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You might not be familiar with Hexa, the Paris-based startup studio that has launched dozens of B2B software companies, but some of its portfolio companies have become well-known unicorns, such as Front, Aircall and Spendesk.

And it turns out that Hexa itself could be considered as a startup as the company just raised a funding round of $22 million in fresh capital (€20 million). This isn’t the first time Hexa raises outside capital. But it’s the company’s first round since 2016.

“We’ve got a few family offices investing, but we’ve mostly got local entrepreneurs investing like Luc Pallavidino (Yousign), Adrien Van Den Branden (Canyon), Paul Vidal (Collective) and Arnaud Schwartz (Marble),” Hexa co-founder Thibaud Elzière told me.

In other words, Hexa is raising from its own community of founders and friends. And this is just a first step as the company promises that there will be more funding in the coming months.

“This marks our initial close, and we anticipate a subsequent round in the new year. Our aim is to welcome even more family offices and entrepreneurs to join us on this journey,” Hexa co-founder Quentin Nickmans wrote in the funding announcement.

Hexa started its life as eFounders, a startup studio focused on B2B software-as-a-service startups. As it broadened its scope, it recently rebranded to Hexa so that each vertical (fintech, web3 and SaaS) would be handled by its own little startup studio.

The startup studio is also formalizing its fundraising process with this funding round. When Hexa decides to create a startup, they try to find the right founding team to iterate on this idea and turn it into their own project. At first, Hexa and its startup studios help for the basic building blocks, including product design, the go-to-market strategy, hiring and more.

After a year or so, when a startup is ready to raise some money to reach the next level, Hexa has been tapping its community of investor friends with something called the eClub.

For each startup, eFounders would create a special purpose vehicle (SPV), which is an ad-hoc investment vehicle created for a specific investment. Investors from Hexa’s eClub would invest in this SPV, which would then invest in the startup. Hexa itself keeps 30% in equity post-seed.

The eClub isn’t disappearing. Instead, it will be restricted to Hexa investors.

“Until now, we’ve operated with the eClub — we offered our pro rata rights to a group of investors in the form of SPVs. We’ll keep doing the same, but it will be reserved to the studio’s shareholders — which is also one of the reasons why people invested,” Elzière said.

Arguably, it has never been so easy to create a software startup thanks to no-code tools, a wide range of SaaS services, cloud hosting and a simplified regulatory framework. So Hexa plans to take advantage of that by increasing the size of its batches and its overall pace.

Hexa expects to be able to launch 30 new startups per year. Of course, it won’t happen overnight. The startup studio is already thinking about hiring new team members to launch new verticals. When talking with the Hexa team in recent months, they’ve mentioned some of those potential verticals — climate, education and health.

But it represents a huge increase compared to Hexa’s current pace of startup creation. Over the past 12 years, Hexa has created 40 companies — so that’s about 3 to 4 companies per year.

That vision will also depend on the macro environment for the startup ecosystem. Hexa portfolio companies — just like the rest of the tech ecosystem in Europe and the U.S. — are going through a rough patch.

While these portfolio companies currently generate a total of $277 million in annual recurring revenue (an impressive feat!), the total portfolio valuation is slightly down this year — from $5 billion to $4.8 billion.

In order to get back to work and try to make this number go up again, Hexa is also moving to a brand new office called La Cristallerie. The team will host meetups there and new startups will first work from there before they get their own office.

The downturn in the technology sector — dragged by inflation, higher interest rates and geopolitical events — continues to persist, and one of the most acutely impacted areas has been VC funding for startups, particularly those outside the U.S. According to VC firm Atomico, companies in Europe are on track to raise just $42 billion this year — less than half the $85 billion that startups in the region raised in 2022.

The figures come from Atomico’s big report on the state of European tech, which it publishes annually.

It also found that startups in the region are raising less at each stage of funding from Seed through to Series C (and beyond), with later stage and larger companies feeling a particular pinch: just 7 “unicorns” (startups with a valuation of more than $1 billion) are set to emerge this year in Europe, compared to 48 in 2022 and 108 in 2021.

But there is a silver lining in the story. While overall investment amounts are definitely down on the last two years, Atomico’s theory is that 2021 and 2022 were outliers in terms of activity — a consequence of lower interest rates, a surge of technology usage during the peak of the Covid-19 pandemic, and a pent-up amount of funding among investors — raising ever-larger from LPs keen to reap big returns from a buoyant industry — that needed to be deployed.

In other words, taking those two years out of the mix, it looks like figures are following a slower, and perhaps healthier, growth curve upwards.

Another positive sign is that the overall total value of the European tech ecosystem — that is, the combined equity value of all public and private tech companies in Europe — has returned to its 2021 record of $3 trillion after dropping $400 billion in value in 2022. That’s thanks to a steady stream of new startups raising money offsetting down rounds, with the majority of fundraises made as flat rounds or up rounds.

“This rebound in ecosystem value has also been supported by the continual influx of new companies starting and raising private capital for the first time, as well as the fact that, despite a large increase in the number of down rounds, the overwhelming majority of follow-on capital deployed into the ecosystem has been through flat rounds or up rounds,” the authors of the report write.

Atomico bases its figures on surveys it runs with startups and investors, and complements that with data from third party sources like Dealroom, CrunchBase and others.

Some of the other notable points from the report:

“Crossover investors” have crossed out Europe. Atomico notes that so-called crossover investors — those who invest both in private and public tech companies (Tiger Global is one well known example) — have all but disappeared after driving some of the biggest deals of previous years. In 2021, there were nearly 100 mega-rounds where these investors led or participated in Europe. 2022 started to see a slowdown of that pace. This year, spooked by the poor performance of both public and private tech companies, these crossover players made just four investments in the region.

