Guillaume Meulle, Cyril Bertrand, Nicolas Rose

Everything You Always Wanted to Know about VC Performance

If there was ever a time to be proud of the French Tech, it’s now. Next 40/120 startups alone generated cumulative revenues in 2020 of   €8.85 billion, an increase of 55%. They created 10,000 net jobs. French startups are finally hitting their stride to success, big time. On the investment side, the available capital has never been so abundant. A lot of capital, a lot of good entrepreneurs, tailwinds to propel digital markets - guess what had to happen?

Money time!

More and more French VCs are delivering strong performance and entering the “carried zone”, ie the level of financial returns at which the investment team gets a 20% participation of the LP profits.

Simultaneously it’s “shin-ken” time (= real sword in Japanese): the level of competition between VCs, the level of segmentation & expertise inside VC teams and the level of ambition within the best VC partnerships have never been so high.

So let’s talk about real-life performance.

Why disclose numbers?


1. To share knowledge and set expectations

For founders, raising VC funding means you acquire a license to play a very specific game: focus on hyper-growth, recruit heavily to establish a brand and ultimately, strive for market dominance in your target segment. Many other company-building scenarios exist and some of them may well be fantastic entrepreneurial journeys, but they are not suitable for VC money.

We VCs are not looking for good entrepreneurs; we are looking for good entrepreneurs who are willing to play this game and who accept its rules: start small, scale fast, raise new funding, scale faster, raise more funding, repeat. Without this light-fast execution, VCs end up generating poor returns for their LPs, and have difficulty raising the successor fund: that’s how VCs die. By taking a VC on board, an entrepreneur commits to massive ambition, Samurai-level execution, supercharged hiring and near-permanent attention to fundraising.

2. To show how much we rely on each other

As early stage VC, we are part of food chain. Before we invest, the Pre-seed angels/funds and the Seed funds have done their job. Then we come in the game, do our job, and 6 to 24 months later, we hand over to Series B and Growth funds. We are all dependent on a qualitative, uninterrupted flow of good investment opportunities (= the “dealflow”) and the performance of this financing chain is only as good as its weakest link.

In concrete terms, if our funds are performing well, this means that :

● The startups in which we have invested are generating customer satisfaction, usage, traction, revenues, and create direct and indirect jobs;

● The very first investors (Business Angels, friends and family) earn money and can reinject the proceeds in future projects;

● Our fellow Growth investors also generate returns for their funds;

● Upon exit, our entrepreneurs get personally richer and, very often, plug a large part of these proceeds back into the ecosystem as business angels. Some of them even start a new business by themselves (= the so called “repeat entrepreneurs”);

● Our LPs make steady and predictable cash returns and end up more likely to keep investing in innovation. That’s why we make the performance of our funds public, and invite our colleagues to think about it as well.

The performance of our funds.

XAnge 1

Fund size: 64 million euros
Active investment period: 2004 – 2011.

This fund was raised within the French Postal Office (LaPoste) network and was mostly focused on topics of corporate interest for LaPoste. It made more than 30 relatively small investments. With a narrowly focused investment thesis (essentially logistics & marketing related topics) it delivered 1.6x portfolio multiple (“gross multiple”) and 1.2x net returns.

About half of this performance was carried by a single investment, Neolane (sold for > $600m to Adobe). It had to bear a loss ratio (including partial and total losses) above 40%.

XAnge 2

Fund size: 62 million euros
Active Investment period: 2012-2016

XAnge 2 is currently the flashship fund of XAnge in terms of performance.

It made 17 investments:
– 4 of which at Seed stage
– 10 Series A
– 3 Series B

This fund currently boasts 3 unicorns: Odoo, Believe and Ledger (Seed investment) with 2 Nasdaq-style IPOs: Believe floated in Paris (2021, €1.8B) and Mister Spex floated in Frankfurt (2021, €0.8B). Needless to say, it stands easily in the European top quartile of its vintage (2012), probably higher.

As of Sept 2021:
– 6 investments were fully exited (100% sold)
– 6 were partially exited
– 3 are in a well-advanced exit process
– 2 have no short term exit prospect

As those numbers show, we have made the decision to pursue an active exit strategy on this portfolio. This is a matter of philosophy: some VCs will agree with us and emphasize cash returns. Some will disagree, stick to their winners (without selling anything) for as long as possible and maximize the long term multiple. We at XAnge have put the emphasis on early liquidity so we have started to sell a fraction of our winners early in their success trajectory.

With 3 companies above the €1b valuation landmark and 5 others above €100m, XAnge 2 displays the following performance as of September 2021:

– 221% DPI (= Cash on cash = “Distributed to Paid In” = net cash returned to investors, net of fees and net of carried interest paid to the investment team). This is the most important criteria for many of our investors.

– IRR > 25% (= “Internal Rate of Return”).

We expect to reach 2 7x DPI in Dec 2021 and currently see a 6x net DPI at the end of the fund life, with significant upside potential.

Key take-away: it is interesting to note that the performance of this fund 2 is not linked to the outperformance of one or two startups as is frequently the case in any venture portfolios. The performance of XAnge 2 rests on the shoulders of at least 7 investments: Believe, Evaneos, MisterSpex, CurrencyCloud, Ledger, Lydia and Odoo. A large part of this performance (and of the non-realized future upside) has been achieved with Seed deals, which pushed us to increase the seed investment activity in the next fund, XAnge 3.

XAnge 3

Fund size: €92 million
Investment period: 2017-2021

XAnge 3 also stands in the European top quartile of its 2017 vintage.

Its investment period (= period of time during which new investments can be made) ended mid 2021 and this portfolio holds 21 investments, of which 9 were made at seed stage.

Although it’s still early days for XAnge 3, we can already make a few observations:
– 7 of the 9 seeds investments have currently graduated to Series A (= have
successfully raised a Series A funding)
– We saw the first exits much earlier than on XAnge 2: Shine and Sweagle exited in year 3 of the fund. A total of 3 total exits (with Bergamotte) has been achieved as of Sept. 2021
– 4 XAnge 3 companies stand now above the €100m valuation landmark, one of them heading quickly towards unicorn status.

As of September 2021 we therefore show the following performance:

– 23% DPI (cash on cash, net of fees)
– For investment black belts, a side note: we have started to recycle a fraction of the cash of our early exits to reinvest in the portfolio. This allows us to shoot for 100% of the initial size of the fund at work in the portfolio, a performance-boosting mechanism that we’ve applied as well on XAnge 2.
– IRR > 19%

Those two data points position XAnge 3 ahead of XAnge 2 at the same age (ie 4 years after inception). In all fairness, XAnge 3 had a more favorable market environment so far. A net return above 3x is already visible on this fund, probably far more. Four or five startups in this portfolio have already achieved massive up-rounds: 360Learning, Welcome To The Jungle, Gleamer and Skello.

And now?

These performance figures, because the funds are not closed, will evolve. We will regularly update you on their progress.

In the meantime, we are putting the finishing touch on Fund 4 (XAnge 4, €200m), which is twice the size of its predecessor with an steadily increasing emphasis on Seed investments.

If you are (or if you know entrepreneurs) in the early days of building a global market leader, contact us!

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