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Sonya Iovieno is aware of European tech’s secrets and techniques. As head of enterprise and development at HSBC Innovation Banking, the place she works with 1000’s of VCs, startups and scaleups within the UK and Nordics, she has a view on who’s performed an undisclosed down spherical, who’s been trimming headcount and who’s arrange a “looking line” for future acquisitions.
And she or he additionally is aware of what it’s wish to undergo a merger, after her organisation, previously Silicon Valley Financial institution UK, was acquired by HSBC for a mere £1 after the dramatic collapse of its US father or mother firm in March.
Iovieno joined us this week for a long-form interview on Startup Europe — The Sifted Podcast to share her predictions for 2024 and her expertise of the tumultuous weeks of this spring.
Take heed to our full dialog right here — or learn our flippantly edited highlights under.
It has been a reasonably wild few years in startup Europe: huge growth, gradual bust. What’s your greatest prediction of what subsequent yr will appear like?
When you requested me that query in the summertime, lots of people have been saying perhaps by the tip of this yr, or Q1 subsequent yr, they thought the market would begin to actually open up once more. However I believe that has modified. It is clear that rates of interest, whereas they could be on the peak, are staying increased for longer. And though there’s plenty of capital on the market, and there is no strain on VCs to deploy, I believe now they’re beginning to say it is in all probability going to be in the direction of H2 subsequent yr after they actually begin to open the faucets.
However that mentioned, we are able to already see VCs within the US and in Europe begin to deploy new rounds to the perfect growth-stage corporations at Collection B and C, just about solely in scorching areas like enterprise software program, local weather tech and AI, in addition to life sciences.
A brand new PitchBook report out this week reveals that valuations are nonetheless coming down on the earliest phases. Do you assume we’re virtually performed with valuation downsizing — or is there extra to return?
Not all funding rounds — particularly inner rounds, significantly in the event that they’re performed with a convertible mortgage be aware fairly than straight fairness — have been made public. They usually actually have been principally down rounds. So I don’t assume we’re performed in any respect; corporations have been supported for fairly a very long time with inner rounds by VCs, and that’s going to take numerous corporations via to Q1/Q2 subsequent yr. After which, after they do go to market, there will probably be extra down rounds.
But it surely’s a combined image. Some corporations actually did take their medication over the past couple of years and have been very, very centered on unit economics driving in the direction of profitability, and on the identical time investing in the precise areas for continued development. Some corporations are nonetheless going to have that second of realising that valuations are usually not the place they need them to be, whereas others are undoubtedly effectively positioned to learn from an up spherical.
VCs have been supporting virtually 100% of their portfolio corporations with extra fairness in a single type or one other, however I believe these days are over. They are going to be very considered about the place they put their capital, so it is essential for founders to know the place they sit inside the rating of the portfolio of their buyers, and people which might be within the backside 25% actually might want to look elsewhere, in all probability, for added capital.
Founders ought to be doing their analysis to know what good metrics appear like for his or her kind of firm at their stage on this market. And, if they’ve various totally different areas the place they’re falling under no matter the usual is, they actually should be taking a look at what levers they will pull of their enterprise to attempt to tighten the efficiency. And to begin speaking to different exterior buyers and get suggestions on their firm.
What levers have startups already been pulling to tighten up?
When you return to the heady days of 2020 and 2021, it was fairly regular for a startup to boost a spherical after which immediately develop into 5 totally different nations on the identical time. We have seen them pull again and actually give attention to core markets and go deeper in core markets, the place they have already got a strong footprint, the place they have the power to show out these unit economics and the place they have loyal and sticky clients that they assume they will proceed to develop and develop with.
Headcount has been trimmed, too; builders, but in addition gross sales employees, the place the main focus has been much less on top-line development and perhaps extra on unit economics.
What do you assume we’ll see on the subject of M&A within the coming months?
We have been busy over the past 12 months placing what you name “looking strains” — debt M&A strains — in place for growth-stage corporations. However we’ve not actually seen them used very a lot to date. My studying is that we’ve not actually had a gathering of minds between these corporations and people founders who have not been in a position to develop into their beforehand excessive valuations accepting that the valuation panorama has modified. And they also have not been in a position to come to the desk for any form of a deal, whether or not it is an fairness deal, or in any other case.
