BREAKING: Orrick just launched DealFlow 6.0 report: Jamie Moore, Partner at Orrick

0:00Jamie Moore:Hello and welcome back to the Scaling Europe show. I'm Seb Johnson. Today I am joined by Jamie Moore, partner at OREC, who have just released, as in minutes ago, just released their latest deal flow report. The deal flow report takes a look at European venture, but not just at the overall size of the ecosystem, but really going into the financing terms that underpin the deals themselves. So it's a really interesting insight into the state of the ecosystem based on the fundamentals of the deal, which can really share, shed some really interesting insights about the relationships between founders and investors and the dynamics.

0:31Jamie Moore:So, Jamie, thank you for joining me. Thanks so much. How does it feel getting the report out?

0:41Wonderful. So it's a big project every single year. As you can imagine, the data set is pretty huge and we go deep like no other reports. So it's a great result.

0:51Jamie Moore:Tell me a bit about the data set, because the data set is actually based on the transactions that you've been a part of, right? That's right. So we generally tend to find, and PitchBook and others match it, that we do somewhere close to three times more deals than anyone else in the space. So what we do is we kind of jump into that data set across Europe. But the minute it's from the UK, France, Germany and Italy. We also have some comparative insights from our US colleagues as well. And the vision very much is to have a kind of fully global report. Amazing. And what are some of the key headlines from the report?

1:29Yeah, I mean, it's a really exciting year, basically, that we've had, I think, from the 2023, 2024 kind of muted activity. 2025 was really a year of true market stabilisation. So we've gone from the spell of just a huge influx of brand new seed companies not really doing anything to actually some decent rounds and some decent later stages. Amazing.

1:54Jamie Moore:And I read in the report that things have essentially like stabilised. You know, like 2021, we saw this big sort of like hype over valuations, loads of deals. And there's a bit of a market was figuring itself out from 2022, 2023, 2024. And now the report says that the market has stabilised. What does that mean? Exactly. Yeah, so actually finally some more realistic valuations, some more strategic investment, so less growth at all costs types of financing rounds, but yeah more thoughtful transaction management let's put it that way. So at the beginning of the year slightly less deal volume but actually larger deals and the return of the Series C.

2:39So almost 34 % of our financing rounds were actually series c rounds um and actually also seeing an uptick in the size of the seed and the series interesting which is really nice so not not like crazy 2021 peaks but um certainly a more sustainable and what's happening at the very early stages the seed precede yeah i mean 2024 was largely i think we can all agree when the certainly in the first half of 2024 the market was just flooded with a large number of seed stage companies so we were seeing so many seed stage companies all pretending that they had some kind of AI component that wasn't really proved out.

3:202025 was the mature side of the seed stage of financing right so some of the models were proven a bit more classification on those market sectors and yeah whilst there might not have been quite as many seed rounds as you know as previously the size of them and some of the deal terms were better uh so thankfully you know i think in the 2024 report we were seeing like 5x liquidation preferences all of that nonsense is gone which is really nice uh looks like far

3:51Jamie Moore:more encouraging um and i saw a stat i think was it 77 percent have now got like a 1x liquidation preference there's some set around it can you explain what that means Yeah, for sure. So essentially, the liquidation preference is the investors ability to get their money back before anyone else if things go wrong. For a long time now, the market standard has been a one times non participating preference. So that's it, the investors get the better off their money back or their pro rata. And what's really nice is, you know, in down years, or the prior years when we were having the recalibration. And even when there was the research of AI, we were seeing a huge number of investors that quite simply just didn't know how to, you know, qualify or understand what the value of the market was.

4:42So we did see some weird and wonderful liquidation preferences. I think the worst was from one of my US colleagues, sort of five-year-old. Now that stuff is now gone.

4:50Jamie Moore:That's crazy. Is that indicative of a broader sign that it is a more founder-friendly market or perhaps the strength has shifted slightly to be in the founders hands? Yeah, absolutely. I mean, you know, I rep all stages. And what's really encouraging is that some of the governance structures that we're seeing to protect founders at the earliest stages, so it could be founder consents, for example, or board protections, they are getting into deals earlier and they are lasting for longer. so it's nice and it's kind of like it's like the founders being trusted a little bit better in that in that process information rights and other investor protections that go to governance are still in the documents but there's more more enshrined in an ability to allow for information flow as opposed to strangling new companies amazing that's great to hear and do you think we're in a period of like this period of stabilization where we're seeing a rebalancing between the founders and investors, better founder friendly terms while keeping the protections for investors.

