French Startups Ecosystem: Valiant, but noisy!
Two years since I left SF for Paris and exchanged the entrepreneur’s cape for the VC cap. People come to Paris for love; respecting tradition I came back to live my life intimately confessed love of the French startup ecosystem.
Two years later my enthusiasm has not a wrinkle. However, I feel uneasy, an incipient irritation with regard to the noise with which this famous French Tech has the talent to self-envelop.
This noise is the startup fashion avatar of the French art of argumentation.
And artists, we have them!
I am sure that our ecosystem of startups explodes the whole world on a very precise metric; not the amounts raised nor the number of unicorns nor the outing prices, but the number of ecosystem experts. “The French Tech which seeks itself, the bad VC, the crisis which arrives, the false startups, the invading fashion, the politics which recovers, the fundraising, the Startup Nation, the Silicon Valley, the Israeli model, I will you. said well, etc etc”. Champions League level of introspection, with a surreal number of definitive experts for each of our schools of thought.
However, I am not choosy: progress is based on debate and debate is only constructive on the basis of contradictory opinions; you might as well share them! And then from time to time emerges from this hubbub an editorial delight. This week was Christmas! Two incisive papers, crisp in shape and robust on the bottom, spiced up with the right amount of scratching hair. An angry Carlos and a Jean teasing, flexible on the footwork and determined in the direct of the right: we are not always so spoiled, thank you both!
There are debates in these two papers to which I wanted to contribute in real time; I didn’t have time, I was working. I will finally add to the noise now, because these topics also regularly feed my various time lines :
- the amounts raised and the valos that fly away
- the crisis around the corner
- the Entrepreneur – VC relationship
- Giroptic and the end of the world
- fashion startups
Are startups raising too much and too much?
Finally, it happens.
Under the effect of the inflation of the money available at the start of the chain, combined with a whole new confidence, startups are now raising early stageas much in France as in the USA, for an often much smaller potential. And to raise more is to raise more expensive.
It’s doubly damaging:
- For the entrepreneur: it can help to lead his adventure on a false rhythm because illusory, towards later turns which, them, did not follow this inflation. However, if we do not go up, we go down… We must not raise the capital that we can raise, but the one that corresponds to the potential of our adventure. All startups are in the same ecosystem but not all have the same potential (note: and that’s okay); one size does not fit all, you have to aim right.
- For the system as a whole: if we do not find enough outputs at the end of the chain in proportion to the prices paid as input, the VCs will lose money, overall; as a result they will not be able to raise their next funds; and, ultimately, will not be able to finance the next generation of startups. No forced tearing here, but an observation for the symbiotic survival of the Entrepreneur-VC species.
There is a balance of reason to sustain the system; entry price is part of the equation. It is up to the Entrepreneur – VC couple to find it and, if we can rejoice at the increase in the capital allocated to startups (especially after having for years used our talent for French argumentation to complain that it there weren’t enough…), you also have to beware of rushed math, look up and see the next blow coming.
Is this leading us to disaster?
Startups are economic agents and the economy follows cycles. So yes, inevitably, a winter will follow this beautiful summer (surprisingly bold prediction: we are going to take one). Whose fault is it ? Certainly not fair to the appetite was whetted by a few startuppers. The problem is larger and predicting rain after good weather does little to solve it. So what to do?
While waiting for winter, we must be vigilant: distinguish between startups whose profile risk / reward justifies big fundraising of those, just as beautiful and legitimate, for which a smaller amount represents a smarter bet, both for the entrepreneur and the investor. And invest accordingly: by respecting the disparities and by betting amounts and therefore values that correspond to the potential of each opportunity and not to the money suddenly available. Equality in fundraising is not a constitutive law of the startup species.
But we must also be delighted that there are more and more startups which, through their positioning, their execution and their overall ambition, have a legitimate use of these larger amounts! They will go through winter and emerge as champions. Let us rejoice that they can then find them in France, these larger amounts! It’s also a mark of progress for the ecosystem as a whole, we’re not going to start complaining about that too!
Finally, we can rejoice in the dynamism of entrepreneurs and financiers in the ecosystem and believe that all is not written: large groups are progressing (we are far from the mark but in all honesty, we are on the way: remember you of the 2000s …), startups are going international: the exit options will therefore increase. This ecosystem grows and patience is part of the game, too.
In short: We will take one, but we will not turn the other cheek.
