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“We noticed that while the European, whether startup or scaleup, companies’ sector was growing, the lawyers were not keeping up with that,” said Pii Ketvel, on why the IBA European Startup Conference came into existence.
Like the previous editions, the 5th IBA European Startup Conference brought together lawyers, startup founders, investors, and more from Europe and beyond. To do what? It was to exchange ideas, learn about the latest trends in the legal and startup world, learn about challenges creeping up for startup lawyers, and finally, give lawyers a chance to skip their regular lives for a moment to have a bit of fun. This is us putting the conference into words.
Warm reception
This edition, the beautiful city of Dublin, Ireland, was the destination, and the event was held at Croke Park Stadium, the renowned Gaelic games stadium. We kick-started the event on Tuesday, 27th September, with a tour of the Guinness Storehouse, which has been the home of the famous Guinness beer since 1759. Shortly after the tour ended, we were treated to a welcome reception by the host committee law firms, after which we retired for the night.
We could not have been prepared for the wide range of explosive topics, discussions, and even insider tips that dominated Wednesday 28th, the second day of the conference. It was an experience through and through! Finally, the event was brought to a close with a drinks reception followed by the conference dinner.
Startup 101 from the Conference
Since we have two other blog posts coming up, one on the imparting and inspirational messages shared at the conference and the second on Web 3.0, we have dedicated this one to share our takeaways from insights shared on the startup ecosystem.
Two particular sessions, namely “Exits – preparation and execution” and “Market insights – The impact of public markets turmoil on growth company valuations and funding,” discussed some pretty exciting issues and divulged some insider perspectives on the startup sector. Here is what we have.
Keeping up with astronomical levels of growth
One of the issues fast-growing companies face is keeping up the pace of organisational changes as they scale up and the enormous burden on them to keep up with the current growth rate and profitability.
“We saw several of these companies steadily climbing, briefly dipping over COVID, but then climbing up to record levels in valuation – generating multiples of the next 12-month revenue of over ten times, in just 2021. And now, they are falling off quite drastically,” Huw Lloyd, the Managing Director of Arma Partners, said. He then revealed that quite a number of them were from the collaboration, productive, and e-commerce SaaS companies’ market, which had experienced a massive boom at the height of the pandemic.
The unsustainable startup culture
Fiona M Darmon of Jerusalem Venture Partners (JVP) and Borja De Ramon from The Power Business School, Spain, raised the issue of the fast-paced, flexible, and primarily informal culture of startups and its symbolism for the quick fade out of some of even the fastest growing startups. “They’re not stopping to think. They just have their eyes on the goal. They’re gonna run out of money in six months if they don’t get this customer and that customer,” said Fiona.
“They’re not stopping to sort things out or handle the legal documentation. They are not thinking about the next fundraiser. They’re thinking about how fast they can sell and convert that prototype into a product. They’re not stopping to think about documents. That’s on you as their running mate,” she continued.
Where startup lawyers come in
Indeed, this is where startup lawyers come in – to groom them and help them build an organised, structured, and documented set-up that is ready to scale or ready if an unprecedented buyout offer comes at any minute. And at the same time, to help them be a company that can stand the test of time. But whipping these startups into a structured and well-cultured shape is seldom easy.
“When suddenly an external lawyer comes and starts telling these startup guys what to do, all they see is that the little related things are adding more complexity to their decision process and making things slower,” said Borja. For this reason, they are rarely fond of the input of their lawyers or any other entity trying to change how they work.
But according to Fiona, what they don’t know is that “if you have a company where everything looks bulky and messy, then the valuation is going to look that way. That is even if you can get any money.”
How can startup lawyers make cultured startups happen?
“Sometimes you’ll just have to swallow super hard and see how you can be flexible, not in the documents but in adapting yourself to them,” Fiona advised. “You need to earn the trust of the founders and employees. You should do this by making them know that you’re involved in the project, that their project is your project, and that your decisions are in the company’s best interest,” Borja added.
Just like Borja, Fiona agreed that letting the founders know what’s best for their startup’s growth is paramount. “You need to explain to them that their document is their calling card; their employment agreement is their calling card,” she said. “The importance of documents is not to overly bog them down, but to make them look tidy, to make them look organised, to make it look like there’s a government,” she continued.
Should we keep raising more funds?
Fast-growing companies can raise massive amounts in multiple funding rounds within a relatively short period, enabling them to scale quickly from startups to large businesses. The problem with this swift growth is that if not managed and appropriately advised, most of these businesses, after becoming unicorns, either turn up dead or become horses. This is even more true now with the volatility of the market.
For instance, in the past couple of months, massive layoffs have occurred in the biggest tech firms. Crunchbase offers possible reasons for this. Due to the current market instability, Ilkka Rantanen, Co-Founder, and Partner at Ashgrove Capital, advised startups to raise less capital, spend less and shift focus to unit economics. “Make more, raise less, spend less,” he said.
When to make an exit
Huw noted that now might not be the best time for an exit. According to him, growing a business from the ground up to the stage where one can make a successful exit is not easy. So, throwing all that away in these volatile public markets is not worth it. “Except for specific sectors, the IPO market is closed for now, so try not to force an exit now. Rather, keep listening to the market. Keep your preparation and keep your commercial conversations with all relevant parties. But don’t try to force water uphill,” he advised. He, however, noted that private equity is “still pretty strong” and “playing very high prices.”
As much as we would have loved to, we cannot possibly cover all the crucial takes on the startup sector that the outstanding speakers explored at the conference. But for sure, the startup industry is one exciting terrain, and we are glad we had access to all these insights.
So, see you at the 6th IBA European Startup Conference!
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