Already affecting a billion people on the planet, and probably 100% of RudeBaguette readers, Facebook strikes me as the perfect trigger to kick off a discussion on this blog about IPO’s, specifically their role in European venture-backed technology startups. This post represents the first installment of a multi-part series on the topic.

Today we’ll first discuss a few IPO basics, and in a later post touch on the specific implications for our market here.

This is only the beginning…

One could be forgiven for viewing the IPO event as an end goal. The media encourages this notion by reporting on the ‘home run exits’ for the VC’s, or on the newfound wealth of company founders and early employees, as if now they all hit the jackpot and are taking all their chips off the table. But like the first word in the I.P.O. acronym, the IPO event is really more of a beginning than an end for a company and most of its stakeholders.

An initial public offering is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity (the joke in France is that there’s a third option: subsidies). Anyway, when raising money via equity, a company can tap accredited investors (e.g. VC funds, high net worth ‘sophisticated’ individual investors, or other institutions and corporations); or additionally, a company can offer shares to the public markets. When restricting its equity issuances to a limited number of accredited investors, the company remains private. In the latter case, the company takes on the new status of public company, begins trading on a public stock exchange, and becomes subject to a new regulatory framework, governed by the SEC in the U.S. (the AMF in France) designed to protect public investors.

Pros and Cons

The Wikipedia entry on IPO’s discusses the fundamentals in more detail, but in summary the rationale for a company to consider going public can encompass the following:

• Strengthening and broadening the equity base
• Starting the process of creating liquidity for the initial shareholders
• Attracting and retaining employees through equity on a liquid market
• Facilitating future access to capital and creating new financing opportunities
• Exposure, prestige and public image
• Facilitating acquisitions

And of course being public can entail any number of drawbacks:

• Significant legal, accounting and marketing costs
• Ongoing requirement to disclose financial and business information
• Meaningful time, effort and attention required of senior management
• Risk that required funding will not be raised
• Public dissemination of information which may be useful to competitors, suppliers and customers
• Increased pressure on short-term financial performance

Process

The process of going public typically involves one or more investment banks which are known as “underwriters”. The company going public enters into a contract with the lead underwriter to sell its shares to the public. In a song-and-dance routine dubbed the “road show,” the underwriter approaches investors with an offer to sell the company’s common shares. Upon selling the shares, the underwriter(s) keep a commission based on a percentage of the value of the shares sold.

In addition to investment banks, and because of the wide array of legal requirements, IPO’s typically involve one or more law firms with a deep practice in securities law.

Public offerings are sold to both institutional investors (such as mutual funds, or in France, SICAV’s and even tax fund management firms) and to retail customers (the general public, e.g. widows and orphans). Because of the tendering of shares to the general public, the process is closely regulated. For example, in France a company going public must obtain two steps of authorization from the AMF, and publish a detailed prospectus (‘document de référence’) while adhering to a variety of deadlines and notice periods.

Following the road show and compliance with all regulatory requirements, the underwriter sets a deadline for the investment commitments from the institutional and retail investor groups. At some point almost in parallel, the company and its advisors will likely choose one of two primary ways of setting the price of the shares being sold: either i) by announcing a fixed price, or ii) by going through a process of ‘book-building’ in which the underwriter attempts to gauge investor demand for the IPO and thus determine the most appropriate price which will ensure the fundraising target amount is met.

If and when the targeted fundraising amount is attained, the IPO operation will generally be deemed a success. The underwriter often is allowed to increase the size of the public offering by up to 15% under certain circumstances (known as the ‘greenshoe’ option).

The investment bank underwriting the IPO will often also initiate research coverage on the company so that their corporate finance department and retail division can attract and market new issues.

Stock Exchanges

Finally, a word on the public markets. The stock exchanges with some minimum degree of pan-European exposure that would be relevant for a French company are:

• Euronext (which in France includes the Alternext and the Marché Libre)
• OMX (headquartered in Stockholm)
• London Stock Exchange and AIM
• Deutsche Börse

Additionally, practically every European country boasts its own stock exchange (Borsa Italiana, Helsinki Stock Exchange, etc.) which generally is more appropriate (and often restricted, even) to listings in the home country.

