A growing paradigm for French startups: R&D in France, fundraising abroad

Aug 28, 2014
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Featured above: Criteo co-founders celebrate their NASDAQ IPO in Times Square

This post is a contribution from Anji ISMAIL, CEO and co-founder of DOZ, a marketing platform that helps websites increase their audience by organizing the work of vetted, crowdsourced marketers around the globe.

My story is a little unusual. I’m a French entrepreneur who raised money in the U.S, with my cofounder — but instead of moving our business to the US, we chose to keep our company in France.

One of the biggest challenges for startups in France is raising capital. That’s why my cofounder and I went to Silicon Valley and got into the 500 startups network. But aside from finding capital, France actually has some great mechanisms in place to support entrepreneurs. Increasingly, France is becoming more and more supportive of startups. You may have even read a lot of good things recently about France trying to attract US VCs. While the barriers to entry are still high for entrepreneurs like myself, these challenges actually make French entrepreneurs some of the most determined people you will ever meet. There’s a reason French employees (when not on strike) are often said to be among the most productive in the world.

French startups are also getting hungrier and even more ambitious than ever before. Just look at two of the biggest exits in the Adtech space in 2013. Neolane was acquired by Adobe for $600M, Criteo IPOed on Nasdaq, valuing the company at $2B, and Blablacar, the car sharing company now conquering Europe, and soon enough the U.S, just raised a $100M round.

Despite a lack of French VC funding, French startups are capitalizing on existing support structures and are finding ways to make it work. This post is an attempt to share my experiences with starting a business in France and keeping it there.

If you start in France, you will need to find your business model fast

During our early days at DOZ, we didn’t fundraise because we knew it would be almost impossible to raise money in France without revenues. Instead, we did some hard bootstrapping, while we waited to find the right “product/market fit.” We had to do really “non-scalable” things, like consult for big companies, in order to buy us more time and to build what we had in mind.

We knew the only way to stay in business was to find the right business model. For us this meant selling online marketing campaigns directly, wherever we could, no matter the project size.

I believe this is one of the biggest strengths of the startup scene in France. Money is so hard to get from investors (I’m not even talking about banks), that it forces you to find actual paying customers for your product or service. If you’re an entrepreneur in France, you have to find a sustainable business model — quickly. And at the end of the day, showing early revenues opens up the conversation with investors.

France provides resources to startups

Being based in France is an extreme motivator to founders: French entrepreneurs want to prove the pessimists wrong, that “impossible is not a French word,” that articles describing France as not “startup-friendly” are not entirely true.

While it is true that France has some old laws that block innovation (e.g. Uber vs Taxis), it is also true that the French National Unemployment Agency (Pole Emploi) is the first business angel in France. Thanks to its monthly allocation, I was personally able to give up a well paid internship at Microsoft to start my own company.

I know several entrepreneurs who quit their jobs at big companies, knowing they would get 2 years of allocation, so that they could start their own companies, without having to worry about money for rent. France makes these resources possible to entrepreneurs.

France’s laws are (too) good to employees and this is good for startups

In France, it is not as easy to fire employees as it is in the US. Hiring someone is a real commitment. Think of it like a marriage: in hard times you have to make it work. And that’s not a bad thing.

Our hiring laws force entrepreneurs to be more careful when they make their hiring decisions. French entrepreneurs take their time to hire the right people and to integrate them into company culture. We have a 3 month trial period before bringing anyone on full-time.

Our hiring process also makes employees more loyal, and in hard times, they are less likely to abandon ship. They form a commitment to you, because you took the time to pick and train them.

France pushes startups to go global

France is a tiny market and French is spoken by only 100 million people in the world. As a French entrepreneur, you don’t have that much choice. You have to translate your site into English and go international. At DOZ, we started with an English website and got international clients right from the start.

Additionally, the French are more cautious when it comes to trying new products or services and need compelling reasons for why a new product is better than what they currently have. This makes the sales cycle pretty long; another reason to find global clients early on.

Banks and Enterprises are starting to look at startups

Historically, banks in France had been very unwelcoming to startups. Just opening up an account was tricky. Today, banks are putting together “Innovation Teams” with startup-focused services. Banks are beginning to see the benefits of supporting entrepreneurs.

Additionally, in the past,  large enterprises and companies from the CAC 40 (the French Nasdaq), would ask startups to introduce their product/service, but with so many requirements in the purchasing process, many founders simply gave up. This is also changing, with big companies becoming more flexible. Startups need to have big corporations as clients, not only as potential exits.

Venture Capital is still an issue… but there’s hope

In France, most VCs assume the role of a bank more so than a capital risker. Usually terms and valuations will not satisfy a company out of a Startup Weekend. Due diligences are very long and you can find yourself spending more time providing documentation, 5 year financial plans and hiring projections, rather than focusing on the business.

The ratio of VCs to startups is also not great. While in Silicon Valley, a few VC firms might compete to be involved in a round, in France, entrepreneurs compete with hundreds of startups for smaller checks.

Recently, successful entrepreneurs in France have started to build their own investment firms. Kima Ventures is a great example, investing in 2 companies per week! Because firms like Kima are started by entrepreneurs, for entrepreneurs, they provide a much more supportive route to accessing capital.

I hope that more successful entrepreneurs will start their own investment firms.

What we did and why we chose to stay in France

For an online marketing startup like DOZ, we see a big opportunity in the US, where the market is bigger and more mature. We also had to look there for fundraising. After months of discussion leading to basically nothing with French VCs, we decided to raise from the Valley.

And while we value our US network, we still believe in having our company based in France. For example, the French Public Bank matches $0.5 for every $1 invested in a French startup; the French government gives back 30% of all R&D expenses spent and engineers have reduced tax rates.

Not only is it possible to keep a US-funded company in France, but I also have no doubt that we’ll see more and more of it. France, by its structure, is creating startups that are easy to export, and hopefully, will become easier to fund.

Being funded in the US doesn’t mean you have to leave your country, or even take away economic benefits from your country. In fact, in our case, we will be creating many more jobs in France, especially for our tech team. Engineers receive a great education from public schools, and needless to say, they are much less expensive than those in the Bay Area.

So yes, French entrepreneurs can raise money from US VCs — without having to flip their companies and take them abroad. France is already starting to take steps in the right direction towards opening up resources to startups. French investors should take note, however, that if they continue to make it difficult to get capital, they risk missing out on the next Criteo.