Why you probably missed the best recent news for the ‘FrenchTech’

Writer: Bartosz Jakubowski

I’ve been reading here and there some pretty interesting articles about why the European startup scene — and the French one in particular, is getting towards maturity while the US one seems to be starting to get out of frenzy and back to normal (“bubble”, anyone?).

Some very smart guys including Fred Wilson, Criteo CEO Jean-Baptiste Rudelle, French Minister of Economy Emmanuel Macron, Venture Beat’s redactor Chris O’Brien, TheFamily and Martin Mignot, or Matt Turck have been extensively writing, speaking and tweeting about this booming French tech environment.

Sure, the bricks of a dynamic ecosystem are starting to assemble in Paris …

The purpose of my article is not to repeat all that has been wisely written about what the pillars of a startup ecosystem are and why France is recently performing well in each of these pillars. Nicolas Colin from TheFamily already did it in a must-read article. Romain Serman (bpifrance) illustrated that for Paris.

Here are the 4 flying buttresses I see for the French Startup Cathedral:

• Talent Pool. As many people described it, France produces each year a new breed of talented and ambitious coders and engineers. New type of schools including Xavier Niel’s Ecole42 or the even more social Simplonare taking care of ‘producing’ devs in a more hands-on and more diversified way. Startups including Talent.io, Breaz or Codingame are tackling the problem of providing an easy and standardized access to this very particular type of workforce. But besides this pool of tech guys, it is worth to notice that more and more ‘business’ profiles are now considering founding or working for a startup straight after graduating instead of going logo-hunting in banking/consulting/auditing/corporate (delete as appropriate :)).
  There’s not a single week without friends of mine calling me to help them find a ‘cool startup job’ after being bored with such ‘traditional’ paths.
• Structuring of the Financing landscape. The VC stage in France is getting more and more structured and professional. The increased number of junior hirings in VC firms is proof to the more data / analysis-driven way of tackling investment decisions. The useful content strategy implemented by many players, from incubators (TheFamily) to seed funds (Kima) to Venture funds (Ventech) is helping investors and entrepreneurs rationalizing what’s happening around them. VCs are getting aware of the fact that they have to roll up their sleeves and help their startups get unfair advantages either individually (Kerala Ventures, Otium) or as a community (Alven, Isai). There is still a lack of access to ‘big’ money at growth stages (north of €10–15m), but players including Idinvest or Partech are starting to stand up to this role.
• Network. Financing is only a small part of the ecosystem. But Paris is doing increasingly great there too. Public- and private-initiative incubators (Numa, Paris&Co, TheFamily, corporate incubators) are flourishing. The most gargantuan project here might be Xavier Niel-financed Halle Freyssinet. These initiatives help solving startups’ key problems, from office space to mentoring to cross-pollinization of ideas through physical proximity. Increased traditional media coverage (mainly led by Les Echosor BFM) might also help evangelize the market outside of the small startup microcosm — albeit sometimes with clumsiness.
• Ambitions. I’m not going to repeat articles about this, but truth is more and more French entrepreneurs are thinking global (or at least European) from the onset. This new mindset — when resulting from thorough performance and hard work and not snobbery, is truly refreshing in a country known for its self-bashing.

But there’s an additional brick, which actually is both a reward for each of the bricks above and a rock-solid foundation for the new generation of startuppers that you’re probably missing …

… Exits. Numerous, sizeable, ‘local’ exits are key for this ecosystem to thrive and renew itself

Nothing new here. As the Web Investors Forum report by France Digitale spotted it, the main weakness of the European (and the French) startup ecosystem has been the lack of startup exits.

Why should we care so much about exits?