We’ll elaborate on these points further in the context of European tech companies in a future post.

I encourage you to read them all (start here) when you have time and come back to this post later if you like.

One of Fred’s pearls of wisdom on board meetings struck me as particularly relevant for startups here in continental Europe:

“Board meetings should not be held for the benefit of the board; they should be for the benefit of the CEO.”

This message resonated with me when I think about board meetings in many venture-backed startups here. VC’s often dominate the boards of European startups, certainly in terms of influence if not in full legal voting majority. Board composition in European companies is closely correlated with the company’s corporate form. In Belgium and the Netherlands, for instance, the common BV corporate entity has a two-tier structure, with a board of supervisory directors separated from the board of managing directors. In France, a startup may have a single tier structure (conseil d’administration) but frequently adapts a two-tier one at it matures (directoire + conseil de surveillance). Because of the absence of management in the supervisory board layer of a two-tier structure, this organ is commonly controlled by the VC’s.

This is certainly not a problem per se. However, a VC-dominated board can create an environment in which the management team comes to regard the board meeting as a reporting obligation to plow through, i.e. a quarterly or bi-monthly chore. A European VC tilt toward under-capitalization — or at least the reluctance to fund outsize financing rounds that give even those companies with a high burn rate an extended cash runway — can keep startups on a tight financing leash and thus also reinforce the headmaster/pupil dynamic.

The consequence is that board sessions turn into operational update exercises as opposed to truly open exchanges on the most important strategic issues facing the company.

So how to avoid this trap ?

Both the VC’s and the entrepreneurs are responsible. As VC’s, we should communicate clear expectations and board meeting rules of engagement to entrepreneurs at the time of the deal. We should also take care to isolate the important but operationally-oriented reporting items to a place outside the boundaries of the board meeting.

Entrepreneurs, and this can be uncomfortable, need to learn how to (politely) say ‘No’ to VC requests to add non-strategic topics to the board agenda. Rather, they should be strict in prioritizing the most important strategic topics for discussion and should view each board meeting as a chance to share (as Fred called it) “the issues that are keeping them awake at night.”

Then we’ll all get a good night sleep.

But the equivalent of rearranging deck chairs on the Titanic is what it feels like we do all too often here in France.

My favorite local neighborhood wise man and actuarial genius, Joseph Leddet, recently described the manifestation of this phenomenon in the Paris metro system. RATP employees in 9 out of 10 metro stations no longer sell tickets; they’ve been re-commissioned as “public information points.” As Leddet points out, this means that the employees in 9 out of 10 metro stations have nothing to do, because regular metro passengers have no need for “public information.” They merely need to buy metro tickets or renew their monthly pass. And now the employees can no longer render such a service; they merely redirect the passenger to the automated ticket kiosk. So, since the employees still maintain their positions in the metro stations, no cost savings are realized. Nor are they re-trained and re-deployed in other innovative areas that could, heaven forbid, actually become new revenue lines for the RATP. And since the automated kiosks are incomprensible to most tourists and incompatible with many foreign bank cards, one could argue that there’s a been a regression in the notion of public service.

Yet this phenomenon also extends to the high-tech startup scene.

I’ve written a lot about the Easy Money period and the distorting effects that tax-incentivized investment vehicles can have on France’s venture capital industry. The rearranging deck chairs metaphor comes into play when we think about the perverse impact on the efficient allocation of capital. As I’ve suggested before, tax-incentivized funds prioritize capital preservation over high risk/high reward pursuits.

High risk-taking inevitably means some bankruptcies. Bankruptcies can endanger the gravy train of intermediaries that push these investment vehicles on French taxpayers looking for a fiscal break. So rather than allocate capital to high-risk endeavours that have the chance to become the next Twitter, it is much more prudent to invest in relatively safer technology or service businesses that sacrifice growth in favor of short-term profitability. Or worse, to drip feed companies that once had a technology edge but never quite scaled when now their market opportunity has long since morphed into something else.

Happy anniversary.

To be fair, fundraising in a startup is never easy. The fundraising process represents a substantial effort in time and distraction for the entrepreneur, even during the frothiest of times.