If valuation is not the # 1 criterion, then how do you choose your VC?
The main development model for startups is that of innovation requiring cash (R&D, marketing) before sales generate sufficient margin. The cash available at this stage of maturity is generally risk capital. In this model (with all due respect to the bootstrap model!), Startups and VCs are intimately linked, almost consubstantial. This is why finding the right equation is necessary.
Beyond the value, the main key to the Entrepreneur-VC cohabitation is the motivation and the benefit of working together: why a VC wants to invest in your startup, why an entrepreneur wants to invite you to his capital?
Entrepreneurs, here is a suggested Todo list, beyond the valo negotiation:
- Work with VCs who love and understand the space in which you operate
- Assess mutual trust and envy without pretense or hypocrisy. It is a long-term marriage, whether it is as much desire as it is reason; and sincere
- Know the objectives of the VC; its charter, its thesis, its expectations, its definition of success, its timing and its means to achieve it
- Make sure your vision for your business is understood and shared
- Do reciprocal due diligence! References, values, behaviors
- Check the other aspects of the shareholders’ agreement, this famous marriage contract; the value is important but it’s not just that in the contract
This todo list, which nevertheless seems obvious, is often neglected, under the pressure of Sainte Valo, an omnipotent but nevertheless myopic justice of the peace.
When this preliminary work is well done, the Entrepreneurs-VC association is synergistic. It remains asymmetric (full time on one side, money on the other), but creates value – and therefore contributes to the next valuation.
Giroptic has sounded the end of recess!
(besides the proof: it is written in the press)
No, but we have to stop there. Giroptic was the magnificent adventure of a bunch of determined entrepreneurs who failed because (
Besides, hadn’t we used Save’s problems in 2016 already for the same end-of-the-world announcements? Since, however, France has broken all its records fundraising, plus some great proven successes. In a year, the same articles will be used again, replacing Save or Giroptic by the name of an emblematic future failure (crazy prediction: there will be other failures).
I’m not pitying entrepreneurs who fail: they know why they’re signing. And they have their share of responsibility. I respect them because they are remarkable to have tried while knowing the rules. They are often heroic in their struggle and come out both bruised and grown up by the ordeal. They are not the harbinger of any nuclear winter, nor the indicators of any systemic failure; they are just the proof of the extreme difficulty of the model in which they are exposed.
“Startup”, is it a fad?
More fair: the authentic groundswell that is shaking our country by making entrepreneurship finally ubiquitous is accompanied by an anthology of glitter and sleeve effects.
We went from not much to a little too much; in very little time.
It’s true, surfing this wave, there is an abundance of creation of businesses that are sometimes opportunistic, marginal or even lost in advance; abundance of codes, cultural artefacts, acacia honey at CES (© Carlos); and then the chapels, the gurus, the shovel hirers (in 2018 we no longer sell, or rent; that of others even), the pantheons weathervanes, superficialities, excess. Finally, plenty of recycling, media, political and social recovery.
Me that does not bother me.
I’m not a fan of this fashion (on Friday evenings, it even starts to tire me seriously…). But I don’t think it’s a bad thing and if it was a bad thing, it would be for a good: the quality of our future startups will also come from the quantity of those who come into the game; so let’s leave the game wide open. Who are we to tell others how to play, to say who is a real startup and who is not in the 10,000 candidates for the title? The important thing is to be able to choose our own play partners – and we are always free to do so.
The richness comes from the diversity so let us also accept the diversity of those who enter the field and the diversity of the spectators who make noise around: we know it, it is always in the stands that the best referees and the best coaches are found. … And that doesn’t prevent good teams from flourishing.
These little fads are entropy fertilizing the breeding ground for a greater purpose. Let’s stop wasting time analyzing them: we have better things to do to help this ecosystem grow.
Marc Rougier has been a Partner in the Elaia Partners fund since 2016.
He discovered entrepreneurship in Canada during a thesis in Artificial Intelligence at McGill University, which he left to create his first start-up (control of programmable controllers) in 1990.
He then joined Thales for an experience in international business development (Australia, Asia, Africa and America). In 2000, he co-created his second startup, Meiosys (application virtualization), transferred to Palo Alto then acquired by IBM in 2005. After two years in Corporate Development at IBM, he co-created Goojet, a mobile social media, then Scoop.it, a content marketing solution based in Toulouse and San Francisco, before returning to France.