Entrepreneurs adapt to new funding realities

VC investment in European companies appears to be fairly stable, albeit subdued. According to numbers released by Crunchbase, startup funding in the first quarter of 2024 was $11.8 billion, up slightly from the last three months of last year but down from the same period last year. UK-focused statistics published by HSBC Innovation Banking show a similar story, with investment slightly down on the previous quarter. In other words, although it is not a crisis, many companies still find it difficult to raise funds.

So what does this mean for companies that have recently raised funding? This week I spoke to two European companies that have successfully completed funding rounds.

Kittl is a Berlin-based company founded in 2020. CEO and founder Nicolas Heymann explains that the company offers browser-based graphics tools that allow designers to create professional-quality materials such as posters, labels, and packaging. The impetus for this business was Mr. Heyman’s own experience running an e-commerce company. “We needed a tool that was easy to use while still delivering high-quality results,” he says. Searching for such a tool, he noticed a gap in the market.

Adapting to the new climate

In January of this year, Kittle raised a $36 million Series B round led by IVP, followed by a $11.6 million Series A round in 2023. Heyman said he had to adapt to a more cautious approach throughout Kittle’s fundraising process. The number of VCs whose economic conditions are not favorable.

The company came to market with what Heyman calls a very small minimum viable product (MVP). “We identified a value proposition and decided to take a template-based approach,” he recalls.

Initially, the company focused less on revenue and more on growing its user base, aided and abetted by social media marketing. The objective was to establish a user base that could then be monetized. This approach worked when the company raised seed capital in 2021, when it was still in the pre-revenue stage.

But in 2023, Kittle faced a different market. “We launched this product in his 2022, but we needed to raise money. That’s when we realized investors wanted a return,” he says.

Monetization essentials

That was potentially a problem. The strategy was to grow the user base with an eye to future revenue. To attract capital, Kittle accelerated monetization. They needed to provide evidence that the product was what users were paying for. That meant proving that its freemium model quickly turned people who were sampling Kittl into paying customers. Heyman said the company was able to accomplish this while growing its user base from 100,000 to 1 million.

“Investors loved the fact that we monetized the platform. They realized that customers were willing to pay for it,” he says. This principle also applied to the Series B stage, where we needed to pay for the development of AI and expansion into new markets.

late stage investment

Pigment, a Paris-based business planning platform, is further down the funding path, having just completed a Series D round. Founded in 2019, the company positions itself as a planning platform for forward-thinking businesses. In reality, it is a platform that leverages a wide range of data sources to help companies make business decisions. The company’s customer base includes global companies such as Merck and Unilever, as well as innovation economy alumni such as Deliveroo, Klarna and Kayak.

CEO and co-founder Eléonore Crespo explains the thinking behind Pigment. “We wanted to think about everything related to strategic decision-making,” she says. So we thought about how we could create a platform that empowers CFOs, CEOs, CROs, and other leaders and their teams to make better decisions. ”

The information captured and analyzed by the platform can be used to create what-if scenarios, taking into account factors such as economic and geopolitical trends and possibilities. “We can create scenarios based on data to help plan for the future,” Crespo added.

The company has raised $393 million in funding, including a recent $145 million Series D round led by ICONIQ Growth and SandbergBethnal Venture Partners (along with IVP, Meritech, Greenoaks, and Felix Capital).

According to our own statistics, Pigment has tripled its annual recurring revenue and doubled its global customer base in the past 12 months, while also tripling the number of enterprise customers using Pigment. .

growth and innovation

When I asked Crespo about the appeal of pigments in a sometimes difficult market, she cited recent growth rates.

Growth, she says, is supported by product improvement and development efforts. “Everything is driven by innovation,” she says. “We want to enable as many use cases as possible, so innovation is very important.”

Expanding your use cases allows Pigment to grow your business within your organization. Successful experiments within one department provide opportunities to sell the solution to other departments within the company. The company says 90% of its customers use the product across multiple departments. So what investors have on offer is a product that allows them to find new customers while expanding their reach to organizations they already support.

So, at first glance, securing VC funding during a recession is very easy. Demonstrate to VCs that your product is delivering to customers and generating cash. A potential problem is that the standards applied by VCs can change rapidly. Over the past two years, the focus has shifted from growth to profits. Now, if the economy improves, the pendulum may swing back.

Therefore, as Mr. Heyman points out, it is necessary to always pay attention to the way VCs think. “It needs to be understood not only by users but also by investors,” he says. “You need to ask your investors what they want and give it to them.”