But stimulated by fiscal measures in France, the two-month stretch between April 15 and June 15 has become a period in which a wave of investment vehicles come out of the woodwork in a rush to invest in French startups.

The genesis of this wave began in August 2007 in the form of a French law enacted to stimulate work (travail), employment (emploi), and purchasing power (pouvoir d’achat), abbreviated as the “Loi TEPA”. While this law encompasses a basket of tax incentives, the most impactful for the venture capital industry has in my opinion been the component that treats the French wealth tax.

The French wealth tax (ISF) represents a progressive tax on households possessing net assets exceeding a certain threshhold, formerly at 800k€ and now at 1.3m€. The annual filing deadline for the ISF tax return is June 15.

Specifically, under the Loi TEPA, French taxpayers liable to the ISF can receive an immediate tax deduction on investments they make in French SME’s that are not publicly-quoted. This tax deduction reached as high as 75% in 2010, though now has been trimmed back to 50%. In other words, a taxpayer that invests 90k€ in a French startup before June 15 will receive an immediate deduction of 45k€ on his ISF tax. Of course, certain boundaries apply, for example, the total deductible amount is capped at 45k€, and the SME must meet certain criteria, notably a number of employees below 2,000 and a business activity that is considered “innovative.” While SMEs in other EU countries and even non-tech industries may qualify in theory, the upshot is that this ISF tax deduction is easiest to justify for investments in French high-tech startups.

The French seem to be even more passionate about tax deductions than about foie gras or fine wine. And the amount of ISF tax receipts in France is significant (3.8m€ in 2008). So, investment vehicles which offer ISF tax deductions are popular among the French upper middle-class. Moreover, private bankers love these ISF Funds; they represent another investment product they can push out to their wealthy clients which is an easy sell and hence a fast fee generator.

As a result, ISF Funds are numerous. And they target investments in the very same companies that traditional VC funds would target.

However, the nature of these ISF Funds leads to one key distinction: since the investors in these vehicles have already received a significant tax deduction, their ROI requirements on the performance of the funds’ underlying investments is less important. In fact, a general perception among ISF Fund investors, rightly or wrongly, is to be satisfied with a money-back situation. If the ISF Fund returns exactly the original investment, say 5 years later, one could argue that the performance of the Fund is unacceptable. Yet the individual investor will be delighted with his tax-adjusted return, thanks to the significant fiscal deduction at entry.

This key distinction creates a mismatch in the market relative to traditional VC funds. On the one hand, an ISF Fund does not require the same rigor and high-calibre team necessary in a traditional VC fund. Traditional VC’s must keep their institutional investors happy; and it is largely on the basis of their track record that they succeed or fail in raising future funds. Raising an ISF Fund does not require a road show, merely the right distribution network to reach the individual taxpayers with a no-brainer product.

Additionally, thanks to the existence of the “tax shield,” an ISF Fund can thus afford to invest at higher valuations than a traditional VC whose investors’ IRR will be based solely on the capital gains.

So the existence of these vehicles is a double-edged sword. For entrepreneurs seeking to raise money at higher-than-market valuations, the ISF Funds can be a relative easier source of funding. Decision cycles with these vehicles tend to be fast too, as they must invest before June 15 to qualify for the tax deduction.

On the flip side, the entrepreneur may in return forfeit the longer-term benefits of partnering with a VC firm who will be laser-focused in adding value in whatever way they can (network, recruiting, m&a, international expansion, etc.) with the sole objective of maximizing capital appreciation of the company.

I had the honor of spending the past week there on a business trip, which by stroke of good fortune, coincided with a week of cherry blossoms (sakura) in full bloom.

Appreciation of the fleeting moment of flowering cherry blossoms and the corresponding hanami celebrations are typically Japanese traits.  The blooming of the sakura marks the arrival of spring, representing not only a renewal of the seasons but also a rebirth of many facets of life: the start of a new school year, a recalibration of personal goals, and a reassessment of business objectives.

One industry undergoing dramatic rejuvenation which interests me professionally is the gaming sector.  Historically. Japan has produced worldwide leaders in this area: card games like Hanafuda which my Japanese aunt’s grandparents played as kids, arcade games from companies like Konami and Namco (remember Pac-Man ?), later giving way to console games from goliaths like Sega and Sony, only to be subsequently out-innovated by Nintendo’s Wii.

