France Needs American Investment Funds
Published in Les Echos
(France) on 28 Nov 2018
by François Véron (link to original)
The United States, No. 1 in global venture capital fund-raising, looks to diversify its investments. France has a nice card to play.
Just as France swung into action to attract financial professionals in preparation for Brexit, it now needs to attract American investment funds to sustain the increasing power of its start-ups.
We’re not starting from scratch, of course. American funds are already regularly solicited for Series A financing (bringing in between €5 million and €10 million, or approximately $5.6 million to $11.4 million) and appear to be involved in one in six Series C financings (more than €30 million or approximately $34.1 million) led by French startups. Their involvement is still modest considering their potential, but it could benefit from more promising winds in the years to come.
That is namely because the United States today represents 62 percent of global venture capital fund-raising – Europe only represents 11 percent and France less than 2.5 percent* – and also because many American funds are spurred by their own subscribers (limited partners, or LPs) to open up more to the international market. Among their immediate options, China always appears to be a closed market, or at least a complicated one, for foreign investors, and Brexit has put all of Britain’s economy at high risk. Among the economic powers that are open and are respectful of legal rules, France, Germany and the countries of Northern Europe remain.
Better Promotion of Our Assets
France has a nice card to play if it can sell investors on its reforms in progress. American funds too often picture France as a country with a state-directed economy: anti-business employment laws, high and complicated taxation. It will be essential to promote the recent reforms of employment laws and the new fiscal environment. It will also be necessary to raise awareness about those American tech companies that have chosen to open branches in France: Microsoft’s European headquarters, Facebook’s R&D center, Cisco’s commercial establishments – what do these companies find that could not also interest investment funds?
One of Europe’s main markets, excellent infrastructure, and above all, high-quality engineers (many of whom have migrated to the Silicon Valley over the last 20 years) come, of course, at a cost. French engineers are certainly more expensive than engineers in Eastern Europe, but less than those in the United States. In the opposite direction, France must also sell its champions, particularly those start-ups that have been successful in the American market (Criteo, Algolia, Peopledoc, Medtech Surgical, Aircall…).
Take Silicon Wadi As An Example
Let’s take what has already worked elsewhere as an example, such as Silicon Wadi in Israel. To attract American funds, the Israelis emphasized the intrinsic qualities of the local ecosystem, but they also relied on partners with ties to the Jewish community within these funds.
Better equipped to understand Israeli culture and the way of doing business over there, these partners were able to convince their firms to take the leap, namely by emphasizing that the Israelis trusted them and would agree to allow American funds to control the businesses in which they invested. This practice should encourage France to identify partners that are associated with it, Francophone countries, or, more generally, continental Europe, and who could play the same role.
Finally, it is necessary to forge a clear discourse that is oriented toward the free functioning of the French and European markets. Too often, public initiatives emphasize flaws in the marketplace to justify recourse to state intervention. Such recourse can alarm American investors.
If France succeeds in reinventing its position in the global market and, what is more, in changing its perceptions among foreign investors, American funds could be spurred to contribute to the emergence of a new ecosystem that is prone to welcome their investments. That is in everyone’s interest.
*Editor’s note: The author attributes this information to Preqin, 2017, a source of data, insight and tools for the alternative assets industry.
Just as France swung into action to attract financial professionals in preparation for Brexit, it now needs to attract American investment funds to sustain the increasing power of its start-ups.
We’re not starting from scratch, of course. American funds are already regularly solicited for Series A financing (bringing in between €5 million and €10 million, or approximately $5.6 million to $11.4 million) and appear to be involved in one in six Series C financings (more than €30 million or approximately $34.1 million) led by French startups. Their involvement is still modest considering their potential, but it could benefit from more promising winds in the years to come.
That is namely because the United States today represents 62 percent of global venture capital fund-raising – Europe only represents 11 percent and France less than 2.5 percent* – and also because many American funds are spurred by their own subscribers (limited partners, or LPs) to open up more to the international market. Among their immediate options, China always appears to be a closed market, or at least a complicated one, for foreign investors, and Brexit has put all of Britain’s economy at high risk. Among the economic powers that are open and are respectful of legal rules, France, Germany and the countries of Northern Europe remain.
Better Promotion of Our Assets
France has a nice card to play if it can sell investors on its reforms in progress. American funds too often picture France as a country with a state-directed economy: anti-business employment laws, high and complicated taxation. It will be essential to promote the recent reforms of employment laws and the new fiscal environment. It will also be necessary to raise awareness about those American tech companies that have chosen to open branches in France: Microsoft’s European headquarters, Facebook’s R&D center, Cisco’s commercial establishments – what do these companies find that could not also interest investment funds?
One of Europe’s main markets, excellent infrastructure, and above all, high-quality engineers (many of whom have migrated to the Silicon Valley over the last 20 years) come, of course, at a cost. French engineers are certainly more expensive than engineers in Eastern Europe, but less than those in the United States. In the opposite direction, France must also sell its champions, particularly those start-ups that have been successful in the American market (Criteo, Algolia, Peopledoc, Medtech Surgical, Aircall…).
Take Silicon Wadi As An Example
Let’s take what has already worked elsewhere as an example, such as Silicon Wadi in Israel. To attract American funds, the Israelis emphasized the intrinsic qualities of the local ecosystem, but they also relied on partners with ties to the Jewish community within these funds.
Better equipped to understand Israeli culture and the way of doing business over there, these partners were able to convince their firms to take the leap, namely by emphasizing that the Israelis trusted them and would agree to allow American funds to control the businesses in which they invested. This practice should encourage France to identify partners that are associated with it, Francophone countries, or, more generally, continental Europe, and who could play the same role.
Finally, it is necessary to forge a clear discourse that is oriented toward the free functioning of the French and European markets. Too often, public initiatives emphasize flaws in the marketplace to justify recourse to state intervention. Such recourse can alarm American investors.
If France succeeds in reinventing its position in the global market and, what is more, in changing its perceptions among foreign investors, American funds could be spurred to contribute to the emergence of a new ecosystem that is prone to welcome their investments. That is in everyone’s interest.
*Editor’s note: The author attributes this information to Preqin, 2017, a source of data, insight and tools for the alternative assets industry.
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