• Role models for entrepreneurs. Some startuppers like to rephrase their businesses with a success-story (think ‘Uber for X’, ‘Airbnb of Y’, ‘Facebook for Z’). Behind this routine that I personally find oversimplifying and self-reassuring lies a much more natural and positive behaviour: finding mentors and role models. The more French examples of home-runs, the more tangible becomes the idea that French huge successes are within reach. And big exits are the most recognized (even if maybe not the perfect) sign of a succesful startup.
• Creations of ‘mafias’ of BAs. Founders of successful startups usually make a huge amount of money at exit, enabling them to reinvest massively in startups, be it for fiscal (cheers Bercy!) or vocational, “pay it forward” reasons. Guys like Criteo founders, Price Minister’s Pierre Kosciusko-Morizet, Fotolia’s Thibaud Elzière and Oleg Tscheltzoff, Meetic’s Marc Simoncini are some names you’d come across frequently when reading startups cap tables. This big money gives a strong spur to early-stage companies. Oftentimes this BA money comes together with not-too-dumb counsel.
• Rewarding the VCs and hence fostering the development of this asset class. Keep in mind that all the cool logos on a portfolio web page, fancy featurings in conferences and media stuff are not even a proxy for judging a VC’s job. The final judge is always the money we return to the investors (or LPs) who have entrusted their money to our ability to return it with a premium high enough to compensate for the high risk and low liquidity of such investment. (big) Exits => happy LPs => more money for VCs in the future => more money to finance startups. As simple as that.

What’s happening here?

The purpose of my article was to put the stress on what is going on in the startup exit world, because it’s much less covered by the media than fundraisings, although it’s at least as important.

So I decided to compile a list of French exits for 2015 and 2016YTD. I most certainly missed some of them, so please let me know in comments and I’ll update. I’ve screened out all asset sales and service-driven tech companies (agencies). To make my analysis more crisp, I’ve classified them by size of the deal into 5 categories: Huge, Big, Medium, Small and Tiny. Most of the time the exit valuation is not announced, and I did not want to betray any business secret (or confidentiality agreement), so I will not provide the underlying numbers of my methodology. I’m aware that many of you will dismiss my work for this reason but I don’t really care since confidentiality matters in my job.

Key learnings

This table, although incomplete, enables us to draw some intuitions — I won’t dare to name them conclusions, about the recent French tech startups exits.

1. More exits, not via IPOs. In less than a year and a half, there is no less than 27 startup exits, + all those I’ve missed. Although I didn’t have the time to go back in time much further yet, there’s a clear acceleration in the number of French startups being bought out. Another interesting point is that I can proxy exits by buyouts, since the IPO market for French tech startups is still non-existent (Showroomprivé raising a less-than-expected amount and Deezer having to offset its IPO “due to market conditions”).

2. This rise of sizeable EU exits. This is what triggered the thoughts that led to this article. The two most prominent and examples are obviously the acquisition of the train ticketing startup Captain Train by its UK competitor Trainline in March 2016 for c.€150m and the buyout of health-related IoT manufacturer Withings by Nokia Technologies (the part which does not belong to Microsoft) for c.€170m. These two European players have proven themselves able to write big checks for a French company and to take risk in a much less “external growth mindset” than in the US or Asia. What’s more interesting, when I filter the table by size or the deal keeping only deals from Medium to Huge, 4 out of 6 acquisitions are performed by US players between January and May 2015, which is the case for only 1 out of 10 buyouts from June 2015 until today (see table below). The weight of European buyers in sizeable French exits is clearly increasing. The most recent report on European exits by Tech.eu seems to confirm this trend, stating that “21% of EU tech exits involved US companies in Q1 2016, the lowest rate in two years”.

3. US going more early stage. On the contrary, when filtering the list by keeping only the smallest deals (again, you’ll have to trust me there) a lot more US labels appear as acquirer’s country of origin. Which basically means that US buyers are no longer afraid of coming more early-stage to seize the opportunities at a cheaper price (and arguably greater risk). This is a clear sign of increasing maturity of the French market: US acquirers consider that even younger companies are mature enough for them to worth the shot.

4. Asia is nascent as a buyer of European startups. Have you noticed? There is only one name in this list that is neither European nor American but rather Chinese: it’s the mobile behemoth Cheetah Mobile, who acquired mobile ads startup MobPartners. China has been a well-known buyer of businesses, for anything from infrastructures in Africa to wineries in France, but until recently, they remained away from French startups. I strongly believe that the combination of unlimited pockets, great local advance in mobile and online payments (WeChat is #1 far above Whatsapp, Alipay has 3x more users than Paypal), and growing interest for diversifying its business partners will increase the number of acquisitions of European startups performed by Asian players.

For those who were courageous enough to read this piece entirely, my point here is to underline that beyond all the well-covered reasons why the French startup ecosystem is booming, from alleged Presidential thoughts of startup-friendly Emmanuel Macron to more and more mass-market media coverage of the startup world to more structured and professional incubator/mentor/VC players, there another reason to rejoice, which is less obvious: the rise of European sizeable exits for French tech startups.