Season 3 - Fundraising

Episode 2 - Our friends the venture capitalists - August-December 2020

Romain Payet — As we said last week, despite the advent of summer and the end of lockdown, our back-and-forth with Jean de La Rochebrochard had worked out well. Very well, in fact, because we had received a huge amount of interest. However, at that moment, we hadn’t really grasped the fact that we were in the midst of fundraising. It crept up on us very fast, but we took up the challenge with a great deal of enthusiasm (and confidence).

The responses could be split up into two categories. On the one hand, there were business angels, private investors who put in their own money. They were only 5 percent of the mailing list and, generally speaking, they got on board on the project. They understood our vision of things and wanted to invest in the venture.

On the other hand, we had the VCs, the venture capitalists. They represented 95 percent of people who received Jean‘s meal and 99 percent of them said the same thing. Our project was too industrial, too long-term and too difficult to evaluate. Unlike the start-ups they were used to investing in, we couldn’t test the project, nor tweak it in case of mishaps. To do that, you needed trains and two years to make them. None of this lined up with their investment principles, which were essentially the following: probability, time and money. In short, how likely is it that you’d be earning money from this project?

This way of thinking is perfectly reasonable. These people are investment experts. Pension funds, big banks, insurance firms and others give them enormous sums of money so they can make even more. They look at projects using a table, they don’t use their gut. And that’s very normal. But from August to October 2020, we only received refusals and that clearly meant our (rather unexpected) first round of fundraising had failed. We were far from getting the €2.5 million we thought we needed.

As a result, we realised that we had targeted, somewhat unthinkingly, the wrong kind of investor. We need people who saw things the way we did, shared our ideas and truly believed that Midnight Trains would work. These people, we thought, would in fact be business angels, but because they were individuals, we couldn’t raise as much money as we had hoped initially. So we needed to revise our sums down and create a new narrative. But soon a new twist would allow us to do just that.

At the same time as all that, we started to look for new rolling stock and had found second-hand trains belonging to a Spanish manufacturer. This was the rolling stock that Luigi Martinelli, whom we spoke about a few episodes ago, audited for another client. Thanks to this rolling stock, which would cost less than new trains, we were able to redo our calculations and come up with a new story.

Having taken a month to clear things up a bit, and having holed up at Adrien’s house for a few days, we were ready to launch a new fundraising round. This time, we did it with Super Capital, a business run by Corentin Orsini and Frédéric Bouleuc, which through its newsletter introduced our project to 100 or so entrepreneurs looking to invest in projects they cared about.

Adrien Aumont — At that point, we already had around €300,000 to €400,000. Despite the failure of the first fundraising round, Kima Ventures hadn’t abandoned us and a few friends of ours also promised they would invest. Among them was a close friend of Romain, the boss of an SME, who had total confidence in us, as well as Patrice Haddad, president of Red Star Football Club and production house Première Heure, whom I’m close with and who managed to bring together two other big investors.

Following this second round of emails, we had several responses and thus embarked on a series of video calls and meetings, so we could present our project to potential investors. And this time, everything worked out. We had chosen the right target, asked for the right amount of money, relative to the people we were addressing. In short, we had created a consistent narrative and this consistency had paid off. In fact, we had too much interest: we were oversubscribed.

However, on reflection, we decided to accept all this investment, raising a total of €1.3 million. But this wasn’t a trivial matter: every cent invested would cause the value of our shares to fall. So we hesitated a little when, two days before the investment window closed, a brilliant business angel stated her interest: Pauline Duval, named the top female investor for the 2020-2021 year in the Challenges-Angelsquare ranking. But it seemed to us like the right thing to do at that moment. After all, this sum was given to us by around 40 people – this was a lot, but would allow us to move ahead without losing our corporate governance.

Finally, there was one other investor we wanted to speak to, Stéphane Noirie. Having received the newsletter from Super Capital, he said he was willing to invest dozens of thousands – above all because he knew the sector well and really believed in the venture. In fact, he worked for an investment fund that specialised in infrastructure and had bought two lines that competed with the operator that ran the French rail network. Once again, here was someone who, through a rather indirect route, had come on board and would soon play a key role in the Midnight Trains venture.

Midnight Trains Logo