Chargé d’affaires entreprises maxime.andrieux@bnpparibas.com 06 76 93 50 22
Directeur Filière entrepreneurs chez Caisse d'Epargne Ile-de-France
sophie.magne@rivesparis.banquepopulaire.fr Thierry Maurer Directeur du centre d’affaires innovation thierry.maurer@rivesparis.banquepopulaire.fr