Since September 2022, Europe has entered a new “P&L leading era,” where money no longer flows into vanish metrics.
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.
Here are 4 steps to help founders to get the missing months of runway they need before their next fundraising.
*This content is an extract from the complete playbook created by XAnge Startup Success Team dedicated to portfolio companies.
Against a backdrop of geopolitical and energy crises, the financing strategy of companies is undergoing a paradigm shift in 2023. You will be facing:
Complex activity financing that is difficult to monitor (persistent supply chain disruptions with impact on the 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 must have enough cash for 12 months minimum.”
Partner @ XAnge
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, to detect any cash flow needs to be addressed in the coming months in advance.
Before putting efforts into extending your runway, make sure it worth it. There are a few key P&L-based unit economics able to tell you if you are running a promising business. Let’s assess yours!
Once you are done with your assessment, focus on the relevant metrics:
Are you spending more money to acquire new customers than customer revenue?
How to interpret the result?
🟢 >140 excellent
🟡 >100 good
🟠 >50 to 100 to be improved
🔴 <50 danger zone
Do you have difficulties to gain new customers?
How to interpret the result?
🟢 <0,5 excellent
🟡 0,5-1 good
🟠 1-2 to be improved
🔴 >2 danger zone
or NRR. Do you attract and retain customers?
How to interpret the result?
🟢 >110-120 excellent
🟡 >100% good
🟠 90 to 100% to be improved
🔴 <90% danger zone
*Note that these are very SAAS B2B focused unit economics. Make sure to use relevant ones for your business type.
There are 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.
Is your Sales Team profitable?
How to interpret the result?
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.
How long is your sale cycle?
How to interpret the result?
It’s a key financial metric to pilot new sales hires. It is the number of months a sales needs to hit the full speed ratio.
How to interpret the result?
“If you don’t have those indicators post Series A in your excel sheet, something’s wrong and needs to be improved.”
CEO @ AtScale
Part of XAnge Mentor Network
Below, here are several solutions for reducing and finding non-dilutive cash according to your runway extension need. The actions listed below are never simple to handle. They have to be undertaken when the becoming of the company is critical.
Deciding to shut down a business unit is never easy. Here are some key questions to ask yourself before doing it:
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
“If you don’t have those indicators post Series A in your excel sheet, something’s wrong and needs to be improved.”
CEO @ AtScale
Part of XAnge Mentor Network
This is never easy to handle such topics because people are the heart of your company. But depending on your cash runway and your 1-year-vision, you have to make tough choices.
Your organization can either maintain the current team by choosing to freeze hiring but continue to replace turnover. Or, if there is no other choice, downsize the workforce. Before taking action, here is some advice to help you pin down:
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 in 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
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 a span of control is between 5-7, although it can be much larger for some teams (engineering, customer success…).
Maintaining your people costs means that you freeze hiring but continue to replace your employee turnover. As tech startup turnover is pretty high comparing to other industry, this means you still have talent acquisition work to do. Check out our “Still Hiring?” section to get tips on hiring.
You can take advantage of this lower hiring period to make your HR team work on key topics such as retention, career paths or training policy. Check our article on tribes on how to structure your HR team here.
This is the hard part. Downsizing your workforce means that you don’t pursue trial periods or short terms contracts, you don’t replace turnover, and, ultimately, layoff or reduction in force. It’s important to first think about either a person can be transfer to another department. Layoff is to consider when positions are not needed anymore.
Before considering layoffs, here are some options you can consider to reduce your HR costs:
This is particularly important for demonstrating support during this difficult time in your employees’ journey with your company. Sharing resources to help them find new work opportunities, such as jobs or training, will make it easier for them to move on.
Here you’ll find all the relevant XAnge resources that can be shared to departing employees:
XAnge job board: Redirect them to our job board portfolio to help them find new opportunities.
You can also redirect them to other VCs and incubators jobboards such as Station F, 50 Partners, Hexa, Alven or FoundersFuture.
Some recruiting agencies have talent programs, startup-oriented, that you can share with departing employees such as Avizio, Elinoï, Ignition Program, SplendUp, …
In 2022, compensation skyrocketed and the balance of power shifted to favor talents rather than companies. This downturn and market uncertainty could be an opportunity for startups that are still hiring to attract laid-off talent with great potential.
We’ve seen a lot of layoffs in Big Tech and Scale-ups. It can be hard to determine why certain employees were let go, and whether or not they were high performers.
Here’s a way of navigating this new available talent market (yet not a definitive rule):
Where can I get updates on layoffs at startups? The best resource to date is the Layoff Tracker. You can also get access to the lists of employees here.
“Anticipate your team organization by defining the skills and positions you need in priority in order to maintain your business”
Cécile Plessis
CEO @ HR4Team
Part of XAnge Mentor Network
Usually, offices are the 2nd cost item of a company’s 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.
“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
Use this tool made by Ubiq to calculate the space you need according to your growth plan.
→ 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.
