What open for business means for us

Frst is a seed-stage VC firm focused on supporting a new generation of French entrepreneurs with global ambitions.

Most VCs are currently officially “open for business” despite the current crisis, which makes sense since a fund is specifically designed to resist shocks and make long term bets.

But the reality is most of them won’t really consider new investments before the future gets clearer, for an array of (understandable) reasons:

• Perception of bad personal risk/reward ratio: “No one gets fired for not doing deals during a crisis. If things go bad & you end up having overpaid for a company, LPs will reproach it to you. If things go well there will be plenty of deals to make in a few months.”
• Difficulty to reach a consensus across the Partnership: Even if decision models vary greatly between firms there is often quite a lot of politics involved, even in peace time. In a war time when everyone is remote and reeling, getting your ducks in a row can be tricky
• Limited ability to call capital from LPs (the fund investors): VC funds don’t have a lot of cash on their bank accounts, they have commitments of their LPs to send money on it when needed. Depending on the LP type it can be touchy to ask for a wire while in the middle of a crisis

Because we are a young and small firm with robust LPs and zero internal politics, we at Frst are lucky to be relatively immune to these 3 threats. We consequently embrace the long term aspect of our job and are open for business. After all, more than half of Fortune 500 companies were founded during a recession or bear stock market.

However, the way we operate is obviously different versus a few weeks ago. Here is how:

• Ticket sizes: As big fans of cost averaging, it’s important to us to make sure that we don’t deploy more money during this period than during any other moment of our investment period. Other VCs being in pause mode we expect the number of good companies looking for money to grow, and will protect our drypowder by favoring tickets under €1m
• Valuations: As seed investors and believers in power law we are well known for being limitedly sensitive to valuations, and still are. On the other hand, we can’t ignore the market reality and have to keep in mind the following round has to happen at 3–4x seed valuation
• Markets & Products: We obviously take into account how covid-resistant businesses are. We definitely can invest in non-resistant ones, but have to understand the game plan (How will you get the most of the next 6–12 months?)
• Remote decision making: As ultralocal investors (France!) our human learning algorithms are trained with face to face inputs, and we are not so confident with Zoom as single point of contact. We consequently may overemphasize references from people we know or demonstrated track records of ability to make things people want, and need a few extra touchpoints vs. normal

We took an investment decision 5 days ago, and expect this to happen again in the next weeks. If you are connected to the French ecosystem and are working on something that keeps you up at night, please feel welcome to reach out.