Wrapping my head around the eFounders ‘Company Builder’ model

Wrapping my head around the eFounders ‘Company Builder’ model
French-Startup

Paris Office Tour 1-74

Launched in 2011 by Fotolia co-founder Thibaud Elzière & associate Quentin Nickmans, eFounders falls into the broad category of what has been dubbed ‘Company Builders’. The term, which encompasses anything from Andreessen Horowitz to Rocket Internet, broadly refers to firms or companies who provide on top of investment a layer of services, from development to a full-fledged executive team member.

Focused on Software-as-a-Service (SaaS) startups who sell to SMBs, eFounders has put out a total of 7 companies: Mailjet, PressKing, Mention, Muxi, Front, AirCall & Textmaster. Muxi has been shut down since January 2013, and AirCall is currently in between CTO’s (update: I previously stated that AirCall was ‘on hold,’ and have since updated following information that, while the company is seeking a new CTO, they are still active).

The things that worry me

eFounders picks ideas they love – they even claim to value ideas over execution – then they look for a CEO & CTO to lead the startup, with eFounders acting as the ‘third cofounder.’ In addition to being a third cofounder, they come in as a seed investor – 150K€, which the other two cofounders can allocate as they wish (reasonable salaries for both founders, marketing, etc.) – as well an in-house product, design, and development team which will help them conceive and deliver the first version of their product.

eFounders says that the real value they provide is in the first two years of a startup’s existence – pre-Venture, pre-Accelerator, the first 100 clients – which is how they justify taking 50% equity in the company (formerly 66%, though I’ve heard some startup founders have 20% in total after their next seed round). eFounders Partner Quentin Nickmans cites Betaworks – the company builder & investor behind hit game Dots, who acquired Digg & Instapaper, and who formerly worked on Bit.ly & SocialFlow – as an equivalent model, though not much is disclosed about Betaworks’ stake in their companies.

I entirely agree that, given the services, funding, and executive team (either Thibaud or Quentin commit a given amount of time to being full-time on a given startup at the beginning, until the CEO & CTO become autonomous), the amount of equity they take is justified. The part that worries me is that the churn rate of founders in eFounders companies is a bit too high for me.

Mention co-founder & former CEO Edouard De La Jonquiere recently departed from the company, replaced by Matthieu Vaxelaire, a former eFounders Junior Partner – this despite the fact that Mention is more than 2 years old – the point which eFounders insist is where it adds real value. Of course, this decision was a board decision, which includes Mention’s investors Alven Capital & Point Nine Capital; however that a co-founder who raised less than €1 Million for his startup was able to be voted out of the company should be worrying to entrepreneurs considering joining an eFounders gig. Team members inside said that De La Jonquiere’s stake was between 7-10% in the company.

Interesting side-note on Mention: since the CEO change, Mention’s pricing has gone up. See here (July) and here(current). Not necessarily a bad thing, as clearly the new CEO’s role is to focus the product positioning and increase revenue.

Mailjet, too, has seen its fair share of executive change-ups. The startup is on its 3rd CMO, and brought in a new CEO, Alexis Renard, during the last round of funding. The Mailjet team is growing fast, but multiple customer complaints around the quality of the product suggest that the problem doesn’t like in the Marketing or Executive decisions, but in the Product & Technical decisions. Perhaps that elusive third cofounder is to blame?

This doesn’t fly in the US

eFounders has changed its model quite a number of times – almost every deal is unique in its structure, with the common part being that eFounders be considered both as a cofounder & an investor – however, the most recent change comes after eFounders’ latest startup, Front, was accepted into Y Combinator.

One of Y Combinator’s rules is that all founders attend YC – as eFounders is a co-founder, that meant that this majority stakeholder would have to attend, which was impossible. eFounders had the choice of either opting to reduce its equity stake in the company (from a reported 66% to 50%), or Front wouldn’t be accepted into YC. The decision was made and Front is currently in the YC bath (after launching at Paris Founders Event in April, of course).

