Investor Flip Flop

Investors Shift Focus from Profits to Growth, Braemont Capital Strikes Gold With $525 Million Fund, and Ynsect Bites into the Pet Food Market.

Author

Adam from VC Brags
April 18, 2023

Welcome Shareholders,

In this daily edition of the Brags Newsletter, we’ll cover how investors are already changing course from a focus on profitability to growth, Braemont breaks the state record with a $525 Million Inaugural fundraise, and an Animal Feed Startup pivots into the pet food market with new funding.

So sit back, grab a snack, and enjoy!

Venture Today 👏

  • New data reveals a pendulum-like shift in investor preference: initially urging startups to transition from a "growth at any cost" mentality to low-cost profitability last year and once more to refocus on growth.

Bessemer's cloud team released their annual report, which includes an intriguing comparison between the value of a 1% increase in revenue growth and a 1% improvement in free cash flow—a profitability metric for startups. In late 2021, a 1% boost in revenue growth equated to a 6% improvement in free cash flow margin, meaning startups could generate six times the value by slightly accelerating growth rather than cutting expenses. Previously, the 6:1 ratio benefited startups, as they weren't typically designed for short-term profitability.

By late 2022, the ratio shifted to around 1:1, slightly favoring profitability and prompting cost-cutting measures at startups, as well as layoffs in larger tech companies. However, as market conditions have improved recently, the ratio now stands at 2:1 in favor of growth, equating a 1% increase in revenue growth to a 2% boost in profitability. A 2:1 preference for growth over profitability may not be enough for startups to easily raise capital and expand revenues rapidly, but the pendulum's shift in this direction is likely to create an environment where startups can generate value through higher-cost growth.

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Who’s Raising?

  • Braemont Capital has closed its inaugural fund with $525 million in capital commitments, setting a record for the largest debut growth equity fund in Texas history.

Launched in 2021 by ex-RedBird Capital partner Robert Covington, Braemont Capital aimed for an initial close of $500 million for the fund. The fund attracted commitments from a varied group of investors, encompassing prominent family offices, executives, and entrepreneurs.

The firm concentrates on defensive growth areas within technology, business services, and financial services sectors where it possesses or cultivates expertise. During his tenure at RedBird, Covington invested in companies such as Compass Datacenters, a data center facilities developer, and N3 Sales Partnering, a tech-driven sales specialist.

Startup of the Day

  • Ynsect recently secured €160 million ($175 million) in funding to transition from animal feed to high-margin pet food and food ingredients

The new funding round brings the total amount raised by the company to around $625 million. The company plans to use the capital to expand its flagship vertical insect farm in Amiens, northern France—the world's largest—and finance new projects. Ynsect revealed that it has secured approximately $175 million in supply contracts and is currently negotiating customer deals valued at around $1 billion.

Insects have gained recognition as a sustainable protein source in Europe due to regulatory approvals, but they remain a niche and expensive food option in the West. As a result, the company is looking to institute cost-cutting and employ an asset-light model, which will focus on a combination of joint ventures and licensing agreements. Ynsect will shutter its Dutch production plant, obtained via the 2021 acquisition of Protifarm, while retaining research operations, resulting in 35 job cuts; additionally, 38 positions will be eliminated in France from a workforce of approximately 360.

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