Last week, US President Barack Obama signed into law the “JOBS Act“, a package of tax cuts and reforms most widely known for laying the legal groundwork for crowdfunding in the US. This comes at a time when the seed valuation bubble is showing no signs of popping, and more and more celebrities are getting in on the early-stage investing action.
Meanwhile, here in France, we’re seeing evidence of a similar surge in interest in early-stage deals. A Thompson One Reuters report from last December showed that early-stage investment in France nearly doubled from 2009 to 2010, reaching almost 400M EUR. And just yesterday, the Startup Genome project ranked Paris the #11 startup ecosystem in the world — higher than red-hot Berlin and second only to London in Europe (unless you count Moscow, but that’s a discussion for another time).
So, with increased investor interest and a talent pool of entrepreneurs that is gaining international attention, is it time for France to consider its own JOBS Act?
Stop feeling sorry for yourself!
Last June, Arctic Startup caused a wave of hang-wringing across the continent when it published a quote from Microsoft’s European chairman, Jan Müehlfeit, who said, “If you take the amount of VC per capita, in Europe, it is $7. In the U.S. it is $72. In Israel it is double that.” And then you had a thousand European entrepreneurs believing that their US counterparts had a 10X better chance of getting funded than they did.
Six months later, Investiere, a Swiss investment firm, published a study claiming that the true average VC per capita in Europe is $35 — and that in France it is $31. This certainly paints a better (and less attention-grabbing) picture than the $7 figure above.
So let’s look a bit closer at the situation in France. La Tribune reported last year (requires subscription, so linked to a translation) that 2010 VC investments in France reached €1.05 billion, or about $1.38B. However, this number seems to leave out most of the early-stage amount t of €400 M that we mentioned before, perhaps because this comes from individuals and business angel associations. And so, if we add the official VC investment to the reported early-stage investment, we get a total of $1.9 billion in France — or $29 per capita.
$29 per capita isn’t great, but it’s not terrible. There is enough here for French entrepreneurs to do great things with.
How to keep closing the gap
France already has policies that help to steer private funds into seed and venture capital. The La Tribune piece reports that 62.5% of VC investments come from funds raised through vehicles designed to take advantage of generous tax breaks — and more recently, even more aggressive tax breaks have been given to individuals who invest directly into small, innovative companies. Without these policies, money would dry up, so the first key is to keep these tax breaks in place.
So why not a JOBS Act for France? Successful internet entrepreneurs have already demonstrated a great deal of interest (and success) in startup investing, as evidenced by funds like ISAI, Jaina Capital, and Kima Ventures, among others. Young people in France are passionate about their ideas and eager to help their friends build their dreams — so why not get ahead of the curve and beat the rest of the world to crowdfunding?
The truth is, though, that money isn’t the huge bottleneck right now. Studies have shown that private investment in venture capital in France has “an average profitability which remains low considering the risks incurred.” For whichever reasons, the French startup sector isn’t producing the returns necessary to justify more investment. Milo Yiannopoulos of The Kernel has been going off lately on how European startups need to “man up” and get more aggressive if they want to win the international tech game. I don’t necessarily agree with a whole lot of what Yiannopoulos writes, but I do think that the key to success lies in entrepreneurs, not in funding.
So, a French JOBS Act would be fine, but entrepreneurs here probably shouldn’t spend too much time focusing on it if it means paying less attention to growing their own businesses into international stars. That is, of course, unless your startup is trying to build the largest crowdfunding platform in the world. Then, by all means, do whatever it takes.