Today, the gaming sector faces a new kind of disruption in the form of social games.  In the West, we cannot escape almost daily coverage in the tech press of social game darling Zynga.  However, the true leaders of this sector are in Japan:  notably DeNA and Gree – two incredible success stories with market caps comparable to Zynga yet with operating margins exceeding a whopping 40% – and to a lesser extent Nexon, a Korean company recently succeeding its IPO on the Tokyo Stock Exchange as well.

Oh and by the way, unlike Zynga, these two Japanese leaders operate their gaming activities almost exclusively on mobile.

I submit that the nascent market of Europe, particularly France with its deep bench of game development talent, can learn a lot from these giants.  For example, a relentless focus on market iteration helps these firms develop advanced insights into customer experience.  These insights translate into savoir-faire in monetization, resulting in ARPUs surpassing the already impressive figures of Zynga by 3~5x.  Applying just a fraction of those metrics to the European market produces some insanely audacious projections.

But like the short-lived blossoming of the sakura, the current gaming model will not last indefinitely.  Already rumors swirl about the prospect of increased government oversight and potential regulation of the highly profitable free-to-play/upsell model.

Combine this risk with a saturated domestic market, a strong yen, and a new generation of internationally-minded Japanese entrepreneurs, and we have a perfect storm of convergence for adventures abroad, such as DeNA’s acquisition of Ngmoco and Gree’s acquisition of OpenFeint in the past 18 months.

On my last night in Tokyo, my dinner companions spoke about the general macroeconomic situation facing Japan, and one person even posited that Japan should look to France as a model for how to gracefully manage a once-leading economic superpower in its gradual decline.

The suggestion that Japan could actually learn something about economics from France definitely caught me off-guard.  But it was a typically Japanese thing to say, a phrase filled with humility and perspective.

My gut feeling, however, is that Japan will continue to reinvent itself.  After all, the creator of the original hanafuda paper card game fell from grace only to later rise again with a blockbuster success: Nintendo.  Wii shall overcome.

I understand the well-meaning intent. The entrepreneur’s objectives are often twofold: i) convey us that the market potential for the given startup is enormous; and ii) convince us that the entrepreneur will be a prudent steward of the investor’s capital.

The first objective reminds me a bit of the Chinese market analogy, i.e. if we sell this to only 0.1% of the Chinese market, look how many millions we’ll make! This is problematic for me because it underscores a top-down approach to market research. Top-down analysis is a useful sanity check to test assumptions — most investors will do this anyway — but it is anathema to the fundamentals of building a successful product in a startup, i.e. determine a pain point in the market, develop a prototype or alpha version to test your thesis, iterate based on customer feedback, then scale. It is far easier to extrapolate projections into large numbers once these preliminary proof points are in place.

The second objective is more complex. On the one hand, I can certainly appreciate the entrepreneur’s desire to reassure us of their frugality. Resourcefulness is a key character trait of a good entrepreneur, and I want every entrepreneur we support to be efficient with our capital.

However, to creators of high-tech startups with conservative aspirations, I say, you’re in the wrong place. Either you’re not ambitious enough to launch a company that can attain the growth on which venture capitalists rely, or you’re telling me what you think I want to hear. Don’t get me wrong, not all business ventures should target explosive triple-digit growth in their early years. Lifestyle businesses are perfectly laudable, and I commend the entrepreneurs that create them. But the VC model is predicated upon outsize returns. If the growth that can generate outsize returns is not relevant for your business, then venture capital is not the relevant source of financing.

I can also understand why you might downplay your projections, even if you’re concealing your genuinely lofty ambitions. The French educational system, such as the noteworthy Ecole Polytechnique, prides itself on training future business leaders to perform exhaustive what-if analyses and risk-avoidance simulations before finalizing any decision that contains a tad of uncertainty. Moreover, as VCs in Europe, we’re collectively guilty of reinforcing such behavior by chronically under-capitalizing startups and typically favoring profitability over revenue growth. There’s also the cultural element, which I find both unusual and admirable as an American, of the European values of modesty and not over-promising.