Speaking with Quentin Nickmans, he pointed out correctly that VCs clash all the time, and the negotiation on these points is part of the game. I agree – I’m sure Betaworks would have similar issues to deal with, though I’m not sure whether Betaworks considers itself a cofounder – however, when I asked Nickmans whether future eFounders companies would encounter the same issue (i.e: whether they planned on lowering future equity agreements in order to align with the YC request), he said that eFounders would always weigh whether YC was valuable for the given project. That means that, if eFounders decides to keep its 50% agreement and it doesn’t fly with YC in the future, that they will either 1) only take projects they think will work better outside the YC ecosystem (as a mail app, Front fits better in YC than, say, Mention, which targets SMBs and not the B2C public.

The model is evolving

The key thing to note is that eFounders, too, is a startup – and I think this is where much of the misperception comes from. It’s hard to look at someone who is an investor (yes, they are also cofounders, but fellow entrepreneurs see $$), and think “those guys look like they’re still figuring out their model.” Additionally, the problem with many ‘new VC models,’ is that startups don’t get to adjust their agreements with eFounders as they progress – if you agree to the ‘wrong’ model, you can’t opt for the new one (although Thefamily does have some interesting deals with regards to returning equity if founders aren’t happy).

My biggest concern with the model is that eFounders provides most of its perceived value in the beginning; however, they make decisions (like new CEOs) beyond that time, and their carry-on is long-term, even if their investment is short-term. If VCs clocked out 2 years into the relationship (not that eFounders ‘clocks out’ per se), I’m not sure many investments would be as successful as they are.

The ‘Company Builder’ model is clearly attractive, although it’s hard to identify the difference between “equity for services” (developer for equity, media for equity, PR, accounting & Lawyer services for equity) with someone who is really on your side. Ultimately, my gut tells me that the people who build the vision of the company should maintain the bulk of the equity initially – currently, eFounders takes 50%, and the CEO & CTO maintain 25% each (I presume it’s split equally). This may be a suitable formula for many, who don’t want to bootstrap, or would like a team to help them – but are the people that are attracted by this model really the ‘cofounders’ of the company, or are they early employees with a high amount of equity.

Causation vs. Correlation

I should note that it’s not concretely aligned, the eFounders equity model, and the flight of the founders; nor is it any indicator that both Textmaster & Mailjet’s latest fundraisings were smaller, bridge financing rounds, as compared to their previous rounds. Nonetheless, I can’t help but wonder if there’s not something inherently wrong with the Company Builder model – the Founder/Investor interest alignment, the Sweat Equity to Real Equity ratio, the ‘company as a founder’ model.

Both Quentin & Thibaud are very talented individuals, looking to scale up their individual ability to build companies into something that can build multiple companies at once with a common building block each time. Their focus on SaaS is smart – each new company allows them to share customers, and learn form their customers’ problems in order to identify the next block in the SaaS world that they should fill in. Thibaud Elziere invested in Algolia for just this reason. The eFounders team recently expanded to include Alex Delivet, who, among other hats, organized the SaaS conference “B2BRocks,” a move which will allow eFounders to expand their SaaS umbrella.

As with my previous articles on TheFamily & NUMA, the point is clear: right now, the model isn’t perfect, but all three are still seeking the right model. The key is that startups be aware that these entities, however, stable they look, are just as fragile as the projects that entrepreneurs wish to build, until the day where they find the perfect product-market fit.

Image courtesy of Dan Taylor of Heisenberg Media, from our “Paris Startup Scene” photo essay

8 Responses

  1. G.

    “the churn rate of founders in eFounders companies is a bit too high for me.”

    I’d say too high for anyone.

    The Founder CEOs from the other efounders projects also disappeared at some point: look at Pressking or Textmaster. Surprising that this is not mentioned here. Churn is around 100% lol

    Efounders can’t scale their startups because they don’t respect the founders, who always end up leaving… often with their best employees.

    The scenario just keeps repeating itself over and over. Hopefully, it’s now common knowledge: everybody in Paris knows the facts.