5:57Jamie Moore:Do you think this is a new normal or do you think this is sort of on our way to tipping the balance too far the other way again?

6:08Jamie Moore:Good question. It feels like it's just started but the really interesting balancing point which I think aligns with that topic is the uptick in secondaries. I know that you posted already and recently on a few kind of huge secondaries that we're seeing in the market, right? So the simple fact is that liquidity is coming earlier in some shapes or form. I've had a huge uptick in M &A recently as well. So I'd say like, because there's increasing faith in the later stage, there's an ability to have more faith in the founders at the earlier stage so i don't think it's going to go crazy just yet you know we haven't had too many folks asking for entrenched uh or increased voting for founders you know it's the founders haven't gone power hungry i'd say it's a nice kind of as i say we keep using the phrase but a nice recalibration delicately sway interesting okay so we're like uh conservatively comfortable with the way things are it's not going crazy yet we're happy um and you mentioned secondary yeah yeah Yeah, yeah, yeah.

7:17Jamie Moore:You mentioned secondaries. We're seeing secondaries be the primary, almost exclusive source of liquidity in the market. What other implications is that having? You know, like, is that, you know, are founders and investors seeing that now as the only way of exiting? Is it a stopgap towards an IPO? Or is it like, why IPO at all when we've got secondaries? Are there other implications for the ecosystem now that secondaries are dominating? Yeah, great question. So this kind of takes into two of the points that come out of our report. So we found that over 21 % of our transactions last year included a secondary component.

7:56And now there was a real blip in 23, 24, when people were trying to do those secondaries like way too early. So we saw some seed companies with founders want to take money off the table before anything's even started going. That's slowed down, which is nice. So actually, almost 37 % of the secondaries that we saw came around about the Series B stage instead of seed and Series A. So that's quite interesting. So they're coming, I'd say the simple summary is that secondaries are coming at a more relevant and proportionate stage, but the number of them and the size of them are increasing. So it's becoming a real viable opportunity for liquidity.

8:42And then if you couple that with the fact that we also saw an uptick in extension rounds, you know, you can see a scenario where companies are still scaling and bridging the gap to liquidity, whether through an ultimate exit or an M &A process on kind of relatively favorable terms. So not a traditional bridge that might have kind of slightly more onerous terms, but a more friendlier kind of extension round. Interesting. So Series B is the dominant earliest stage that we're seeing secondaries happen.

9:18Jamie Moore:And do you see a trend where, you know, once a founder has done a secondary at a Series B, is that something that continuously happens then at Series B, C, D, E, or is it like a one off?

9:32Yes, so interesting this question and actually really relevant. One of the other highlights of the report this year is a real deep dive into the comparison that we're seeing on the US and UK model for incentives. So interestingly, in my experience, you know, for the mega companies that are rapidly pacing through valuations, and I have a few of them in my portfolio, there is a repeated opportunity for founders to take money off the table and increasingly and encouragingly that is often met with top-ups to their stake in the equity as well so we're actually seeing founders sell down and taking so it's just free money

10:16which is actually ultimately nice but for some folks you know I think it's interesting seeing a differing approach from management to the way that folks are scaling and growing businesses being able to kind of help with a release valve for founders and enable them to scale without worrying about paying for their mortgage for example is

10:37Jamie Moore:it's probably for sure it's a great thing for founders and early operators are we seeing investors get get a larger slice of that secondaries market the early investors are they able to start exiting via those b c d rounds yeah absolutely and if you imagine that a larger number of the later stage secondaries that we see for example will typically be classified as your standard cleanup form of secondary right so the idea is if anyone's going to exit a business or IPO business uh a lot a smaller cap table is always beneficial it's always a nice story to help the earlier investors out for sure but uh less people on on the table at the end always improves things so yeah an increase got it okay so like overall things that uh you know we talked about the structure of the deal financing and how things are becoming more balanced and founder friendly are there any are there any things that founders should be aware of in the current market You know, anything that they should be thinking about maybe when they're early on raising their first few rounds, anything that they should get right to set them up for future success?

11:50Love that question. Love that question. Yeah, I mean, that comes on to a few different bits for me. I always say that, you know, the earlier pre-seed rounds should always be done as time and cost efficiently as possible. So trying to minimize excessive structure on pre-seed is key. That leads to the broader point that means that, you know, if companies are well seeded at the pre-seed, they have the time and the ability to negotiate prop docks at the seed series A. I'm definitely a strong advocate for making sure that if companies can set themselves up with a strong governance structure that is going to lead forward and help them grow and scale, then they should try and do that as best as possible.

