Why should you invest in a deep tech company? In the second part of the series odf articles dedicated to how to scale a deep tech startup, you will get valuable tips from Anne Sophie Carrese, partner at Elaia Partners. Elaia parnters is an independent company of investment established more than 20 years and that focuses on investing in early-stage and seed deep tech startups. The following discussion is an extract from a panel discussion during the 2022 edition of BIG.
-Fannie Delavelle: Financing is key for deep tech startups who ask a lot of capital. Yet only a few investors in Europe invest in deep tech. What made Elaia focus on this sector?
-Anne Sophie Carrese: First of all, the size of the deep tech market is a great one. Technological products and companies offer a huge potential and answer to a lot of problematics such as polluting plastics, energy, how to advance medicine. There are needs and the application of those needs are technological. And after the big crises we went through, there is no doubt that:
Technology is the answer to those crises. At Elaia, we often say “tech is the new gold”. Problems and market needs can be solved via technological companies. At Elaia, we have a tech DNA, our founders are former scientists, I’m a rocket scientist myself, I worked as an engineer on the Rafale plane. Therefore, we have a natural deal flow that takes up to labs, we are managing two funds that are spinoffs of labs for Paris Sciences et Lettres and Inria. I can confidently say that every day we have a member of our team who visits a lab and witness early-stage innovations. Then, our mission is to identify the startups that have a large market and that can be addressed quickly with a go-to-market solution that is compatible with the vision of the venture capital. We find these in different/many sectors such as health, renewable energies, digital in which we manage to create big business with tech companies.
-F.D: How do you support startups in building long-term goals when investment funds have often short-term objectives?
-A-S.C: at Elaia 1/3 of us are entrepreneurs, so we have a lot of empathy for entrepreneurs, we even have former of our entrepreneurs who become partners at Elaia and a lot of our former partners who become investors. We are very close in our DNA.
Providing startups experience from entrepreneurs and VC partners: In addition of the team of investors, a dozen of venture partners who are still operating entrepreneurs allocate us some of their time, which means that they are still at the heart of operations. If we don’t have an entrepreneur, we allocate a venture partner who will be an independent board member who will help in the daily tasks.
Mapping of the Go-To-Market Strategy: For the early-stage startups, we help with the go-to-market strategy and with the strategy on how to land their first clients. Often, their first clients are people we were in contact with. We have a lot of corporate partners who invest in those companies that we link up with our early-stage startups.
Recruitment: We are very active and have someone in our team who focuses on curating a large number of CVs so they can recruit because in deep tech, talent retention and training are serious questions especially in the first years of these companies. So, we are very vigilant in the recruitment process to convince the high-level profiles to join these companies. We are part of the committee of remuneration, we help define their strategy. Besides the HR aspect of our job, there is a second phase.
-F.D: How do you still support the companies in their scale-up phase?
-A-S.C: Maintaining the partnership in the scale-up phase: When the company becomes a scale-up or a unicorn, we keep a seat in the board of administrators. When it’s at a later stage, we could leave that seat to bigger funds that will join the funding rounds. But in general, the companies we invest in want us to stay in the board until the exit, so I guess we proved that we are true sparring partners with the companies.
Supporting companies with their fundraising: And in the second phase of the scale-up, we are very careful with the fundraising. Cash is key for entrepreneurs especially for scale-ups. At Elaia, we usually do the first round alone because we are focused on early-stage. For the second round, we look for sister funds, which usually are in the UK and in the US because most of the markets of our companies are in the US. We also play a role of connector with the English-speaking funds, which helps companies to focus on their business aspect while we are more involved in the financial side of things. We are also active in the M&A phase because it’s a process more destined to financial institutions.
Question from the audience:
-How do you co-exist with CVCs in the boards of the companies, what’s important to keep in mind?
-AS: I have done a lot of deals with CVCs. What often happens with industrial funds is that we see a lot of CVCs. In the case of an industrial spinoff, it’s a bit different. What we often experience when companies are still very young is that they start with more classic funds. We insist that the companies keep their strategic independence and that when a CVC gets involved with a company, it needs to happen through a business partnership. When this partnership proves to be successful, it is a good reason for this particular CVC to enter the capital to accelerate the company’s growth. But we are very careful that there is no conflict of interest.
The structure of the CVC is essential but we have noticed that CVC funds are more and more professional and well organized. The CVC needs to have a management team that is independent from the strategic and business teams. You don’t want to have the same persons on the board.
Partner with several CVCs: Bring 2 CVCs if you can: We also usually recommend the startups we work with to partner with two CVCs and here is why: when you have two CVCs, it’s like to a LEGO. I remember being part of a board that had IKEA and Valeo for usage cases that had nothing to do with each other. Yet, it turned out that their inputs were very complimentary. They were not competing with each other and brought real value to that company and the fact that they were co-investing allowed me to be the bridge between the two, which is why it’s always good to have classic financial funds in your board. Both industrial CVCs wanted 100% of the intellectual property and rights, and the fact to have two allowed us to negotiate in a reasonable way and define for each their range of intervention and therefore not interfering in the strategy of the company.
In the next part of this three-part article series, you will get the perspective of Louis Fleuret, Deputy Director at La Mission French Tech on how institutional partners can help deep tech startups in their scale-up journey.