When you’re a founder in that place, the perfect factor you are able to do is begin to discover the market earlier than you are right down to your previous few months of money runway to maximise your negotiating place.
We do count on to see extra M&A subsequent yr. There’s quite a bit occurring in enterprise software program and in addition a few of the B2C corporations, even supposing B2C hasn’t been the flavour of the month not too long ago from an investor perspective. I believe we’ll see fairly a little bit of consolidation in cyber — there’s quite a bit occurring there and a few good high quality belongings that perhaps have not optimised the funding that they bought. I additionally count on to see numerous exercise in fintech and open banking and associated companies.
What are VCs’ greatest struggles in the mean time?
They’re clearly very, very centered on valuations and ensuring that they’re optimising these corporations of their portfolio and giving them the precise steering. And that is not as simple because it sounds. 12 months in the past, the steering was very clearly: “Focus in your unit economics, give attention to getting ready your organization for driving in the direction of profitability.” Now, that has modified a bit bit; it’s “Proceed doing that, however we additionally have to see development as a result of that is how you are going to entice the subsequent spherical when you’re up for one more fairness spherical or sale.”
Heading again to March… how did it really feel going via the rollercoaster that was Silicon Valley Financial institution’s collapse?
It was a reasonably distinctive tradition and vibe in SVB; we have been a high-growth firm, we have been distinctive and distinctive in our market and we understood our markets rather well. As somebody who was operating a enterprise inside the financial institution, I can inform you that the stability sheet, by way of the portfolios, was strong as a rock. And we have been actually happy with the way it was working. So it got here completely out of the blue. In some methods, we’re nonetheless in shock and nonetheless making an attempt to know how a really primary mistake by way of funding was made by skilled board members and advisors.
It felt devastating on the time as a result of, as a tradition, we’re very client-focused and all the things that we do is about, “How can we assist founders and our corporations scale? How can we optimise what they need to obtain?” So then to allow them to down and have them as careworn and anxious as they have been… I might say each single member of our group took it personally and I used to be actually happy with how the group reacted. We have been on the telephone morning, midday and evening over the entire interval with our purchasers, placing apart our personal private circumstances and considerations, to get them any info that we had and advise them.
It clearly labored to our favour that we did have such a powerful stability sheet; HSBC was in a position to look in, and with a reasonably minimal quantity of diligence over the weekend, have the arrogance to bid for the organisation. They usually’ve been delighted with what they purchased for a pound and the dividends they’ve already had.
Do you assume SVB ought to’ve inspired purchasers to diversify their treasury extra?
We labored actually onerous with our purchasers at SVB to ensure that they have been taking accountable actions. We developed a template treasury coverage that we shared with our purchasers just about as soon as they raised a Collection A, and one of many clear callouts was that they need to diversify their money. To the extent that purchasers did have interaction in that dialog, we have been in a position to suggest different suppliers to them. However finally, there’s solely a lot you are able to do in that regard. We do not sit on the boards and we’re not a proper regulated adviser to our purchasers. It is a board resolution to make.
What’s subsequent in your group now you’re a part of HSBC?
HSBC thinks globally; they didn’t simply purchase SVB UK to have a UK financial institution. We’re already increasing; we have groups within the US, Israel, Hong Kong, Denmark and Sweden… It is smart for us to be the place the hubs are, the place you have got that confluence of founders, supported by governments, energetic VCs — and never simply native VCs, however worldwide VCs all spending time there. I’m not going to present our technique away, however you’ll be able to take out a map of Europe and a PitchBook report and doubtless determine it out.
Subsequent yr, we’ll optimise what we are able to do at HSBC as a result of they’re a a lot bigger financial institution. We’ll be bringing extra of their banking merchandise onto the platform so our purchasers can entry these as effectively; several types of accounts and totally different jurisdictions.
We’ll develop our providing in asset administration, working intently with the HSBC funding financial institution and wealth administration groups, to supply the precise sorts of merchandise to our purchasers as they scale personally as founders or buyers. That was a continuing supply of inbound inquiry at SVB — and it’s actually vital, as a result of for many personal banks, they should see you’ve got bought money on the stability sheet. And that is not the place wealth is held by these founders. They’re clearly inspired to reinvest in their very own companies and take fairness — they’re taking excessive dangers — and so it is vital they will leverage that in some sense. That is actually what a non-public financial institution for entrepreneurs has to supply.
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