12:36I'd say that in addition to the kind of structural governance points, there's never been a better time to have housekeeping in play. So we are seeing, as you can probably imagine, with a bit of a shift on warranties, right? So those are more traditionally now given by the company. So we're seeing less and less founder warranties. that does mean though that investors are getting very deep on diligence so um so it's kind of even more important than it was before for founders to make sure that their house is in order and so i'm regularly advising um founders now actually to start and build and populate data

13:16Jamie Moore:rooms even before they've got term sheets interesting okay yeah get all the ducks in a row um yeah interesting yeah um and you also talked about some of the key sectors that we're seeing so ai is obviously the dominant one like everybody knows that what is happening i guess in some of the other sectors you know what are the other industries that are still performing well despite this ai hype what are some of the sectors that are starting to see a bit of a slowdown yeah so we still saw you know i'm a i've always been a big fan of ai so obviously that's that's going to be a great sector to watch and operate in um it was nice to see actually a small uh uptick on fintech which is my kind of next most favorite sector if i was going to pick one um which is really nice so slightly up from 24 and certainly quite a lot higher than 2023 which is really nice.

14:12I'd say our other classification, I mean, the report breaks them down into various different groups is the SaaS sector. We did see a slight decline in 2024, but I think that was a reclassification or a kind of semi-pivot from some companies as to whether or not they were true SaaS or they just had some kind of broader structural component. So it's quite nice to see a kind of Nice, okay.

14:35Jamie Moore:And then looking forward, you know, you compiled this report, you've got your finger on the pulse of all the data from 2025. Any predictions for 2026 about the way things are going to go? yeah absolutely we have a whole section um from all of our kind of uh colleagues across the world which is great i mean this this uh report goes on to something like 10 000 different data points so we've we've really gone deep into where we where we think things are going to go um i think ultimately the message is positive you know we're seeing certainly if as i've mentioned already if the state of my inbox is anything to go by, a real uptick in deal making, which is really nice to see.

15:21I'd say that, you know, we are seeing more and more M &A activity in that space, and it is not distressed M &A activity. It is actually really interestingly, a large number of the M &A deals that I'm doing at the minute are with US-based buyers, which is nice to see. It's in the US and the UK component. That's a key place that I like to play in. I'd say the early stage financing round is still going to stay healthy. But actually, we're seeing more and more later stage rounds, which is really nice. So I like that. I'd say probably there's still a bit more standardisation to come along the road in terms of diligence processes and investor expectations.

16:06We're still not quite there yet in terms of everyone's risk appetite for AI. And so a kind of more streamlined approach on that, I think is going to...

16:15Jamie Moore:It's interesting you talk about the late stage deals, and we're seeing more of those. Can you talk about the role of venture debt? Because venture debt is often seen as really important at that later stage, to kind of plug that gap. What are we seeing in venture debt at the moment? yeah it's really interesting and you know more let's say more traditional venture debt players are are still keeping very busy and notwithstanding what's happening with interest rates um i'd say the interesting component there though is that um that venture debt component is being set off or being balanced against against some of the other more nimble ways to raise not so much at the later stage, right?

16:59At the earlier stage when there was perhaps an increased focus on that space, we've got ASAs, safes, convertibles, bridges, extensions that are all giving founders increased flexibility for runway. But the true traditional venture debt for later stage still remains and that's still a very efficient way of raising financing for those companies who have recently obviously raised equity because debt in isolation is still a little bit of a difficult one.

17:25Jamie Moore:Yes, and one final question. Is there anything or what is the biggest thing that surprised you from the report or from the data as you were doing the analysis?

17:39Yeah, I'd say the the biggest surprise. Actually, I mean, we've mentioned a little bit in terms of how there's been a bit of a balancing on this founder warranties piece. you know, that has been a market shift now that has been in the BBCA or documents now for such a long period of time. I'd say there's still quite a differing approach to how that lands with investors. So the risk versus reward on that disclosure and diligence process is still a little bit more wobbly than it should be, for want of a better phrase. but yeah I mean otherwise just just really nice to see some more sustainable

18:27Jamie Moore:amazing well Jamie thank you so much for taking the time it's a great report it's going to be exciting to see the impact that it makes yeah really looking forward to it and this is only the start of this report it's been going for 10 years I'm looking forward to thank you very much