    • Insider2

      Even in insecure “startup conditions” it is not normal that the churn rate of employees and founders is this high. I’ve seen many talented people who were thrown out or left the efounders. I’m happy that finally someone has the gutts to speak it out loud.

  2. Underwhelmed

    “I entirely agree that, given the services, funding, and executive team … the amount of equity they take is justified. … eFounders would always weigh whether YC was valuable for the given project.”

    WTF. Who takes 50-66% equity?! Even Betwaorks or A16z take *nowhere* near 50% equity. Furthermore, no serious investor will invest in a startup where the the 2 founders hold minority stakes and have a 3rd wheel immobile “cofounder” doing the least work holding majority equity and voting power. For godsake, there’s literature everywhere from operators and VCs saying 20% max is what should be sold by seed stage. What does eFounders provide? Incorporation + 150k; the work is actually done by CEO and CTO hired. YC, 500startups, etc provide legal+funding + more services, connections for 7% only!

    More business merde from France; I expect nothing less. 😛 But happy for the Front guys, at least they get to see how real startups are structured and run and if they’re smart, they’ll remove themselves from Front, start something new with proper help. Because even YC can’t force others to invest in Front (who would touch that f–ked up structure?) on demo day.

  3. Insiders

    The churn rate is a bit too high for you? A BIT?

    The Efounders’ CEO Waltz (based on LinkedIn, Crunchbase, Google and Twitter)

    * Front : Clément Ravouna > Mathilde Colin
    * Mention : Edouard De La Jonquière > Matthieu Vaxelaire (looking for a 2nd CMO)
    * Mailjet : Julien Tartarin > Quentin Nickmans > Julien Tartarin > Alexis Renard (already 3 CTO and looking for a 3rd CMO)
    * Textmaster : Benoit Laurent > Thibault Lougnon
    * Aircall : Looking for a 2nd CTO
    * Pressking : Charles Mignot > Edouard De La Jonquiere > Bertrand Besse

    A bit to high?

    • Another

      What’s very sad is that in France it’s hard for a Founder who got screwed to speak up and warn the community. This kind of article is likely to protect the Front team for example.

      Quite a few of these stories would have ended up in tech press if we had been in the US. Thanks to Liam (an American, haha) for bringing this up.

  4. exmailjet

    Ça me rappel des vieux souvenirs de lire ça. Nous étions plusieur chez mailjet à surnommer Quentin et Thibaut Beavis et Butthead. Ils étaient tellement insupportable avec leur melon surdimensionné. Toujours là pour faire perdre du temps, critiquer et faire chier les pauvres Julien et Wilfried en voulant etre en copie de tous les emails ou en demandant a faire l’inverse de ce quon faisait.
    Je sais que dans toute les autres boites ils avaient des surnoms pour les meme raisons.
    Le pire c’est qu’aujourd’hui, si je devais monter une boite avec tout ceux qui ont bossé pour une boite efounders et qui detestent Beavis et Butthead, ca me prendrait 5 minutes tellement il y a de candidat.
    C’est tellement marant de voir les gens du web croire qu’ils sont geniaux juste parce qu’ils sont super forts en communication.
    Je regrette vraiment pas cette epoque.

    • Real Ex mailjet

      Je ne sais pas qui laisse ce commentaire bidon. Si Quentin et Thibaut ont effectivement un surnom, ce n’est pas celui là, par contre je connais une autre startup qui les appelais comme ca, on fait son timide ?
      Pour le reste c’est triste ou amusant de les voir se tirer des balles dans les pieds, maintenant :
      -Ceux qui sont sortis ont eu des chèques tout à fait corrects pour ceux que je connais
      -Quentin reste à mon avis un bon gars dans le fond
      -Beaucoup sortent très vite, souvent les bons, car c’est une équipe de “controles freaks” qui ont besoin d’avoir l’impression de contrôler tout le monde pour se rassurer. Ca tue les boites, dommage.

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