“Sacre bleu! As you know no one invests in start-ups in France but we believe innovation can happen everywhere and is not limited to the US and Silicon Valley.”
This quote by Arvind Sodhani, president of Intel Capital, during his keynote speech at the chip maker’s Global Summit this month came as explanation of why the corporate venturing unit was investing in new countries, such as Ghana and Spain, as well as backing two entrepreneurs in France.
It could be there was good cause for some astonishment at investing in France. Last month, local entrepreneurs and venture capital investors (known locally as pigeons) were riled by the French government’s 2013 Budget proposals, which had initially included treating performance fees as income rather than capital gains and a 75% upper income tax rate before some amelioration of the proposals (click here for blog Rude Baguette’s article).
But, more quietly, some of France’s largest corporations have been trying their own form of innovation in corporate venturing by banding together to commit to venture capital firms with a strategic manadate and give them the resources to become global operations in a relatively short space of time.
A cynic would argue that French corporate venturing groups are looking more international precisely because the domestic entrepreneurial climate is poor. The optimist, however, would more accurately see the global ambition and strategy as a positive for entrepreneurs, venture managers and French corporations and the domestic ecosystem.
The so-called French model of multi-corporate sponsors of an independent venture capital fund has gained rapid traction in the country.
In the past few years:
- Equipment supplier Schneider Electric, power parts maker Alstom and chemicals company Solvay Rhodia have banded together to commit to Aster Capital’s second fund;
- Advertising agency Publicis and mobile phone operator Orange have sponsored a €300m fund managed by Iris Capital;
- Energy utility EDF and insurer Allianz have committed to Electranova Capital, a €60m fund managed by private equity firm Idinivest (a spin out from Germany-based insurer Allianz);
- Orange, oil major Total, and train operator SNCF have created the €25m Ecomobilite Ventures fund (Car maker PSA Peugot Citroen had originally been part of the fund but pulled out); and
- Innovacom spun out from France Telecom-Orange in April after raising the €30m early-stage Technocom II fund backed by the phone operator as well as equipment maker Alcatel-Lucent, electronics provider Groupe SEB and energy firm Soitec.
What differentiates the more recent entrants from previous multi-corporate VCs, such as XAnge Capital, created as the corporate venturing unit of mail delivery company La Poste with third-party backers in the logistics industry, and ACE Management – set up with industrial groups Thales, Safran, Airbus, CEA and EADS’s support – is the newer units usually have less than a handful of strategic sponsors from non-competing sectors interested in a specific theme with global ramifications.
Aster and Electranova are looking at clean-technology; Iris the digital economy; Ecomobilite has smart transport; and Technocom technology more broadly.
As Antoine Garrigues, co-managing partner of Iris, said: “The strategic scope of corporations are now broader, especially in the digital economy. If Orange, for example, just looked for deals in telecoms its results would be limited but by seeing what Publicis is doing in mobile advertising it will see new patterns. The same [broadening of strategic focus] is happening in life sciences and energy. By sponsoring a fund managed independently they get a broader scale, an international remit and we can leverage the reach of each corporate LP [limited partner – an investor in a fund].”
Iris has been expanding its team by opening offices in North America and Asia (see website for tomorrow’s news), following Aster’s lead, while Ecomobilite and Elecgtranova’s first deals also look outside France.
Other French VCs, such as VenTech and Sofinnova, have long invested outside of Europe but Garrigues said the corporate backers would help it strike better deals.
He said: “It is a competitive advantage to have Publicis, Orange because the relationship helps us to win deals, such as MoPub.”
Venture capital firm Accel had invited Iris into US-based mobile advertising agency MoPub’s $12m series B round last month because of the French firm’s strategic relationship with Publicis and Orange.
Garrigues added that by being independently-managed, the multi-corporate sponsors VCs were able to attract financial institutions to join as limited partners because the corporations had no veto rights on deals and the fees were standard, such as 2% or 2.5% annual management fees and 20% performance fees (called carried interest). However, Fabienne Herlaut, managing partner of Ecomobilite Ventures, warned in a panel discussion at the Global Corporate Venturing Symposium in May of how long it took to get the partners to commit (see related news below).
VC firms in other countries have managed specific mandates from corporations, such as Altrium or Gilde, or multiple corporate LPs, including Energy Technology Ventures (backed by GE, NRG and ConocoPhilips) Index Ventures’ life fund (sponsored by GlaxoSmithKline and Johnson & Johnson), Amadeus’ first fund and a host of others during the first dot.com bubble in the late 1990s. The French model, therefore, might be innovative at the margins but it has pulled together important trends by trying to learn from the past.
In a recent study of corporate venturing by Isabelle Veil, which is expected to lead to policy recommendations for the French government in a report published by PME Finance, corporations made up about 10% of the local venture assets under management so the recent commitments by the country’s leading companies will have a meaningful impact.
As Garrigues said: “French corporations have not been very active in venture, certainly compred to German peers, so the French model is positive. While French companies have been too late in venture they are realising there are new ways to explore corporate venturing.”
An immaculate conception indeed.