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October 22, 2024

Paris-based GenAI startup LightOn to IPO at a €50m valuation

The startup, which started building Gen AI models only four years ago, is targeting a €10m raise

Paris-based GenAI startup LightOn has announced that it is planning to list publicly on the Euronext Growth stock exchange in Paris this year, with the company targeting a €10m capital increase at a valuation of €50m. 

Those kinds of numbers clearly put it outside of the realms of the kind of company that’s normally associated with an IPO, but the startup tells Sifted that raising Series A-level capital in this way comes with a number of advantages over a VC round.

The French financial regulator AMF has approved LightOn’s registration document, the company said today, marking the first step for an IPO. The listing remains subject to market conditions and further regulatory approvals.

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A different type of IPO

Since 2020, LightOn has developed bespoke GenAI models for enterprises — a product that cofounder Laurent Daudet describes as a “young technology.”

He tells Sifted that the decision to list the company —  which generated €8m in revenue in 2023 according to the AMF approval document — represents “an unusual timeline”, but that it makes sense, due to the high consumer interest in GenAI.

He says that he expects, as a result, to see high interest from both institutional investors and the public to invest.

“We think that ChatGPT educated the market. Everyone knows about [GenAI] and everyone has tried it now,” says Daudet, adding that he thinks there will be a “first-mover advantage” to being the first GenAI company to seek funds on the Euronext exchange.

He says that there’s two other benefits to going public at this stage: the fact that it allows LightOn to maintain strategic “independence from [VC] funds”, and that it means they can raise capital without needing US backers.

“We can see that startups that raised from VCs in Gen AI often had to seek capital outside of Europe,” Daudet says. 

“Listing on Euronext Growth is a reminder that we want to stay French, and our bet is that it is possible to have a very good company trajectory with French and European capital.”

LightOn has secured a €3m subscription commitment from Spanish tech investor Axon Partners Group. The commitment will become void if the IPO doesn’t take place before the end of the year.

The startup isn’t the first European company in the space to use the strategy of an earlier stage IPO: earlier this month, UK-based GenAI company GenIP raised £1.75m when it listed on the London Stock Exchange’s Alternative Investment Market.

Pivoting strategy

When it launched in 2016, LightOn initially focused on improving data processing in AI applications. The startup pivoted in 2020 to developing a product based on large-language models (LLMs) — the type of AI models that are used to power chatbots like ChatGPT.

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LightOn builds bespoke AI models for clients by fine-tuning existing open-source LLMs. This means that it doesn’t train the technology from the ground up — and doesn’t need large amounts of capital to cover the compute costs of doing so. 

To date, the startup has only raised a $3.3m seed round in 2018, before it even made the switch to GenAI, and last year recorded an operating profit of €3.5m.

Most of that revenue came from selling a toolkit for enterprises that helps organisations build bespoke LLMs, or adapt existing models to their needs, but LightOn is now shifting to a more SaaS-style subscription product that will generate higher recurring revenue.

With the change in strategy, the startup is not profitable anymore, and has recorded operating losses of €2m so far this year, according to the AMF approval document. It says that it has secured four clients so far for the new subscription product, representing an ARR of €0.9 and aims to reach 10 clients by the end of 2024, and to double its ARR. 

LightOn says that it plans to be EBITDA-positive again by 2026, and targets €35m ARR from 2027.

The risks of backing a GenAI startup

The AMF approval document cites several risks likely to affect the company’s outcomes, including a number of unknowns concerning the costs of developing LLMs.

In particular it notes that the availability and cost of graphics processing units (GPUs) — the chips that are needed to train and finetune LLMs — could change especially given that a limited number of companies in the world are capable of producing the components.   

Competition from other players in the Gen AI space is fierce. The document stresses that some companies in the sector can count on commercial, financial, technological and human resources that are much larger than LightOn’s — including OpenAI, Anthropic and Cohere in the US, and Paris-based H and Mistral.

There is also a chance that the GenAI market, which is still emerging, will not grow as fast as predicted. “It is difficult to predict the evolution of trends for the GenAI market, as well as its level and its perspectives in the short and medium terms,” states the document.

Finally, the AMF analysis points to risks tied to new regulations for the technology, such as the EU’s AI Act, which it says could lead to additional costs for the company, and restrictions on the markets that it will be able to address. 

LightOn says that the new injection of capital will enable the acceleration of business development in five markets that the company has identified as most promising for the deployment of Gen AI: banking-insurance, defence, healthcare, industry and the public sector.

It will also focus on international expansion across Europe and the Middle East, where it plans to open a commercial office by the end of 2025.

To enable this growth, LightOn says that it will more than double the size of its team by 2027 with the recruitment of 50 new employees, up from a current headcount of 41.

Daphné Leprince-Ringuet

Daphné Leprince-Ringuet is a reporter for Sifted based in Paris and covering French tech. You can find her on X and LinkedIn