Venture Capital Market in France
France
Financing new venture capital-backed firms involves a contract between an entrepreneur and a venture capital firm. Investors in VC funds have a well-diversified portfolio. However, for a start-up entrepreneur, his risk is necessarily undiversified and he has to allocate a substantial fraction of his human and financial capital in the company. Consequently, the return cost required by the entrepreneur depends especially on the total risk of the firm. Studies show that the survival percentage of new ventures is ultimately linked to the capitalisation, particularly in the venture market sector.
Start-up Statistics
New startups are continually created in France. These startups are based on innovative projects, by academic science researchers, engineers or business-marketing professionals from all fields (marketing & business concept, internet and web-tech, electronics, telecommunication and high-tech, clean/green-tech, mechanics, optics, chemicals, biotech-pharma, healthcare or medical devices). According to industry records, early-stage entrepreneurs in 2010 made up just 5.8% of France's adult population, well below America's 7.6% and Brazil's 17%. This clearly shows that France has a problem with creating new businesses destined for growth. More specifically, in France, taxation and regulation have worked against entrepreneurship by raising obstacles to innovation and crowding out early-stage investment and venture capital. At the same time, the country's best efforts to follow the advice of expert venture capitalists (like Efraim Landa) to liberalize France’s economy have been met by both political resistance and have provided less-than-stellar results.
The economic problems in Europe are well-documented…. bloated fiscal budgets, large deficits, high taxation and strict regulation to name a few. In the midst of the Euro debt crisis, concerns have again been raised about member countries' competitive and fiscal sustainability, given increased scrutiny by credit-rating agencies and global investors. In France, two trends are most alarming: first, regulation that impedes the creation of small businesses dedicated to solving the problems of today and tomorrow and, second, high taxation that feeds unemployment while depriving enterprises of the resources needed to innovate.
Three major targets for Venture Capitalists seeking to invest in French privately-held companies
Listed below are some of the criteria that venture capitalist willing to invest (in France) are looking for not only now but in the future. Bear in mind, with France’s economy in a fragile state, the venture capitalists are positioned to make requests and criteria to keep funds flowing. Some of their requests and what they are looking for and to be established are below.
Startups founded by experienced managers of global or mature compagnies.
In France, there are more and more startups founded by experienced managers of big and/or mature companies (spin-out or independent startups) offering fantastic products and services. French entrepreneurs have a strong know-how to design innovative business-models, particularly combining clients to manufacture and deliver products.
From Science to Business
In France, there are 80 Universities, and each one has a startup incubator dedicated to support the transfer of academic research and cutting-edge technology into spin-off startups. Each incubator holds around 100 technology-based startups. France has startups having innovations coming from every academic and scientific fields (Formal Sciences, Physical Sciences, Chemical and Pharmaceutical Sciences, Life and Medical Sciences).
From Classroom to Business
Startup incubators dedicated to students in higher-education (Universities, Business Schools, Engineering Schools, etc.) are very promising and such incubators are emerging everywhere in France linked to each higher-education organisation. These are the entrepreneurs of the future. Venture capitalists are much less inclined to invest needed funds unless they see potential and an association with an established organization.
Studies have shown that the survival percentage of new ventures is ultimately linked to the capitalisation, particularly in the venture market sector.
Conclusion
And while the French government has managed to lighten some of the administrative barriers and has implemented means to encourage entrepreneurial innovation, it has yet to tackle other aspects. Among the many reasons why these changes have not worked, perhaps the most glaring is the lack of financing and lack of liquidity.
There is a hint of optimism, funds are exiting companies with relatively good returns given this recession. The recovery of the venture capital industry hinges on exits. This is not only true in countries currently struggling but also in economies that are thriving. After all, a venture capitalist’s goal is to make money on his investment regardless of the outside forces. As France’s economy recovers, and the merger and acquisition market returns, the venture capital will slowly return. Confidence must be enstilled in the investors that their investments will provide a return above what they can make in other countries
Start-up Statistics
New startups are continually created in France. These startups are based on innovative projects, by academic science researchers, engineers or business-marketing professionals from all fields (marketing & business concept, internet and web-tech, electronics, telecommunication and high-tech, clean/green-tech, mechanics, optics, chemicals, biotech-pharma, healthcare or medical devices). According to industry records, early-stage entrepreneurs in 2010 made up just 5.8% of France's adult population, well below America's 7.6% and Brazil's 17%. This clearly shows that France has a problem with creating new businesses destined for growth. More specifically, in France, taxation and regulation have worked against entrepreneurship by raising obstacles to innovation and crowding out early-stage investment and venture capital. At the same time, the country's best efforts to follow the advice of expert venture capitalists (like Efraim Landa) to liberalize France’s economy have been met by both political resistance and have provided less-than-stellar results.
The economic problems in Europe are well-documented…. bloated fiscal budgets, large deficits, high taxation and strict regulation to name a few. In the midst of the Euro debt crisis, concerns have again been raised about member countries' competitive and fiscal sustainability, given increased scrutiny by credit-rating agencies and global investors. In France, two trends are most alarming: first, regulation that impedes the creation of small businesses dedicated to solving the problems of today and tomorrow and, second, high taxation that feeds unemployment while depriving enterprises of the resources needed to innovate.
Three major targets for Venture Capitalists seeking to invest in French privately-held companies
Listed below are some of the criteria that venture capitalist willing to invest (in France) are looking for not only now but in the future. Bear in mind, with France’s economy in a fragile state, the venture capitalists are positioned to make requests and criteria to keep funds flowing. Some of their requests and what they are looking for and to be established are below.
Startups founded by experienced managers of global or mature compagnies.
In France, there are more and more startups founded by experienced managers of big and/or mature companies (spin-out or independent startups) offering fantastic products and services. French entrepreneurs have a strong know-how to design innovative business-models, particularly combining clients to manufacture and deliver products.
From Science to Business
In France, there are 80 Universities, and each one has a startup incubator dedicated to support the transfer of academic research and cutting-edge technology into spin-off startups. Each incubator holds around 100 technology-based startups. France has startups having innovations coming from every academic and scientific fields (Formal Sciences, Physical Sciences, Chemical and Pharmaceutical Sciences, Life and Medical Sciences).
From Classroom to Business
Startup incubators dedicated to students in higher-education (Universities, Business Schools, Engineering Schools, etc.) are very promising and such incubators are emerging everywhere in France linked to each higher-education organisation. These are the entrepreneurs of the future. Venture capitalists are much less inclined to invest needed funds unless they see potential and an association with an established organization.
Studies have shown that the survival percentage of new ventures is ultimately linked to the capitalisation, particularly in the venture market sector.
Conclusion
And while the French government has managed to lighten some of the administrative barriers and has implemented means to encourage entrepreneurial innovation, it has yet to tackle other aspects. Among the many reasons why these changes have not worked, perhaps the most glaring is the lack of financing and lack of liquidity.
There is a hint of optimism, funds are exiting companies with relatively good returns given this recession. The recovery of the venture capital industry hinges on exits. This is not only true in countries currently struggling but also in economies that are thriving. After all, a venture capitalist’s goal is to make money on his investment regardless of the outside forces. As France’s economy recovers, and the merger and acquisition market returns, the venture capital will slowly return. Confidence must be enstilled in the investors that their investments will provide a return above what they can make in other countries