April by D’Ornano + Co.: exploring what could go wrong in technology financing in Q2, SEC disclosures on climate and the emergence of low-code/no-code solutions for enterprise software
This is our monthly newsletter dedicated to Tech x Investments.
Q1 2022 financing figures are out. The threat of higher interest rates has put pressure on deal activity (and valuations – see our What got us talking/must read section after). Geopolitical tensions in Europe have blurred the financial picture. The Russian invasion of Ukraine caused dealmakers to push the pause button for several weeks. While that pause is still in effect for Europe, particularly for late-stage funding, the market is moving again in the U.S. (source: Pitchbook, Q1 2022 US PE Breakdown).
In this new context, well-known risk factors such as inflation, supply chain shortages and the pandemic are again under the spotlight and need to be carefully analyzed when considering a potential transaction. But in assessing the differences between a good and a bad asset by an investor, other imperatives have emerged such as the way target companies tackle climate change and report on it in an objective and transparent way. Hence the need for new grids for performing hard due diligence.
We imagine here what could go wrong for Tech as we move through Q2 in order to be better prepared through the exploration of 3 risk factors for investors and entrepreneurs - falling growth rates, inflation and supply chain shortages and COVID-19 - to break things down and ask the right questions to help founders and investors make critical strategic and funding decisions.
On March 21, 2022, in a landmark proposal, the Securities and Exchange Commission ("SEC") proposed rules that would require public companies to disclose extensive climate-related information in their SEC filings. Specifically, the proposed rules require disclosure of:
Climate-related risks that are reasonably likely to have a material impact on a public company’s business, results of operations, or financial condition;
Greenhouse gas (“GHG”) emissions associated with a public company that include, in many cases, an attestation report by a GHG emissions attestation provider; and
Climate-related financial metrics to be included in a company’s audited financial statements.
The proposal points to increasing investor demand for disclosure on climate-related risks and the management of such risks. Many companies make these disclosures in their proxy statements, sustainability reports or on their websites, but the SEC has observed that these disclosures can vary widely in terms of completeness, granularity and format and argues that third-party data providers and voluntary climate reporting frameworks have not met the existing, and growing, need for climate-risk related disclosures. The rules would provide "consistent, comparable, and reliable — and therefore decision-useful — information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments. It argues that since "climate-related risks can affect a company’s business and its financial performance and position in a number of ways…[improved disclosures] on the material climate-related risks public companies face would serve both investors and capital markets" and hence that this rule proposal is firmly within the SEC’s remit.
The long-awaited proposal is long and complex, with more than 500 pages of detail to go through, although it appears to be not as strict as the European Union approach, as embodied in the recent proposal for a Corporate Sustainability Due Diligence Directive (issued on 23 February 2022). It is also controversial, and many debates are expected before final adoption.
For Tech, these new rules should have a double impact. First, it should fuel the development of Climate Tech startups, notably those that allow precise measurements of carbon emissions, and more globally it should allow climate-conscious scale-ups to stand out from the crowd when anticipating an IPO when the horizon uncovers. We view these rules as a key step in building an adequate Climate (and more generally) Sustainability framework for Tech companies, with adequate KPIs, one that should be anticipated by private companies seeking to go to IPO when the horizon uncovers.
The article explores the state of the no-code/low-code market, and hurdles still facing adoption of these solutions and how the functionality offered by these solutions is transforming entire categories of enterprise software.
The article explores Q1 figures in US VC dealmaking across Series A to C stages, and how round sizes and valuations have declined in the first quarter of 2022.
The European Union has just agreed on one of the world’s most far-reaching laws to rein in the power of tech companies. The article presents The Digital Markets Act as perhaps the most sweeping legislation to regulate tech since a European privacy law was passed in 2018.
Horizon Software
D’Ornano + Co. has supported Sagard through buy-side financial due diligence in its negotiations with Capza to acquire a majority stake of Horizon Software alongside its management. With a global presence, Horizon Software is a provider of electronic trading solutions and algorithmic technology, supporting businesses related to listed markets, structured products, options market making and trading and enabling financial institutions to create, test and implement automated strategies within short timescales.
Selency
D’Ornano + Co. has supported CREADEV - Creating for People in its acquisition of a stake in Selency in a Series B funding round.
Selency is an online platform where anyone can buy and sell second-hand furniture and home accessories. CREADEV, a leading French family office, shares the vision that second-hand is the answer to consumer challenges we are facing.
This €35 million fundraising will enable Selency to develop in key areas: developing a mobile application, improve the professional service to meet the needs of our customers and expand internationally.
Skillup
D’Ornano + Co. has advised the venture capital firm Hi Inov - Dentressangle in its minority investment in #EdTech SaaS specialist Skillup.co. Since 2018, Skillup has been supporting HR teams in their strategic role of talent engagement, development and retention, including companies such as Renault Sport, Clarins, Verallia, BPI France, AON, Intersport, Coface, Groupe Vyv and Lazard.
Hi Inov, lead, has taken part in a Series A €8M fundraising round alongside Omnes Capital and SWEN Capital Partners and well as Kerala Ventures and Global Founders Capital. These funds will be used to expand the team, complete the functional coverage of the product and accelerate the company’s development in France and Europe.
