Paris-based Convelio seals €9 million Series A for fine arts logistics platform and US expansion - Tech.eu

Clément and I started Convelio in September 2017. We raised a Seed of €1.85M in July 2018 and recently closed a €9M Series A. This article aims at sharing some of our learnings with startup founders who undergo the same journey.

1. It’s going to take longer than you expect

The whole process is incredibly time-consuming. Between preparing the pitch deck, putting the numbers together, meeting the investors, following up, getting rejected, re-pitching, negotiating the term-sheets, going through the financial, legal and tech due diligence, negotiating the shareholders agreement, reading the reps and warranties document 10 times over to make sure nothing is forgotten, and then finally signing, the process may seem like a marathon. My rule of thumb is that it takes around 6 months, but, a good strategy is to give yourself 9 months as things may not turn out as expected. Running out of cash prior to signing would put you in a weak negotiating position and you would then run the risk of having to do an expensive financing bridge with your existing investors i.e. getting extra money between 2 funding rounds at a disadvantageous valuation.

2. Fundraising is a major defocus and something that only one of you should manage.

Fundraising is a full-time job. Firstly, preparing the necessary documents, and then contacting and pitching investors will take a lot of bandwidth. If you don’t have a co-founder your business may suffer, so you need to plan. Be transparent with your managers: you expect them to step up and that you may not have as much time as you’d like to dedicate to them for the duration of the process. If you have a co-founder, (if you are lucky, s/he is as amazing as Clément OUIZILLE), make sure only one of you manages the process.

There are 2 benefits to this approach:

• The business will still get the attention it deserves.
• It will make the process smoother for investors (and it shows that you are able to cleverly split tasks instead of just running after the ball).

3. Do your homework

One feedback we got from a tier-one VC:

VCs are busy. They see tens of pitch decks every day, and you need to keep the momentum going once you get interest. The best way to keep the ball rolling is to be overly prepared prior to starting investor meetings. If you can answer all questions immediately, they won’t have to wait for you to pull data together and that will create a healthy dynamic.

This is a non-exhaustive list of the different documents we prepared:

• Introduction material (blurb for an introduction and an executive summary — 5 slides with the key information)
• Long version pitch deck (30 slides + back-up)
• Business plan (2 years forecast), 2 tips: build it in a way that investors can easily play around with the most important variable: growth rate, repeat rate, client cost of acquisition, etc., include all data to date (revenue, overall unit economics such as the various contribution margins necessary to analyze your business — in our case our CM1 is equal to our revenue minus what we pay out to our partners, our CM2 is our CM1 minus the cost of our operations team, our CM3 is our CM2 minus our sales and marketing cost, etc.)
• Latest cash-report
• Up-to-date cap-table (a capitalization table lists out each type of equity ownership capital, the individual investors, and the share prices)
• Cohorts (for all clients, as well as per clients typology should you have more than one)
• Analysis on top 10 clients (% of total revenue, growth, average order value, etc.)
• Analysis on sales cycles and cost of acquisition per client typology
• Market sizing (in our case, we could leverage on data from customs, but we spend an extensive amount sizing our opportunity and detailed the entire process in a 10 page document)
• Audited financial statements (another quick tip: we chose to go with one of the big four just because it gives investors an increased level of trust).

4. Plan for the due diligence

Though the due diligence is usually light in Seed, this isn’t the case for the Series A. The investors, as the amount they are about to invest is considerably bigger, will turn over most, if not every stone.

• As soon as you are entering a fundraising process make sure your accounting/finance teams are aware so that they can cover any potential backlog
• Have a quick chat with your lawyers to know if there are certain things you need to put in place. As an example, we previously did not include an automatic transfer of intellectual property in our employment contracts, but we changed this right before we got into the DD.

5. Plan it like a sales process

• Pitch: when you launch your company, you start by targeting small accounts to test out your pitch. The same goes with VCs. Target some smaller scale funds before you go for the big ones. It gives you time to adjust your pitch if needed. On top, they will be more likely to give you a term sheet that you can then leverage to create interest with larger funds.
• Make sure you read about the VCs you contact: they all have different investment thesis and you will have more success if you adapt your message.
• Keep organized: build yourself a CRM like spreadsheet to know who you need to contact, who you are talking to and the stage of these conversations. In our case, I downloaded and adapted the very well done, “Most Prominent European Investors” spreadsheet by Yoram Wijngaarde (founder at dealroom.com) and adapted it to our needs. Link here:

Dealroom Most Prominent European Investors Version 3

• Make sure to pitch outside of your home country: besides the fact that most investors don’t really care about the countries they invest in as long as it is a stable economy, all investors know each other, they will talk. You will get rejected, and investors may discuss the drivers of their decision. This situation would not help your momentum. On the other side, once one takes the lead, the others will most probably know and that might help. Because each market is fairly isolated still, make sure you hedge your risk by pitching in different geographies (we talked to VCs in the UK, France, Germany, Italy, the Netherlands, Switzerland and the US).

