IPO: LightOn, French-style generative AI

On the menu for this Parisian IPO:

To start, here's what Reuters says: “French generative AI startup LightOn announced on Friday the launch of its IPO on the Euronext Growth market in Paris… LightOn, which provides large language model (LLM) software to businesses and the French government, would thus become the first generative AI company to be listed on stock exchange in Europe“. Its co-directors believe that the operation “offers investors a unique opportunity to participate directly in the growth of a French technological champion which is already successfully deploying its AI solutions with large groups in France and internationally“. Mazette, this will change us from OVH and 2CRSi, the closest thing to Nvidia on the Parisian coast. OK that's cruel. Let's say that it will change from Schneider Electric, the large-scale French company which is the most exposed to AI via its electrical equipment for data centers. LightOn aims to:

• 2024: €1.8 million in recurring net income
• 2025: €6 million in recurring net income
• 2026: Ebitda and positive cash flow
• 2027: €40 million in turnover, therefore €35 million in recurring turnover and €16 million in Ebitda

On paper, it's very small, but it smacks of a miracle stock market recipe: AI, growth and top of the class with that! Let's dig a little deeper.

Paradigm, Alfred and a Lama

LightOn, a company created in Paris in 2016 by two experienced researchers who have worked on both sides of the Atlantic, presents itself as a designer of large tailor-made language models which offers a platform for integrating generative artificial intelligence solutions. turnkey for businesses and the public sector. After exploring OPUs (optical processors), the company switched to generative AI in 2020. She has since developed 12 LLMs, the most advanced of which is AlfredV3 (summer 2024), based on Meta's Open Source Lama 3 model. From Alfred, it offers two products, Paradigm and Forge. Forge (launched in 2022), presents itself as technological support for tailor-made generative AI intended for customers who wish to develop their own language model or improve an existing model. Paradigm, whose proof of concept has been validated since the beginning of the year, is a turnkey generative AI platform, which combines an LLM with a RAG (the RAG consists of drawing on a specific corpus of data to improve the quality of responses). The solution is capable, LightOn tells us, of autonomously creating and managing complex tasks. It will be marketed by the end of the year.

Huawei au capital

During its eight years of existence, the company financed itself through fundraising (capital increases and convertible bond issues) and various public financing mechanisms, such as research and innovation tax credits or repayable advances. and subsidies from Bpifrance or the EU.

Currently, the founders own 59.3% of the capital and 55.6% of the voting rights. They are supported by a pool of investors, the largest of which is Huawei (via Huawei Technologies Cooperatief Ua), with 11.3% of the capital and voting rights. Other investors include Quantonation and Anorak Ventures, according to their respective websites.

Strategy and finances

LightOn wants to focus on revenues from Paradigm licenses (SaaS type), which will weigh heavily on the turnover generated this year (€1.8 million anticipated) compared to 2023 (€8 million). This is what jumps out at you when you look at the latest income statements.

Source: LightOn operation note, page 8

2023 revenues were boosted by the transfer of a license to use Forge to a foreign client. This alone represented 85% of 2022 revenues and 95% of 2023 revenues. On the 1^is half-year 2024, the largest customer represents 32.8% of turnover and the second 22.2% of turnover (which was limited to €0.6 million). We therefore understand that the development of the Paradigm offer is crucial to creating recurring revenues, and revenues in general. To accelerate this source of revenue, LightOn has signed agreements with Orange, Orange Business (currently being finalized) and HPE.

Why enter the stock market?

As is often the case with Euronext Growth, the IPO aims to increase the duration of the company's viability. This is what emerges from point 4.4.2 of the operation note. “As of the date of this Securities Note and before the Offer, the Company does not have sufficient net working capital to meet its cash flow needs over the next 12 months, as part of the implementation of its development strategy“, explains LightOn. More precisely, the company had €2.8 million in cash as of September 30, 2024, which would allow it to go until April 2025. By refusing to accelerate its development, it would have revenge of at least 12 months of liquidity.

The IPO is therefore not vital at the moment, but it is important to reach a further level. As illustrated by the radar published by Wavestone at the start of the year, French startups specializing in foundation models are not commonplace:

The terms

LightOn plans to list on the stock market all of its existing shares (4,018,505 shares) as well as those that may come from dilutive instruments issued to directors, employees and investors (1,260,355 shares). It is also issuing 1,000,000 new shares at EUR 10.35 each, which could therefore generate a gross capital increase of €10.35 million (or, let's be crazy, 1,306,000 new shares if the clause is exercised). extension and over-allotment option). Here are the possible synthesized products:

Source LightOn Operation Note, page 10

It should be noted in passing that the costs absorb 19.2% of the operation on the basis of a 75% issue and 16.3% on the basis of a 100% issue. Intermediaries are well paid. Axon Partners Group has announced that it will subscribe up to €3 million. Based on an amount raised of €8.7 million (100% of the operation completed at the midpoint), the company first planned to repay its 2018 OCAs which expired on December 7, 2022, with the penalties late, i.e. an amount of €1.22 million. There will therefore remain €7.48 million, which will be distributed as follows:

• 60% for the development of the company structure (sales force, marketing, associated commercial expenses and recruitment of engineers, etc.). Or roughly €4.5 million.
• 40% for technological investments (new Paradigm features, fine-tuning of specialized models, purchase of computing power, etc.). Or around €3 million.

The operation is set up by Portzamparc (Global Coordinator, Lead Partner and Bookrunner, Listing sponsor). It is a global offer at a fixed price (10.35 EUR per share) with an offer to the public and a global placement for professionals (in France and internationally). The public offer will benefit from at least 10% of the proposed shares. A1 orders can be for 1 to 250 shares. Beyond that, A2 orders will be processed if A1 orders do not dry up supply.

• Duration of the Public Offering: from November 8, 2024 to November 20, 2024 (inclusive).
• Duration of the Global Placement: from November 8, 2024 to November 21, 2024 (at 12:00 p.m.).

The indicative timetable

The verdict