Why being cut-off from funding is not all that bad.

Nov 29, 2012
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The following is a guest post by our Rude BA, Jerome Camblain.

Recent French tax changes will have many negative impacts on the startups ecosystem. The main one is the widening of the funding gap between the seed round and the VC round, mentioned in my previous post: In France, the A in Series A is for Absent.

But this is not that negative as this situation will set tougher rules, forcing every entrepreneur to raise his/her game, maybe leading to the creation of the international champions that we too seldom see emerging from France.

Non-French competitors will now have an unfair competitive advantage, as easier funding means larger budgets for every department from R&D to sales, allowing a quicker time to market and more aggressive marketing. They will also be able to go for the quest of a large installed base while the French competitors will battle for a (too) early monetisation…But French firms will have to work harder and we could be positively surprised by the outcome.

Money makes you stupid, or at least it prevents you sometimes from being smart, you don’t test and learn, you hire too fast and low quality staff…why not, when you have so much cash in the bank?

I see many areas where positive outcomes could follow for Team France, that will lead to better managed firms, then easier to finance down the road – and most of them are Marketing related:

  • Startups will have to work exclusively on solving someone’s problem, in order to make sure there is a market for their product. Solving a problem does not mean answering a question. Remember Henry Ford: “if I had asked my clients what they wanted, they would have answered faster horses.”
  • They will invest in Marketing. France has always trained great engineers…but some the best marketers come from outside France. In order to make sure that the product get sold, French entrepreneurs will have to develop a better solution, closer to clients needs and develop much better UI/UX (User Interface/User Experience) than currently proposed. I have seen time and time again French firms with the best technology being outcompeted by a weaker but better packaged and marketed US technology. Every VC agrees on that subject.
  • To achieve this, they will need to hire foreigners and build international teams. This will have hopefully a double effect, on the product offer as mentioned above, and on the capability to sell abroad. Let’s not forget that France is less than 4% of the world economy and the other 96% are too often neglected at launch. French startups will have to stop focusing on local ideas that need huge effort to replicate abroad. They could then reach maximum scalability.
  • An international team could also bring smarter pricing plan, better distribution methods and a wider partnership network.
  • The fund shortage also forces firms to be smarter in using free resources; open source is huge; get involved! Also be part of communities; exchange services, build your own cluster.

I could go on about the advantage on being under-funded, without even mentioning the low dilution for the founders… But please do not imagine for one minute that I am happy with the new rules and the stress it brings to the system. I am a darwinian optimist and I know that we will see international champions emerging from the funding shortage imposed by these tough new French tax rules.