How do you complement each other?
Gauthier: We are highly complementary in terms of background. I managed the first fund, ScaleFund I, from A to Z with Claire Munck who is the Managing Partner. At that time, I was also working part time at BeAngels, a network of business angels which funds early-stage projects*. Aside from my financial skills, this experience provided me with in-depth knowledge of the Belgian seed* ecosystem and enabled me to coach entrepreneurs. As there had already been exits from ScaleFund I, this provided me with an excellent view of early-stage investments and project sourcing through until exit.
Alexandre: I worked for major Belgian family holding groups and Parisian investment funds, on deals of all sizes and across all regions. My experience is therefore more late-stage, providing me with a more strategic and financial view.
Gauthier: As for Claire, she has excellent reflexes and vast business experience. Above all, she possesses a global investment network. She can open doors relatively easily in the European and north American markets for example, to enable internationalisation.
* The term early stage covers all start-ups and projects which are in their initial fundraising stage.
* Seed money is the first real funding round.
Can you explain what an investment fund is and how it differs from business angels?
Alexandre: The major difference is that business angels are people who have some available time for the startups they invest in. In contrast, people who invest their money in these funds are completely passive. In the case of the ScaleFund, our team and the Investment committee take the investment decisions. Furthermore, business angels invest on a relatively small scale compared to the means at the disposal of funds, both in terms of the sums and the time invested.
Gauthier: Business angels are much more early-stage and use a believer approach. That is to say they believe in a team, as there are practically no products to review and just a PowerPoint. ScaleFund invests in projects which already have proven commercial traction, a stable team and a defined market fit product. We enter more into an acceleration phase than an iteration phase.
At what stage should you contact an investment fund?
Alexandre: There are many different investment funds which all proceed in their own way. You should consider each fund’s strategy carefully and identify one which corresponds to the development stage of the company. I advise understanding what the investment fund is expecting from you, in order to find the right partner. For example, ScaleFund addresses companies which have already had teething problems and which may have already pivoted and are seeking funds to accelerate their sales and/or change their structure to expand internationally.
Gauthier: It is never too early to talk to an investment fund. We like to meet entrepreneurs as early as possible and set up regular touchpoints with them. This enables us to see how the projects are developing. It can make a real difference in the speed of raising funds. If you have regular updates with the funds and discuss matters with them, you can close the funding round more easily. This also enables you to obtain informal feedback on what they wish to see, to know which KPIs they are expecting and to prepare being on-topic, when you present to a VC for the first time
What types of projects interest you?
Alexandre: We aim to be quite wide-ranging and generalist in the type of project that we finance. We have already financed hardware and software projects, along with certain earlier-stage projects, and some which are further advanced in terms of sales. What we seek is a stable and competent team, and a product which responds to a proven market. But we don’t set any strict terms concerning revenues or size. We nonetheless seek projects which are complementary with our current portfolio.
Gauthier: I would even say we seek excellent teams with a product which has already been rolled-out and which is in its acceleration phase. The fact that we are backed by BeAngels provides us with access to a pool of experts who can help at board of directors’ meetings and with due diligence. We are generalists but also experts in the phase we invest in. We help review pricing and with go-to-market strategies, how to expand internationally, how to accelerate and increase awareness of the questions the next funds will ask for the next funding round, etc. That is our expertise.
How do you accompany scale-ups?
Gauthier: We get actively involved and we systematically ask to join the board of directors. We frequently participate in company workshops, spend time reviewing business plans, participate in negotiations with clients or with banks. We sometimes even have a front-line presence in exit negotiations. We don’t intend to replace entrepreneurs, as they are obviously more competent than we are, but if we are asked to help, we do so with pleasure.
Alexandre: We are in contact at least one a month with all of the entrepreneurs in our portfolio, either by phone, email or face to face, as well as attending board meetings.
Are the projects you have invested in doing well?
Gauthier:
ScaleFund I began in 2017 and during the summer of 2021 we exited three out of six companies. This demonstrates that the idea of investing around two or three years after businesses makes for a successful exit.
Alexandre: Our goal for ScaleFund II is to invest in a dozen projects. We are approaching the end of our investment period. We are expecting to launch a new fund within the next 12 months. We invested in companies which have succeeded, like Passbolt, which was elected the best cybersecurity group in Europe and is a project BeAngels members also invested in. Then there are also Moonbird and Naki which are working well, they completed their prototype and came to us to accelerate their sales. Our particularity is that we create relatively strong relations with our co-investors and we are often approached for other investments.
Gauthier: More recently, we financed a project which was introduced through a scale-up from our portfolio. This was great as it shows that the fund provides real added value for entrepreneurs.
How do you analyse the potential opportunities of a project?
Alexandre: We pay particular attention to the quality of the team and their capacity to adapt to their market. We also check whether the team is inclined to receive and listen to feedback. The solution proposed must also have real added value and truly stand out from the competition or from existing solutions.
Gauthier: To pick up on that point, we seek projects with rapid growth potential and teams with an international vision from the outset.
Alexandre: I would also add that we are attentive to a team’s capacity to create economies of scale.
What are the current market trends?
Alexandre: For a while, there was a lot of cash available on the table, with heightened competition at all levels. Amazingly, Covid did not necessarily curb the trend. However, it was not a particularly good time for startups, as many of them were on life-support. Today, amid resurgent inflation and in the nervous climate, the economic environment is far more challenging. We have observed that the flood gates have narrowed. We find ourselves in a situation where growth-at-any-price has been replaced by a quick-profit view. It will certainly be more difficult to raise funds over the next twelve months than it has been over the past year. And valuations will be lower.
Gauthier: I would qualify that by saying that profitability is not necessarily the key aim, but if a project backfires, it remains a healthy goal. Regarding whether it is easy to raise capital, it should be noted that most funds are closed and therefore have a clearly-defined investment period. This means that there are currently still many funds with cash to invest. There have always been low and high cycles. The period we’re living through therefore undoubtedly represents an advantageous entry point.