Think BHAGs

Jim Collins in Built to Last famously cited the BHAG acronym — big hairy audacious goal — as a consistent characteristic of visionary companies. I submit that BHAG thinking is also a fundamental tenet of successful entrepreneurs. It is only by setting the bar high, by being audacious in your plans, by being overly-ambitious in your efforts, that heroic results occur. I expect you to fall short in your forecasts; a business plan never shakes out as projected. But you need to aim for Mars if you merely want to reach the moon. Perhaps the golfing metaphor would be, “A short putt never drops in the hole.”

Oh, and please don’t generously propose to be a diversified lower risk asset for our portfolio. VC’s will perform their own risk mitigation exercises. This forms the basis of professional portfolio management, and heck, half of the VC’s in Europe are former bankers. Furthermore, risk mitigation is built into the very architecture of the venture capital model in that LP’s allocate only a fraction (<1% in Europe) of their total funds under management to the VC asset class.

So if I were asked to articulate what I would ideally like to hear in an entrepreneur’s pitch to ensure they capture my attention, it would probably include something like this:

The call from HR the following week came as expected, but their request was one you did not expect. The HR manager conveyed the positive feedback on your candidacy, but then informed you that in order to continue the process, they require the keys to your apartment for a few days.

The Company intends to examine your personal affairs before making a final hiring decision. They will have an opportunity to examine the cleanliness of your living quarters, check the expiration dates of the perishables in your fridge, sniff the mildew on your dirty laundry, and perhaps find that 1980′s copy of Playboy with the Farrah Fawcet centerfold stashed under your mattress (yes I’m thinking of you, Brian Miller from the 8th grade). The Company may riffle through the papers in your filing cabinet, thumb through your photo albums, jam to your Bob Marley cd collection, and watch the latest recordings on your DVR.

But don’t worry, they won’t take anything, and they’ll be careful not to break anything. This exercise is merely standard procedure to ensure that you’re a good fit before their final hiring decision. They won’t even make copies of anything they discover; after all, the Company respects your privacy.

{Note: My portfolio companies’ recruiting methods are limited to obsolete techniques like merely asking candidates for references.}

Dear Mr. Bivens

Student at [local university], I’m looking for a job in private equity in Paris.

Competitive, aggressive, and dominant on the French private equity market, Truffle Capital is the enterprise corresponding to my aspirations, which I why I wish to join.

I attach my CV and remain at your disposal for further information by email or phone.

Sincerely,

Emails like this surprise me, especially coming from a student at one of France’s top grandes écoles.

First of course, there’s the cardinal rule that when sending a CV with a job inquiry, it’s worth doing a tiny bit of research into the recipient before writing the cover email. If this candidate had spent 60 seconds looking at our firm’s website, he would have known that Truffle Capital divides itself into three specialized sectors – biotech, energy, and IT – and would have indicated which sector his interests and talents fit best. He would have added some semblance of specificity rather than throwing out generic platitudes like ‘competitive’, ‘aggressive’, and ‘dominant’, which don’t really tell me anything. He also would have addressed the message to a proper email address, which in my case can be easily found on my blog.

There’s also another issue at play here, which I suppose I cannot expect young adults fresh out of college to think through – especially in France – but one that bothers me nonetheless. And that is that newly-minted undergraduates are not thinking long-term when they expect to join a VC firm as their first job.

I can understand why becoming a VC looks attractive on the surface: the job sounds glamourous, and there’s a prestige factor at landing a VC gig, perhaps even greater than McKinsey or Morgan Stanley for ambitious undergraduates. The glamour and prestige are over-estimated, but the perception is understandable given today’s self promotion-oriented VC community.

But the truth of the matter is this: venture capital is all about the portfolio companies. Venture capitalists work in service to the entrepreneurs they finance.

Accordingly, to be a good VC, you have to be able to provide relevant and beneficial assistance to the portfolio companies.  The value you will be called upon to bring can encompass direct sectorial knowledge, networks, privileged introductions, strategic guidance, operational insights, processes and methods, and especially credible ‘cheerleadership’. I submit that in order to do all this, you must gain industry experience before becoming a VC.

