We interview Hélène Charpentier, court-appointed administrator and associate at SOLVE.
Interview with Patrick Azzopardi
We interview Patrick Azzopardi, independent M&A and fundraising advisor (Build Up), entrepreneur (co-founder of the startup web3 Dowsers), and business angel.
DealCockpit: How many projects have you piloted?
Patrick A.: Many! Generally, I work on five to ten projects a year. Some are fruitful, others are not.
DC: Do you have a typical clientele?
Patrick A.: Yes, my clients are mainly entrepreneurs in SaaS.
DC: As an expert of your field, what do you define as the principal challenge for startups, in the current economy?
Patrick A.: Speaking of software startups, their main challenge is the fidelity of their clientele and the recurring revenue per client.
For years, French venture capitalists have been mainly financing SaaS companies that [target] freelancers and VSBs, a very volatile clientele that is looking for free, or cheap solutions.
Personally, I prefer the enterprise software market, namely, software solutions for SMBs and large companies. Even if the sales process is long, it is a loyal clientele that accounts for a substantial amount of income, from tens to hundreds of thousands of euros per year, and, most importantly, on a recurring basis. Startups of this kind certainly grow more slowly, but are far more solid, and [quickly] profitable.
My advice to French software entrepreneurs is therefore to target said segment, because they may, eventually, interest American giants in their process of selling (as my friends, the founders of Livejourney, have done.)
DC: We are talking about market positioning. What are the challenges from the financing/fundraising perspective?
Patrick A.: The landscape of fundraising is very much changing, with more and more business angels being prepared to invest in the early stages. Meanwhile, many French funds find themselves in difficulty, and prefer to conserve their money to reinvest in startups they have financed in 2020-22 [on euphoric levels of valuation]. Therefore, decent projects have difficulties finding investors, because venture capital funds are more cautious. For realistic entrepreneurs, they are not necessarily the best option. Their model is to invest third-party money (of insurance companies, banks, pension funds, etc.) in exchange for a guaranteed management fee, and a commission on the exceptional financial performance of certain startups. Consequently, their investment pattern is to pick projects, wager a maximum amount of money, and hope that the startup rapidly grows and becomes known, even if it is not at all profitable. Contrary to this, business angels invest their own money, and thus often behave more rationally, more pragmatically: it is both an investment, accepting a loss of capital outlay, and a financial support for entrepreneurs in the making, in a liberal approach to the economy.
DC: The valuation of a business can be a difficult task. In the absence of concrete numbers, one takes a risk valuating a startup based on the idea.
Patrick A.: Yes, we estimate a company’s value based on a hope, more, or less tangible, of future success. Venture capitalists have introduced clauses, such as preference shares, to protect themselves in case of a decline in a startup’s valuation. This system, issued from the USA, allows investors priority when reclaiming their money, even before the other shareholders. Venture capital funds are therefore partially covered against the consequences of an overvaluation at the time of their investment, contrary to business angels. In my opinion, founders have to focus primarily on constructing a sound and solid business, not on the hypothetical creation of a global group, which, in 99.9% of cases, will not happen.
With a more realistic strategy, not based on a fundraising round, founders retain the majority of their capital, and can become millionaires the day they sell their company, even if the latter is still small.
It is up to the entrepreneurs of 2023 to change the rules of the game, and work to increase their assets, and those of their investors, without falling victim to the Icarus syndrome.
DC: Like, for example?
Patrick A.: Rule N°1: Talk more to your clients, than to your investors.
Rule N°2: Aim to sell your company for an amount in the millions, not in the billions.
Rule N°3: Do not dream of stupendous sums of money: gaining 1 million is already tremendous and is near impossible as an employee.
DC: It is undeniable that an evolution is upon us, and rather than insisting on “traditions” it is important to adapt to it.
Patrick A.: Precisely. The error in the strategy of founders resides in a single word: ego. For many, their renown, and the size of their company is a mirror of their own intelligence, which can quickly turn into vanity. In reality, the success of a business is the fruit of a collective effort, thus should, in theory, benefit everyone.
DC: What role does a professional tool, like DealCockpitTM play in this process, and why is important to use one?
Patrick A.: It is an indispensable tool for:
1. The professionalisation of the selling, or fundraising process: All participants gain time, by putting an end to managing the exchange of information through emails and spreadsheets.
2. Turning the process competitive: thanks to the Q&A feature, investors realise that they are not the only ones interested in the company.
3. Monitoring the process: Founders, and their counsels see, in real time, who is consulting the documents of the data room, and how far investors have advanced in their analysis.
DC: Why did you choose DealCockpitTM?
1. The confidentiality: With DealCockpit I am sure that my clients’ information is protected, because it is encrypted and subject to French data protection laws.
2. The economic sovereignty: DealCockpit is a French solution, whose founders I appreciate: of course I prefer giving my money to talented French entrepreneurs.
3. The value for money. The price is insignificant considering the challenges of the transaction.
4. The user-friendliness. Anyone knows how to use DealCockpit within a few minutes.
5. The security: DealCockpit allows you, at the end of the audit phase, to archive the entire data room in one click, and – most significantly – to make use of it later, as an electronic annexe to the asset-liability guarantee, the most sensitive document in every transaction. In the beginning, founders don’t always understand this aspect until I explain it. They think a simple Dropbox may suffice. However, thanks to DealCockpit, one can identify all consulted and analysed documents, which constitutes a tangible proof to be produced in court, in the event of activation of the asset-liability guarantee by the investor.
DC: On the contrary, what can we improve?
Patrick A.: DealCockpit could offer an electronic archive of the Q&A, and offer a digital format, or USB-key to clients, which contains the entire index of the data room, all its documents, all the consultations effectuated by investors and their counsels, as well as all of the Q&As.
DC: Thank you for the feedback! In fact, you have the possibility to archive the Q&As manually, when closing the dossier. And we already offer the possibility of sending a USB-key of the rest of the data room to your clients. But we take it into account.
A last piece of advice for entrepreneurs?
Patrick A.: Your goal: create a profitable business. Therefore, win the confidence of your clients, listen to them, and quickly generate income, however modest, because this motivates your team, and is testimony of your clients’ confidence. Devote most of your time to potential clients – the investors will come more easily after that.