Paris Business Angels: The Startup Trap

Nov 30, 2012
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Being a first time entrepreneur is like walking blindfolded through a minefield: you only know you’ve taken a wrong step when you lose a limb. In France, it’s even worse, because there are only so many people who have walked through that minefield before, and they often keep the information to themselves. One of the bear trap-sized mistakes I repeatedly hear startups talk about is having gone to Paris Business Angels, just one of many Angel Associations in France.

PBA – How the 4 month Pitch Process

At first glance, PBA must sound interesting – after all, it’s a bunch of business angels around a table. Here’s how it works:

Startups apply continuously with a two-page pitch, and every other Wednesday, from 4PM-6PM, 10 startups are selected to pitch an elevator pitch (5 minutes + Q&A) to whichever angels are present. Afterwards, angels discuss which startups they are interested in confusing with, with only the startups who are championed by one, or ideally two angels, moving on. What follows is a series of one-on-one meetings pick apart your entire business model, essentially trying to gauge how risky the model is.

After this is finished (4-6 weeks minimum), the BAs deliver either a positive or negative result to the other angels and the startup. If it’s negative result, they will explain why they do not feel it is a good fit for the association, if it is positive, startups will present in a longer presentation (30 minutes), followed by a Q&A. Then the angels decide if they want to invest. Each angel can choose how much they put in, thought individual tickets are usually 10-20k per investor. Thus is requires 10-12 angels backing you in order for you to receive funding – oh yes, did I mention that rounds raised here are generally under 250k, and optimally 150k.

What follows are standard negotiations on what kind of shares, how much dilution, etc. – if the startup raises money, PBA takes 2% commission.

The Problem – PBA Lacks Startup Culture

Already, I imagine a few things set off buzzers in your mind, at least the thought “oh, I didn’t expect that.” I spoke to a serial entrepreneur and former member of PBA, who left after 3-4 years, feeling there wasn’t a good fit between him and said of the angels “not my kind of team – those people are just different.”  He wished to remain nameless, but I wanted to summarize his thoughts, mixed with a bit of mine:

  • Angel Profile: Like any investment opportunity, you have to make sure that the people you are seeking investment from are going to bring value beyond their wallets – after all, once you bring in outside investors, you have to report to them, regularly. You want someone who has the same vision, can make use of their experiences and network to help you over the humps and hurdles. The angels in PBA are not entrepreneurs. They have money, and that is good, but they are ex-CxOs of big companies, not serial entrepreneurs.

“it’s a group of people – consultants, bankers, larger companies – there’s hardly anybody who’s grown a startup from nothing. They don’t have the entrepreneur mentality.”

-Former PBA member.

 

  • Investment Size: This week is France Angel week, and I was lucky enough to come across an article(FR) in which Philippe Gluntz, the head of France Angels, the largest angel association which regroups all other angel associations, shares a bit of numbers: 4,500 angels investing €45 million in the past year. The math is perfect: 10,000€ average investment for angels. What Angels do you know of in the international startup scene who invest tickets of €10-20,000? The only reason you would do this is for tax rightoffs, in which case you’re not concerned,or even familiar with the startup’s vision. For French startups to compete on an international level, they can’t be running around begging angels for 10-20,000 – they need to be raising €500,000 -€800,000, from people who will use thieir network & experiences to help them grow.
  • The real Angels have their own network: the face remains that the Angels that are really investing in startups – Jacques-Antoine Granjon, Marc Simoncini, Jeremie Berrebi, Xavier Niel, etc. – are doing it through their own network, and they’re sharing deal flow. Word on the grapevine is that if you want JAG to invest, he’ll tell you ‘If you get Marc to invest, I’m in.’ The number of Angels who are qualified to be startup angels is small enough that there’s no need for a network, at least not for internet startups.

Now, I must anticipate comments by saying that there are obviously some cases where PBA is a good choice: after all, they are actually investing €45 million into companies. That being said, I don’t think PBA has had their hand in any of France’s recent global successes, not like Idinvest has. A few startups also told me that, while PBA was a waste of time, investment wise ( “you’re just too risky”), it was great pitch practice, and they learned to answer stupid investor questions.

I think in order for startups to grow quicker, there needs to be more clarity about where you can go to get money, and frankly, PBA is not a big contributor to the startup ecosystem. Share your story below, anonymous or otherwise, and let people know that Angel Associations are not helping web startups grow – they’re helping the French elite efficiently select tax breaks.