Furthermore, and I recognize this it is practically heresy to say this in France, but I firmly believe that to be a truly effective VC, you must have significant startup experience.

So when I receive a job inquiry from a new graduate, I immediately think that the candidate hasn’t sufficiently thought through the implications of what it takes to become an effective VC, or worse, the candidate is merely interested in the job for the prestige.

So, am I just wasting my time if I send you my CV ?

Not if you’re still reading this!  I am a firm believer in helping people that are serious and committed.  I welcome people contacting me over the transom for contacts or advice on employment opportunities within the VC/startup ecosystem in which I operate. In fact, I very much value this. Our portfolio companies are relentlessly seeking growth, and the recruitment of top talent plays a key role in their progression. At any given time, there are several employment opportunities, or at least unmet needs, across our portfolio.

That being said, my bandwidth is extremely limited. I help people with career guidance when I can, but I must give priority to our investors, my colleagues, and my portfolio companies.

Accordingly, some ways of soliciting career advice from me are more effective than others. Here are a few suggestions to increase the likelihood of a desirable outcome:

• Mass emailings of a CV and/or cover letter are not effective. I usually junk immediately unless my stringent spam filter does it for me.
• Tell me clearly what you’re looking for. A generic, “do you have any job openings for me?” often goes straight to trash.
• If you’re looking for a job in venture capital, and you’re a newly-minted undergraduate / grande école degree-holder, you clearly haven’t been paying attention.
• However, if you have substantial work experience, and are convinced you want to become a VC, I urge you to first take a month to reconsider. If after that month, you still remain undaunted, spend the effort first to fully understand the VC model, research the firms in the market, and feel free to let me know what type of role you’re seeking. Also, be aware that VC funds generally don’t have formal or frequent recruiting processes. The VC model is not scaleable in headcount like big corporations, banking, or consulting. Be prepared for a binary yes/no response that is usually ‘no’.
• If you’re looking for a job in a startup, I applaud your decision! (see Free your career). Now, how can I help? Take a look at our portfolio companies. Which interest you the most? Of that subset, visit their respective web sites. Many post job openings in clear view (I also maintain a list under the ‘jobs’ tag on my blog. If you see a role you want, please apply directly to the company, but feel free also to alert me of your interest. I will try to ensure that your application receives attention and that your candidacy is seriously considered.

If you do not see a startup job opening that corresponds to your specific aspirations, get creative! If you’re passionate about a specific space in which one of our portfolio companies is operating, think about how you might be able to add value to the firm.

I’m of the mindset that passion is far more important than which university you attended, and often even more so than specific sectorial experience. If you can succinctly articulate how you think you might be able to benefit a given portfolio company, I will probably go out of my way to introduce you to the decision-maker there.

I’m of course referring to the Kony2012 short film produced by Invisible Children.  The human rights organization launched a video with a sole objective to render famous and agitate for the arrest of Joseph Kony, head of the Lord’s Resistance Army, abuser of child soldiers, and international war criminal #1.  As of last night, the Kony2012 video has surpassed 100 million views (source: Visible Measures).

I’ve found this phenomenon fascinating, and not solely because of its welcome spotlight on a continent-wide topic directly involving another young man I’ve had the honor of knowing (for further reading on the subject, I recommend Ishmael Beah’s first-hand account of his experience as a child soldier in Sierra Leone).

It feels like we’re approaching another inflection point, in which social media is elevating citizen activism to a level which obliges politicians to act.

Like any larger-than-life movement, an inevitable backlash movement does not trail far behind.  In the West, the two camps seem to fall along generational lines.  In Uganda and much of the African diaspora, the video campaign feels more like Rudyard Kipling’s condescending 19^th century poem, “The White Man’s Burden,”  and understandably so (for an excellent perspective on the nuanced issue, I recommend you start reading here).

But even if iPad-touting youth in the West are re-tweeting video links and buying t-shirts so that they can feel better about themselves, you cannot condemn their intentions.   I’d much rather see virality on a complex, geopolitical topic like this than the traditional allocation of mindshare to the Kardashian sisters.  And Kony2012 does seem to be encouraging many people to research the complex topic more thoroughly.

