Boris Golden, Principal at Partech Ventures in France, talks about the state of startup financing in France today and gives his views on the future of this ecosystem.
Just how difficult is it these days for a startup – at whatever stage – looking for financing in France?
Boris Golden: These days a good startup can find funds without too much difficulty. There are more investors out there than you might think, many of whom have just emerged in the last few years. Often Venture Capital firms (VCs) have to fight over the best projects, especially where the startups are in the growth phase. This runs contrary to the view people tend to have that VCs hold most of the cards. Increasingly VCs and startups are on an equal footing. However, not all startups find the funds they need. The vast majority of all applications for funding do not meet the criteria applicable to this type of investment.
In addition, rare indeed are those seed stage startups that manage to raise several million euros in Europe – especially in France. At the moment investors are wary of taking on too much risk with companies at this early stage.
How should we view the increasing number of accelerators in the innovation ecosystem?
The fact that the number of players financing early stage ventures is growing leads me to believe that we’ll soon see convergence between accelerators and VCs because at the seed stage these two providers play complementary roles. The accelerator supports the startup with know-how and expertise, while the investor injects financial resources.
At the same time many VCs also mentor entrepreneurs and work closely with them throughout their development. This is what Partech Shaker does. It provides seed stage startups with office space suited to their needs and to their rapid growth. The process is very similar to that of an accelerator.
Partech has just closed a new €60 million seed fund. What does the creation of this type of fund mean in practice?
First of all, we set it up because our first fund was already fully committed. This second fund will of course not be used to finance the next investment rounds of the startups which benefited from the first fund. We’ll be investing in entirely new projects. In the beginning we intended to launch a fairly small fund. But we became the victims of our own success, raising the €60 million in just three months.
Being there at the seed stage of a company means you’re in at the heart of the innovation. That’s where everything happens. That’s why we decided to position ourselves in this niche. Moreover, the first fund, backed by our critical mass, gives us some room for manoeuvre when it comes to financing young ventures. We can allow ourselves a certain amount of risk-taking.
In this particular situation, Partech plays the role of intermediary between the startups we meet through our work and the major corporations that have invested in this seed fund [seven in total]. We put one player in touch with another and this works well for both parties.
What are the strong and weak points of the French startup ecosystem?
France’s strong point is that the country has lots of high quality engineers. There are many, many highly talented people in France. And not only are there a lot of them but – unlike their US counterparts – they’re less demanding when it comes to salary, and they are not so footloose. The other strong point here in France is the state support provided by the French authorities. As an entrepreneur you’re still entitled to unemployment benefit, you can obtain backing from (French state investment bank) BPI France, research tax credits, etc. So there is a lot of financial help available, which can minimise the risk for someone launching into an entrepreneurial venture.
Nonetheless, France really leaves a lot to be desired when it comes to having a real entrepreneurship culture. The country’s business culture is still in its infancy, although I must say it’s really starting to develop. The product marketing culture is also lagging behind, although these are precisely the areas which enable you to see just where the real value lies, and also – and most importantly – to gain a better understand of the end-user. Lastly, a concept that is also lacking in France is smart money. In the pre-seed phase, we still have too few business angels who can help startups, based on their own entrepreneurial experience, with the exception of one or two entrepreneurs who have been successful in their own right. In the United States, they really know the local startup ecosystem well and, very importantly, are realistic in their post-investment expectations.
What are the current market trends?
At the moment, from what I see, there are a lot of ventures in the field of delivery. But this is a current trend, not a future one.
As regards future trends, we are likely to see more technologies emerging which bring together the online and offline retail worlds, which really need combining. This might well mean taking ideas from, or even replicating, online practices in the offline world. In the next five to ten years, assistants in the supermarkets where we do our shopping will certainly know whether the person they are helping is a regular customer and which areas of the store s/he visits most.
Another trend I foresee is the transition of offline services to SaaS (Software as a service) platforms. Whether you’re buying movie tickets in B2C mode, or booking a session right now at your gym or – in B2B mode – sending goods abroad, these services need to be dusted off, need to move to digital while still providing the feeling of immediacy. The widespread adoption of mobile devices is steadily supporting and fostering this disruptive trend.
Today there are many young companies prepared to pay a high price to acquire their first customers, whether by using Google AdWords or some other promotional tool. But once you have the customer on board, this type of acquisition cost becomes a marketing expense which hasn’t yet generated any revenue. The fact is that we’re soon going to see startups taking the opposite stance. They’ll make their first offering attractive, and potentially free-of-charge, to get customers to sign up, and then encourage users to buy paid-for value-added services. This seems to me to be a sounder approach to customer acquisition.
As regards Web services, we should also note that network providers are no longer capturing the most value. The same goes for content creators. It’s now the ‘package’ designers and managers, along the lines of Spotify, that are coming off best. However, other players will probably fight back. Content producers, who account for a large part of the market, could for example decide to go it alone. This I what we’ve seen recently with Jay Z’s Tidal streaming music service.
Lastly, many people talk about the disappearance of the middle class in France and we’re seeing this trend in the market. For example, businesses are getting up and running on the basis of the ‘star status’ accorded to highly talented people and experts who express their views on state-of-the-art recruitment platforms. At the same time we’re seeing an increasing number of startups getting into a new niche which consists of intermediary platforms for low-value tasks which don’t require any great skills or qualifications – TaskRabbit and Uber, for instance – a trend which is bound to drive down the remuneration of those who make their living performing these kind of jobs.