The Rise of French Corporate Venture Capital
At Orange Digital Ventures it appears to us that a lot of people have difficulty understanding Corporate Venture Capital (CVC). Most of these funds are branded with a corporate name and with a typical “ventures” to complete it. Despite this, it is a misunderstanding to associate them entirely with their corporate parent or with classic Venture Capital firms. They are somewhere in between the two, they are an answer to disruption and innovation. Something that neither corporate development (M&A) nor Venture firms are able to solve efficiently for corporates. I hope that this blog post will help you understand why the number of CVCs is raising in France and give you a better view of the different players.
To understand French CVC players, we first have to understand them in their French context. Most of our corporate champions made great fortune during the industrial era. None of the CAC40 corporates (the French stock market of the 40 most significant values) were founded after 1990, 1/3 were founded before 1900 and the oldest company, Saint-Gobain, was created in 1665–351 years ago. In comparison, most of the leading companies of the S&P500 were founded after 1990 and everybody can easily name a few of them such as Google, Amazon or Facebook. They represent about 20% of the total index (note that some companies such as Amazon are not considered as tech companies in the S&P500).
In this time of economic change, French corporates cannot allow themselves to be pushed aside by this fast wave of innovation cycles. Unfortunately however, they have just started to strongly admit that value is now moving at the rhythm of startups, which innovate much faster and can become new challengers or market leaders. The phase of denial ends slowly. Condescension gave way to admiration and encouragement for these ambitious companies that can hold at the same time threats and opportunities for French corporates in their digital transformation. Saying that does not resolve the main issue for corporates: how can they tackle this digital challenge and stay at the forefront of innovation? This question is even trickier if the corporate’s culture is not supported by engineers (think about traditional retailers vs Amazon…).
Several options, through funding, were explored but none of them is entirely sufficient or relevant regarding the context:
Accelerators and incubators
Many corporates run a program of acceleration or incubation. It’s a great way to identify new innovation opportunities or to partner with early stage companies. Nonetheless, these programs cannot attract all the relevant opportunities because it is time-consuming, attached to a specific location and not suited to all kind of startups and entrepreneurs. Startups may not be willing to attach a specific corporate sponsor to their very young and fragile brand. Furthermore, sometimes it can be difficult to maintain a mid/long term relationship in order to set-up a green field for collaboration.
Corporate development is the standard way for corporates to acquire or invest in companies. It was never made or thought for investing in startups. It’s a heavy process that involves business units’ validation, many C-level officials and the materialization of synergies through contracts. The main driver of this process is to close a transaction that will generate strong synergies and revenue streams. Corporate development is not really suited to early stage startups that wish to raise funds quickly and will prefer VCs money to finance their growth.
Limited Partner of a Venture Capital fund
It could be suggested that VCs are an answer to fast track this corporate development process. Corporates can benefit from their expertise to scout the best opportunities and trends in the tech ecosystem. VCs however are not enough interested in satisfying corporates LPs by making strategic investments. First, the job of a VC is to maximize its financial return, one can assume that, between an opportunity A or B, it will arbitrate according to its expected gain and not the strategy of its several corporates LPs.
Corporate Venture Capital
Corporate venture funds both complete and do not compete with all these options. They combine most of the advantages of VCs by providing a dedicated team with more agility in terms of governance and decision process but their investment focus is completely in line with their corporate (Limited Partner). They are looking after a strategic and financial return on investment at the same time. According to Global Corporate Venturing, 44% of CVCs aim to balance between financial and strategic return.
As investors, they have the opportunity to build more intimate relationships with entrepreneurs and sponsor them internally, thereby putting synergies in place at the right time and encouraging these companies in their growth. Contrary to a common belief, their main goal isn’t to prepare an acquisition for their corporate — or if it is, it should not be the main focus — it is rather more about collaboration and digital transformation. The window for an acquisition is too uncertain at this stage to be the main driver of their investment strategy.
Corporate ventures might not be the perfect answer, but it is still the most relevant to fill gaps and create a more efficient process of collaboration between corporates and startups.
I would not be surprised to see their number or size growing in the following years but I am curious to see how they will redesign the French and European tech ecosystem. Either way, we can only encourage these initiatives if they can be catalysts of our economic competitiveness. If we look at the last month in terms of funding in France, I think that we can already feel the changes.
SIGFOX: Series E of €150M in November, among the investors, Total, Air Liquide, Intel Capital, Salesforce Ventures.
DEVIALET: Series C of €100M in November, among the investors, Renault or Ginko (the venture arm of Foxconn).
WYND: Series B of €30M in November, among the investors, Sodexo Ventures and Orange Digital Ventures.
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If we’ve missed a French CVC with a dedicated team, we will be pleased to update this post, do not hesitate to contact me at firstname.lastname@example.org
A few words about us: Orange Digital Ventures stands as an early-stage corporate fund to support unconventional and driven entrepreneurs from around the world whose ambition is to imagine, design and develop tomorrow’s services and technologies. We engage with compelling technology startups, creative spirits and visionary founders to help them achieve breakthrough innovation in the digital industry, accelerate their growth and successfully bring their products and services to the market.
Since 2015, we already invested in 12 companies.
Find out more at http://digitalventures.orange.com/