Regardless of your opinion on the worthiness of the cause of hunting Joseph Kony, or on the agenda of the Invisible Children organization, one fact is undeniable:  the momentum generated by the Kony2012 campaign has forced politicians worldwide to take a position on a human rights issue that they likely would have ignored in a previous era.

I submit that we’re only beginning to understand the approaching sea change of civic activism enabled by technology and the network effects of social media.

In addition to being the year of Joseph Kony, 2012 will also mark presidential elections among 3/5^ths of the UN Security Council permanent members: the U.S., Russia, and France.  In the first, President Barack Obama counts almost 13 million Twitter followers and boasts a whopping 91 for a Klout score.  The second withnessed an unprecedented expression of public outcry, with grass roots solidarity largely enhanced by Facebook and Twitter during its election last week.  And here in France, politicians have underscored the power posed by social media in their curious zeal to censor it.

We may not yet have reached the year in which digital activism tips an election, but the day is near for when it is the politician who is not necessarily the best-financed, but rather who best masters the power of social media that wins.

In an article on this very subject, TechCrunch questioned whether the MWC will continue to remain to relevant. They observed how the center of gravity in mobile is shifting away from the network operators and towards handset platforms and software. The show is less about Vodafone and more about Android and Angry Birds. In the past, the stars of the show were gladiator CEOs like Sir Christopher Gent. Now, the celebrities are people like Denis Crowley of Foursquare.

TechCrunch argues that the new product announcements or business partnerships in this new paradigm happen on a regular basis, that it no longer takes a yearly carrier-sponsored trade show to handshake on an agreement in a convention center hospitality suite.

While I agree that the trend toward software and content is indisputable, as a VC I enjoy attending the MWC each year, and I submit that the conference has far from outlived its utility. The MWC is the sole conference that I consistently reserve on my calendar. I look forward to it annually for a few primary reasons.

How do I say “You’re beautiful” in Catalan ?

First, it’s a chance to escape Paris and experience gorgeous Barcelona weather in February. More importantly, this is the only conference in the world that assembles all the people in the mobile ecosystem in one place: the mobile operators, the operator vendors, the content players, startups, investors, and investment bankers. Only at an event as wide and as comprehensive as this can I glean a sense of where the next innovations may bud, simply by walking the floor.

This year I overcharged my agenda, regretfully not leaving a ton of spare time to wander and soak in the vibe. Still, some trends were unmistakable.

Takeaways from this year’s conference

HTML5, for example, is the current technology buzzword. We’ll see how sustainable this fascination is, though with Facebook’s initiative in partnership with 9 global carrier groups to upgrade mobile phone browsers in order to enrich the technology’s capabilities, I would be bullish on HTML5. While apps are here to stay, I more broadly believe the mobile browser ecosystem is giving rise to a number of cool activities ripe for VC funding.

Another shift apparent at the conference was the mobile operators’ burgeoning interest in using the mobile device to enhance customer engagement and customer retention. Operator vendors, at least those who aren’t still restructuring, seem to be responding.

Perhaps the most audacious statement came from Nokia. Last year their platform may have been burning, but this year their stand was on fire! Between the stand that represented an amusement park, the free ice cream, and the aesthetically dynamite lineup of new smartphones, Nokia made it resoundingly clear that they’re not going down without a fight.

It’s all about human contact

Another principal reason that I love the MWC is that it represents one of the rare opportunities to catch up in person with a geographically disparate group of people, for example with my VC counterparts in Silicon Valley, or with potential partners for my portfolio companies from east Asia, the only time of year when several of them congregate in Europe. In this world of always-on, social media enabled connectivity, I submit that the physical encounter is still indispensable. No matter what industry we’re in, we’re all in the people business. The physical crossing-of-paths facilitated by MWC allows us to build relationships, speak off the record, exchange body language, and fundamentally interact as human beings.

TechCrunch points out that the most interesting activities occur not in the central Mobile Congress, but at the fringe events, such as at elaborate parties in hotels, yachts, football stadiums, or historic Gaudi-architectured dwellings throughout the city. This is true. But you cannot have these fun sideshows without the main event.