Their absence has also impacted the overall picture for nine-figure rounds. Atomico notes that the first nine months of 2023 saw just 36 rounds of $100 million or more, compared to hundreds in the preceding two years. Notably these rounds do not follow the same upward curve as some other figures: there were 55 $100+ rounds in 2020.

Planting the Seed. Startups at almost every stage are raising on average at down rounds, Atomico’s data shows. Generally, the later the stage, the starker the valuation drop. Here is the picture for Series C rounds:

Overall, the median valuations for European startups remain considerably lower than those of their U.S. counterparts — specifically between 30% and 60% lower.

“This shift back toward longer-term averages in Europe mirrors what is happening in the U.S.,” Atomico writes. In fact, between the U.S. and Europe, funding has dropped in nearly every stage of investing between Seed and Series C. The only exception is Seed stage in the U.S., which continued to rise, albeit at a slower rate. (Median Seed rounds in the U.S. this year, Atomico said, was $11.5 million, while the European median figure was essentially half that amount: $5.7 million.)

It’s not AI that is dominating investment in Europe. Although the focus in the tech zeitgeist right now certainly seems to be on artificial intelligence, when it comes to what segments are driving actual funding monies right now, if you jump on that bandwagon, you might miss the real show. Atomico says that its numbers indicate that climate tech — and the wider area it’s in, Carbon and Energy, accounted for a whopping 27% of all capital invested in European tech in 2023.

That is more than double what was invested in this area in 2023, and it’s even performing better than some of the other segments of tech that have traditionally be huge in the region.

“Carbon & Energy has soundly overtaken Finance & Insurance and Software as the single largest sector by capital raised,” the report authors note. “This not only represents a dramatic increase in the scale of capital invested behind the green transition, but also a clear slowdown in fintech investment volumes since the peak of the market.”

AES chief defends renewables investment despite market rout this year

The head of one of the world’s largest developers of clean energy said investors are on the wrong side of history as they drive a historic sell-off in renewable stocks.

Shares of companies involved in wind and solar power projects and the equipment behind them have been slammed this year as high interest rates and inflation hit their profitability.

Yet Andrés Gluski, chief executive of power company AES, said investors were making a “big mistake” given the scale of the climate crisis.

“We’re having the hottest year on record . . . and yet Wall Street is giving a lot of preference to oil companies over renewable companies,” Gluski said in an interview.

“Building renewables, building low-carbon is the right side of history, and it’s a question of time when this will be borne out. Wall Street can get things very wrong in the short term,” he added.

With its headquarters in Arlington, Virginia, AES builds energy projects and is the largest seller of renewable electricity to corporations, including Amazon and Google. While it also owns coal- and natural gas-fired power plants, AES has moved to green its portfolio with plans to ditch coal by 2025 and triple its renewables capacity by 2027.

Gluski spoke amid a difficult earnings season for clean energy companies, with numerous project cancellations and delays being announced across the sector in recent weeks. Shares in AES have fallen almost 40 per cent in 2023.

The S&P Global Clean Energy index, which includes the 100 largest clean energy-related businesses, is down 31 per cent since the start of this year, compared to a less than 1 per cent decline for the fossil-heavy S&P 500 Energy index. 

Canadian battery recycler Li-Cycle recently called a pause on a project in New York as the company raised its cost estimate to up to $1bn from an original budget of $560mn. The announcement came days after Plug Power, a US hydrogen fuel cell developer, warned there was “substantial doubt” about its ability to stay afloat in the next 12 months.

Last month, Danish wind giant Ørsted pulled two wind power projects off the coast of New Jersey, citing macroeconomic pressures and snarls in the supply chain. More than half of US offshore wind contracts have been cancelled or are at risk of cancellation, estimates BloombergNEF, which calls President Joe Biden’s plan to deploy 30GW of capacity by 2030 “impossible”.

Peter Gardett, S&P Global Commodity Insights’ executive director of climate and cleantech, called the recent setbacks for renewables “the cost of growth” and said he expected the sector to pursue private markets for financing given its high upfront expenditures and long payback periods.

“[Private equity] can take a longer view, and they can say, the market is moving in the direction of more electrification, cleaner production, lower cost renewable production,” said Gardett, who found that the private equity market for clean energy had grown more than fivefold since the US passed the Inflation Reduction Act. “You can make a sectoral bet on that in a way that can ignore some of the noise in publicly listed stock prices.”

Tightening oil markets and a new era of capital discipline have bolstered oil and gas stocks. Investors have piled back into oil and gas companies despite pressures from environmental advocates to shun the sector. A recent analysis by S&P Global Ratings found that resource companies face virtually no extra borrowing costs compared with less-polluting companies.

New chief Tufan Erginbilgic sets new goals for lacklustre civil aerospace business

Rolls-Royce is to sell its electric aircraft division and target annual savings of up to £500mn as part of a sweeping shake-up under new chief executive Tufan Erginbilgic. 

The FTSE 100 group on Tuesday set out new targets for operating profit and free cash flow over the medium term, including plans to generate up to £3.1bn of free cash flow by about 2027. 

In civil aerospace, its core business, it is promising to lift operating margins from 2.5 per cent in 2022 to 15-17 per cent over the period. 

“We are setting compelling and achievable financial targets for the midterm which will take Rolls-Royce significantly beyond any previous financial performance,” said Erginbilgic.

The company last month announced plans to cut up to 2,500 jobs as part of its bid to streamline its operations and boost returns.

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