If you have too much space or too many seats, don’t hesitate to sublease seats. There is plenty of companies looking for offices for few months. Be careful though, it can be difficult to manage if your activity need privacy or if you make developers and sales cold callers live together…
Even if the co-working cost is higher, it can be more profitable for 3 years depending of staff variation. In a classical lease, if people headcount strongly grow, you have to move to new offices and this generate a lot of CAPEX… (refurbishment, decoration, moving relative costs…). Whereas using coworking will allow to have access to other offices as my business grows. This shift typically occurs around 4 years. Therefore, it’s important to consider this duration when signing a traditional lease of 3/6/9 years. Predictability of staff and work modes that allow for densification of my spaces are the two key points to consider.
WeWork
wework.highspot.com
![[PAR] WeWork Promotion Spéciale: 3 mois offerts pour 12 mois d'engagement](https://super-static-assets.s3.amazonaws.com/31862886-183f-43e0-996b-ba17e8554176/images/12309787-269e-4864-b17a-f35c6e51927f.gif?b=data:image/png;base64,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?w=300&f=webp)
“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
“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.”
CEO @ Ival
Do you want to know more about office cost reduction? Get a 30-minute audit of your ability to negotiate your lease with Jérome Justin, CEO @ Ival
Need to sublease part of your office seats? Fill out this form to share this opportunity to XAnge portfolio companies and network (+8K contacts).
Did you know that SaaS pricing inflation is growing 4x faster than market inflation? Between 2010 and 2020, global annual SaaS spending increased from $13b to $157b.
SaaS spending increased by 26%following the first lockdown in 2020, and continued to grow in the years since.
90% of SaaS buyers overpay 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.
Additionally to stack cost reduction, and depending on your business, you can try to reduce your main providers’ costs.
“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.”
Senior Executive @ Vertice
Do you want to know more about Saas expenses reduction? Get a 30-minute audit with François Gougeon from Vertice
In 2022, companies are facing an explosion in the 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 CFO’s responsibility to do the cash collection.
Some advice for your sales team by Agicap :
Unpaid invoices are much more devastating than you may think. If you have a 5% profit margin, which is fine for an average French company, then for a €10,000 non-payment you will need to make €200,000 in compensatory turnover just to come back to your initial situation. Your time is much more profitable collecting your unpaid invoices than trying to create new revenue.
Head of Sales @Agicap
Part of XAnge Partnership Program
Do you want to know more about Agicap? Get a demo of the no. 1 SaaS solution that automates cash flow monitoring to save you time and increase financial efficiency.
Factoring is a short-term financing technique for B2B companies consisting in selling their invoices to a Factor in exchange for direct access to invoice amounts, fewer factor fees. The factoring service includes : Invoice financing, Credit Insurance (and creditworthiness information), and Recovery service.
The French Factoring market has more than doubled between 2012 and 2022, settling at € 380 Billion.
Is factoring compatible with your business?
Are you eligible to Factoring? Get a 30-minute audit with Charles Bonduelle, Operation manager @ BibbyFactor
Prefinancing your “CIR” (Crédit d’impôt Recherche and Crédit d’impôt innovation) is an advance payment of the research tax credit already declared (CIR of year n-1 or earlier) or in the process of being established (CIR of the year in progress). It allows companies to earn 6 to 12 months of cash flow.
Is CIR financing compatible with your business?
Are you eligible to CIR financing? Use Neftys simulator to assess your ability to finance your CIR.
Revenue Based Financing (RBF) is a debt method that involves receiving a cash advance on anticipated future revenues. Complementary to equity money and bank debt.
The European RBF market has grown rapidly since 2019. In the first quarter of 2022, RBF European fintech startups raised 220 million dollars, including Silvr’s successful fundraising of 130 million euros.
Is Revenue-Based Financing compatible with your business?
“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.”
Strategic Partnerships Manager @ Silvr
XAnge Portfolio Company
Are you eligible to Revenue Based Financing? Start your application on Silvr and get a go/no go within 48h.
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.), and Europe (Horizon Europe).
The grants and subsidies most commonly used by tech startups and scaleups are: French Tech Scholarship, ADI (Recovery advance, PRDI), Innov’Up (IDF region), and 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).
🏆 Top 10 Grants & 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 | ⬤ | ||
| ADI (PRDI ou Avance récupérable) | BPI France |
As time goes on (Best time: just after fundraise) |
⬤ | ⬤ | ⬤ |
| PAI (Prêt d’amorçage) | BPI France |
As time goes on (Best time: just after fundraise) |
⬤ | ⬤ | |
| ADD (Aide au développement Deeptech) | BPI France | As time goes on | ⬤ | ⬤ | |
| iLab | BPI France MESR |
Every year, 1 call / year | ⬤ | ||
| iNOV | BPI France Ademe |
Every year, 1-2 calls / year | ⬤ | ⬤ | ⬤ |
| Innov’UP | BPI France Région IDF |
As time goes on | ⬤ | ⬤ | ⬤ |
| Innov’Up Leader PIA | BPI France Région IDF |
Every year, 1-2 calls / year | ⬤ | ⬤ | ⬤ |
| EIC Accelerator | UE | Every year, 2-3 calls / year | ⬤ | ⬤ | ⬤ |
| 1er Usine | BPI France | New Grant (1-2 calls / year) | ⬤ | ⬤ | ⬤ |
TO BE COMPLETED
TO BE COMPLETED
This playbook has been created with the help of experts, partners and portfolio companies.
