Avid Larizadeh Duggan knows what’s going on at some of Europe’s hottest early and growth-stage businesses.
The senior managing director at growth-stage investor Teachers’ Venture Growth (TVG) sits on the board of Kry, Beamery, ComplyAdvantage, Lendable and TaxFix. She’s also a board observer at Graphcore, and her angel investments — in a personal capacity — include much-hyped French AI startup Mistral, newly-minted Italian unicorn app developer Bending Spoons and Dutch biotech Cradle.
Her team, which is part of the Ontario Teachers’ Pension Plan — one of the world's biggest pension funds — is all over the two liveliest areas of startup investment this year: climate tech and AI. TVG led German battery startup Instagrid’s €87m Series C in January, and Larizadeh Duggan tells Sifted it’s “actively trying to build a framework around climate infrastructure” investments, a hot topic in Europe these days — and the focus of the biggest funding rounds of 2023.
TVG also sees lots of opportunities in the picks and shovels of AI. Last year, it participated in San Francisco-based AI “building blocks” startup Databricks’ $525m funding round.
So, how does Larizadeh Duggan feel things are going for Europe’s startup sector in 2024?
“It’s tempered optimism,” she says. “We’re not out of the woods yet.”
The big reset
2022 and 2023 saw a big reset, says Larizadeh Duggan, with startups restructuring and devising new strategies — which is turning out to be positive for most companies.
Having a fresh plan and “vision” for the future means “teams are energised”, she tells Sifted. “We’re seeing that in our portfolio, and in the market.
“High quality and disruptive companies are coming to the market to raise,” she adds — and TVG is actively working on a deal in Europe at the moment.
“It’s still competitive for the good ones at the later stage,” adds Larizadeh Duggan, with “the usual suspects” like VC firms Index and Accel, sovereign wealth funds GIC and Temasek and finance giant BlackRock all vying for spots on cap tables.
Some of those fundraising businesses are “dual-tracking”, she says — exploring fundraising as well as a public listing, or M&A opportunities alongside preparing for floatation.
But for the companies that have restructured, raised internal rounds, perhaps also debt — and still not got to profitability, “the equity markets are not as forgiving,” she says. “There’s a true gap between the high-quality companies and those struggling.”
For struggling businesses, it’s important to have an open conversation with the board, she says: can the business get to profitability? Is there a path to M&A? Or should it fundraise and take a down round? “They can’t wait it out anymore, and have to face the music.”
This dynamic will mean that there’ll be plenty more companies that once attracted unicorn valuations that’ll go bust, predicts Larizadeh Duggan.
M&A’s moment
M&A will also pick up this year and next, she believes — and TVG is already seeing a lot of inbound M&A enquiries from startups hoping to get bought by one of its portfolio companies.
Most founders and investors would rather sell than shut down a company, she says — but not all businesses will be able to find an acquirer.
“It’s important to have a long-term plan; a short-term M&A plan is not a good one,” she says. “In the best situations, leadership teams have relationships with potential acquirers. There’s a very human relationship aspect.”
Boards should be talking about exit options, she adds. “It’s important to have these discussions openly, even if it’s not for this year or next year: what are the options on the table? Initial public offering (IPO), M&A, you acquiring another company? It’s one aspect of the strategy of a company.”
Larizadeh Duggan is unsure when the IPO market will open up — but says bankers tell her they have a real backlog. “Everyone is hoping there will be some this year. The big question is how well they’ll perform.”
Resilience is key
TVG usually writes cheques of $50m-$250m into growth-stage companies and can hold its positions from Series B up to IPO — if the company is doing well. “If it’s not performing, we won’t stay in it for very long,” Larizadeh Duggan says.
In this down market, she says the bar is higher for investments. “We pay a lot more attention to the founders and operational excellence — we don’t have the same margin of error as before.”
“We want people who can deal with things that aren’t predictable,” she says. Team resilience is a big factor to consider: “Have they been through a near-death experience, laid off people before and came out of this much better and stronger?”
Take Kry, the Swedish healthtech TVG invested in at Series C in 2020 has been through a tough few years, laying off around 400 employees in 2022 and pulling out of Germany. Now, it’s profitable in all three of its remaining markets — and has a lot of potential, says Larizadeh Duggan, as many of its former competitors (most notably Babylon Health) have shut down. “The landscape today vs 2020 — there’s hardly anyone left.”
Arming up with AI
At the boards Larizadeh Duggan sits on, uncertainty around sales, company culture challenges — with teams still feeling the effects of layoffs — and the big old question of how to use AI frequently crop up.
Sales contracts are shorter with many companies signing one-to-two-year deals rather than three-to-five-year deals, as were common a few years ago, she says.
At the same time, sales cycles are also getting shorter, which is an encouraging sign, but founders aren’t sure if things will stay this way — or if customer churn has slowed down for good.
There are “a lot of conversations” about AI — in particular, how to use it to your company’s advantage.
But Larizadeh Duggan thinks it’s still early days, and people are “too bullish on the short-term adoption of AI and too conservative on the long-term”.
“CEOs and enterprises are mobilising everyone in a panic,” she says, spurred on by the arrival of ChatGPT and the very “palatable paradigm shift” it represents.
“But a bunch of the building blocks are not enterprise ready, which means [the adoption of AI is] not going to happen at the scale lots of people have imagined and priced.”