Tips: ideally, friends who are also entrepreneurs, or your investors can make warm intros to VCs (massive thanks to Hugues de Braucourt on this one). However, forget the triangulation legend i.e. investors will only speak to you if you manage to get an intro somehow thanks to your existing network. You can reach out to investors cold. If you do it right, you will get meetings. I typically was reaching out to investors via LinkedIn with the following message:

Hi John Doe, I am one of the 2 founders of Convelio, a digital freight-forwarder specialized in non-palletized and high-value goods. We make €XXXk/month with XX% GM and work with companies such as X, Y and Z. We are raising series A, interested to discuss? Best, Edouard

Once my invitation was accepted, I was following up straight away with the executive summary which usually was enough to get a meeting (though some did ask for a longer pitch-deck). This has worked for us both in the US and in Europe (👋 Léa Verdillon)

6. Communicate internally

The fundraising process often seems obscure to a lot of people. We tried to make sure the team knew where we stood throughout the process. We did regular updates at our all hands meetings and offered to share the pitch with the team (it is also a great way to get feedback). It creates an extra level of transparency which is usually enjoyable for everyone.

7. You must read the legal documentation

You should know every detail because the terms will massively impact your interactions with your co-founder(s), employees who have shares, and investors. Regarding the first two, these parties put their trust in you to make sure you get good terms, and this is a heavy responsibility. We worked with Villechenon law firm and they have been amazing at guiding us through the process.

Although they will make sure to protect your interest, they can’t guess what you are not comfortable with and will need your business input. Read every line, when you don’t understand, ask questions.

Villechenon Société d'Avocats - Cabinet d'avocats de référence en droit des affaires et acteur incontournable du Private Equity

8. Choose your investors wisely

Thanks to low interest rates, there has been quite an overshoot in VC investment which in turns makes it more probable for you to raise funds, and at a better valuation (see graph below, thanks Aurore Falque-Pierrotin). As you have more options, you can also be pickier. A meeting with a VC is a two way street: you need to convince them, but they also need to convince you they are the right fit. Try to get info about how they work, the services they provide, their culture, and cross-check by speaking to entrepreneurs they have already invested in.

Source: https://www.cambridgeassociates.com/insight/venture-capital-positively-disrupts-intergenerational-investing/

9. Dilution

Series A is anywhere between 15% and 25% dilution and my intuition is that, in Europe, with most deals are between 20% and 25%. Above that is expensive, below that means that your company is literally breaking records.

10. Be resilient

Don’t get demotivated when someone tells you no. We spoke to about 30 funds, we went to 5 investment committees (the last steps before a VC decides whether or not to invest), the first 2 did not work out, the other 3 did. Sometimes, it is not necessarily you. For example, it might be harder to get the VC’s attention if you pitch last at a committee.

Leverage on the negative answers:

• Ask for feedback, and adjust your pitch if needed
• Ask for introductions to other VCs (we initially got an intro to Highland Capital, but they are typically doing larger tickets than what we were looking for at the time, so I just asked who they considered to be the best Series A investors. They introduced us to Dominik Alvermann, and here we are, very lucky to have Acton Capital on-board).

As for sales, don’t focus on the outcome. Instead, focus on the process one step at a time (prepare, build your pipeline, create an interest, convince, close). Be methodical, and if your business has what a VC is typically looking for i.e. you built a defensible and differentiated product with a great team, on a large enough market, and you have sane unit economics, you will raise.

The digitalization of the art market

The art market is becoming increasingly global, and this has a lot to do with the fact that it is becoming increasingly digital. It is an immense opportunity for galleries, auction houses and the art market players as a whole to reach a much wider audience.

Looking back, we see that the market has been digitizing itself in similar ways to other e-commerce segments such as clothing or consumer electronics. A lot of platforms began by referencing products, in our case artworks, before bringing proper e-commerce (i.e. online transactions) on-board, and as in the past, certain frictions initially limited the size of the market. (A lot of us remember the days prior to the wide adoption of PayPal where inputting our credit card details online felt like playing russian roulette with our bank account. A feeling definitely hindering the growth of online sales).

We, today, see the same thing happening in the art market. Various websites such as 1stdibs started their business by listing various products online before integrating the online sales brick — which allowed them, along with other parameters, to become one of the leading online platform on the market.

Over the past 2 years, we saw, at Convelio, tens of such companies — with various degrees of achievement. If I had to summarize the success of the leading online galleries, design platforms or auction houses, I would say that it comes down to 2 sets of factors: internal — everything which is linked to the actual market expertise and in-house art knowledge — and external — such as the providers you wish to integrate to bring more convenience to your clients.

