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09/12/2016

Foreign investment in European ‘unicorns’: A hollow debate?

Euro & Finance

Foreign investment in European ‘unicorns’: A hollow debate?

A start-up worth over $1 billion is known as a "unicorn".

[Marben/Shutterstock]

The acute lack of venture capital in Europe means that 40-60% of funding rounds greater than €10 million are financed by American firms. For the directors of the French fund Idinvest, this is not a problem. Our partner La Tribune reports.

France’s tech leaders are flying from record to record, in terms of fund-raising. First BlaBlacar took the lead, then Sigfox, then it was BlaBlacar again, and soon Sigfox will take the lead once again…

After the $100 million it raised in the summer of 2014, BlaBlaCar opened a funding round of $200 million in September this year, the most ever raised by a French start-up, which helped transform the car-sharing site into a “unicorn”: a start-up valued at more than $1 billion.

Toulouse-based company Sigfox, which provides a low-speed network for the Internet of Things, now plans to launch a fund-raising effort worth even more than the $100 million it raised in February 2015.

These large sums appear to contradict the common premise that France – and Europe more broadly – provides its entrepreneurs with an environment in which to start their companies, but not the means to successfully pursue their development. This is supposedly because there is simply not enough venture capital available to make investments of more than €10 million in mature start-ups that are trying to break into the international market.

A joint investment of €75 million by the European Investment Bank (EIB), the French Public Investment Bank (Bpifrance) and the German Development Bank (KfW) in the Partech Growth Fund this October was made precisely to rectify this “deficit of financing capital for sums of over €10 million, from which the European market is suffering”, the three institutions explained in their press release.

Partech Growth is a capital growth fund launched by the Partech venture capital firm in January 2015. The fund has since raised €370 million, and plans to invest parcels of between €10 and €45 million in three to five high-tech European start-ups each year. Its aim is to fill Europe’s famous investment gap, which means that 40-60% of venture capital investments above €10 million are currently made by American funds.

Anglo-Saxon funds return to France

But this debate is a red herring, according to Benoît Grossmann, the managing partner of Idinvest Partners, a venture capital specialist that has scouted start-ups like Sigfox, Criteo, Deezer; Leetchi and Meetic. “Is it really a problem that American firms finance the big funding rounds of French start-ups? The really worrying thing would be not to have national funds that are capable of providing the seed money.”

For Grossmann, who spoke at the annual Idinvest press conference on Monday (14 December), the return of Anglo-Saxon investment to France is rather a reason to celebrate. “The success of BlaBlaCar, Sigfox and Criteo have brought British and American funds back to France, a country they didn’t want to hear about in 2012,” he said. A plan to increase the tax on capital gains from property sales in 2012 had scared off many international investors, and the French government eventually was forced to back down.

Anglo-Saxon funds are not the only ones to have changed their minds about investments in France. “Five years ago, if you said the word ‘Europe’ to Asian investors, they would have burst out laughing. This is no longer the case, even if they are still very selective about their investments in European SMEs,” said Christophe Bavière, the president of Idinvest.

He believes that “money is not a rare resource” for French start-ups and SMEs. “The deficit of growth capital is a theory I do not buy,” Grossmann insisted. “French businesses do not want more money. They just need us to let them work,” he added.

This is to be taken as a warning that public powers should aim for stability, rather than burdening companies with too much regulation.