The main internal factor of success for a gallery or auction house with an online presence is the quality of its product assortment. Buyers expect to see a range of artwork which is qualitative — and that means being able to prove the provenance, authenticity as well as provide an accurate condition report, and this is no easy task. It seems obvious if you take a bird’s eye view, but what is not very apparent is the amount of work necessary to build a powerful and trustable sourcing network.

The external factors are a set of decisions aiming at providing an experience as frictionless as possible to the end client. In recent years, a lot of iterations have been done on providing an experience which is easy to buyers. In other e-commerce segments, we’ve seen the fast rise of personalization with solutions such as Dynamic Yield who got bought by McDonald’s a few days ago, or the incredible efficiency of the Amazon logistics.

Shipping: the payment friction of our time

Speaking of fulfillment in the art market, we learned from the 2018 Art Trade Report by Hiscox that it comes as one of the top 3 biggest challenges in growing the online art market. 37% of art buyers name the complications around artworks shipping as their main obstruction to buying art online, and 77% of them mentioned that guaranteed return would boost their confidence in buying art online. Art players are increasingly conscious of the issue and 48% of the online platforms put fixing fulfillment uncertainties on their roadmap, up from 19% the previous year.

The issue surrounding shipping is becoming increasingly critical. The millennials, second in size only to the Baby Boomers when it comes to buying art and who grew up during the rise of mobile technology and Amazon Prime, are using online channels as their main channel to buy art. While 93% of millennial HNW collectors reported having bought artwork online, according to the Art Basel 2019 Art Market, one in four indicated that they would prefer to purchase art online rather than in person, according to the TEFAF Art Market Report.

Taking a high-level view, what do we learn from this data?

The art market is going online partly leveraging on its already existing strengths: good sourcing network, strong provenance and authenticity policies, but will end up seeing its growth plateauing if it is unable to implement the right tools to fulfill its orders at a decent cost and with more convenience, without compromising quality.

A question you may ask yourself is why nobody ever thought of offering a better shipping experience to clients buying fine-art?

My opinion is that it has a lot to do with the great comfort in which incumbent fine-art shippers have been over the past decades. They stopped innovating and challenging their own approach because they secretly know they don’t have to. They have been sitting on good margins for many years and their household names open the doors of the big art institutions without much effort. The complexity of logistics, which is made even more complex by a lack of transparency and an opaque pricing structure, creates a strong barrier to entry. All of this, however, creates a lot of opportunities for those who are ready to dig deep and really understand what is going wrong and what needs to be optimized — what you need is drive and purpose.

How did we start Convelio?

Clément and I started Convelio out of deep frustration. We entered the fine-art industry from technology companies and we were amazed by the lack of solutions to ship artworks simply and at decent rates. Our irritation grew into resentment upon realizing that the lack of adapted shipping solutions were preventing us from selling: in the Amazon age, who is ready to pay 50% of the price of an artwork to have it shipped? Not to mention that you can only get a shipping quote after waiting at least 48 hours. That gave us drive!

We started contacting galleries and auction houses to understand if our frustration was justified, and it appeared it was. We also learnt in the process that a lot of art players were equally frustrated in having to deal with different partners based on the pick-up and delivery locations. During our interviews with them we became convinced that a new fine-art service needed to be developed, and the structure of the solution became really clear: art players need to be able to have instant quotes at competitive rate for all the main routes through only one platform — and that platform has to be integratable with e-commerce websites. Hence, the start of Convelio.

We started by developing an algorithm able to price any shipments from anywhere in Europe to all the main European and International destinations. The process was a bit cumbersome at first: our clients needed to send us an email with various information (pick-up and delivery locations, dimensions and commercial value for insurance) but we made it a matter of principle to answer within 5 minutes to any enquiry — nights included (we really didn’t get much sleep in the first months). We did not want our clients to miss on sales because they couldn’t get a price to their clients: that gave us a purpose!

We grew fast, even faster than we ever imagined. Within 9 months, we had over 200 clients of which some big industry names. Why? Because we could quote fast, and because we re-assembled the whole value-chain ourselves, not going through the expensive intermediaries the incumbents use but on the contrary by internalizing as many processes as we could (something we are still doing) so that we could automate as much as possible to generate savings and pass it on to our clients, without compromising quality.

But it was not enough. We needed to bring in more technology into all these processes and enlarge the scope of geographies covered. Thus, we took the decision to raise money and started assembling an A-team (that we couldn’t be any prouder of) to code our algorithm onto a platform (www.convelio.com), manage & optimize our shipments and spread the word to the market that fine-art shipping started its mutation.

Our mission

There is still a lot to be done, a lot to be improved and even a lot left to challenge. We just started our journey towards building the logistics backbone of the art world.