Rumors have swirled periodically since Armstrong’s retirement from the Tour de France that he would transition his skills into triathlon racing, a sport in which he actually had already dabbled before becoming a professional cyclist.

When these rumors first surfaced, Ironman columnist Lee Gruenfeld offered some coaching advice for Lance.  [As a personal aside, Lee Gruenfeld is a writer, philosopher, and satirist that also happens to be the husband and cheerleader of Cherie Gruenfeld, a.k.a. the « TriBeast », a dominant triathlete in my own mother’s age group who consistently thrashes my mom in every Ironman race that matters, thus keeping « KonaKarin » Bivens’ ego in check and earning my gratitude.]

Gruenfeld’s counsel to Lance comprises a tongue-in-cheek list of tips from an avowed non-athlete to one of the world’s greatest.  My favorite piece of advice was this one:

Don’t save anything for the run.  Everyone else is going to tell you otherwise. Ignore them. If Michael Phelps were doing Ironman, those guys would tell him to hang back on the swim. You’re the most relentlessly competitive human being since Eleanor of Aquitaine. Telling you to take it easy on the bike would be like telling Al Capone to forgive a few debts. Hammer that sucker! It’s simple arithmetic: The better the lead you have at the end of the bike, the farther ahead you’re going to be when the run starts.

So what does this have to do with startups ?

Lee’s advice for Lance stikes me as equally relevant in the context of venture-funded technology startups.  In case you’re not familiar, an Ironman is the mama of all triathlons, consisting of a 3.8km swim segment, followed by a 180km bike segment, and concluding with a marathon run (and yes, that’s all in the same day !).  In all likelihood, Lance’s participation in Panama’s “mere” half-distance was a dress-rehearsal for the big dance, quite possibly even the Ironman World Championship in Hawaii in October.

The conventional wisdom for champion cyclist Lance Armstrong when competing in long-distance triathlons dictates that Lance economize some energy during his undisputed leadership in the bike segment so that he can perform strongly in the final run segment.  This is considered conventional and wise because for most athletes, balancing physical effort across the three race segments can make the difference between crossing the finish line successfully or finishing in the medical tent.  Yet Lance is  not your typical athlete, and Gruenfeld dismisses the conventional wisdom in his case.

High-growth technology companies often face a similar dilemma. Should they save something for later, or rather shatter their quarterly financial forecast with the risk of experiencing a dip in performance in the following quarter ?  I say shatter.

Sure, there is something to be said for the argument of showing a consistent upward trend, building a nice story with pretty graphs to present to potential acquirers.  But I don’t want my portfolio company to « throttle back ».  This is the volatile high-tech startup world, not the world of the highly-liquid publicly-traded conglomerate like GE in a market that rewarded Jack Welch for smoothing growth and earnings.  Volatility is expected.  A temporary dip can be explained and overcome.  More difficult to overcome, however, is a loss of momentum.

When a CEO tries to trivialize an underwhelming quarter by pointing to the likely uptick in the subsequent quarter, my stomach tightens.   Empirical evidence suggests that the subsequent quarter in question will barely exceed the forecast, and often even fall just shy of it, beginning a pattern of chronic underperformance.

Rather, I would argue that going all out, and not saving anything for later, is a healthy atmosphere in a high-tech startup.  It raises the performance bar for everybody inside the organization.  Externally, it creates a buzz in the startup’s market segment and can even spur a virtuous upward spiral resulting in more record quarters.

As Lee says, hammer that sucker !

I’ve written in the past on the perverse effects that these taxpayer-funded structures can have on the venture capital sector.  And for full disclosure, a significant percentage of Truffle’s funds under management are in the form of FCPIs, whose closest resemblance in Europe would probably be the UK’s VCT structure.

{As a reminder, an FCPI, or fonds commun de placement à risque, is a French fund vehicle managed by venture capital firms with a requirement to invest in innovative technology companies.  An FIP, or fonds d’investissement de proximité, is a French fund vehicle that requires investment in a specific region of France.  Both vehicles raise their funds from taxpayers who are in turn offered a substantial tax credit on their income tax, wealth tax, or both}.

The article reveals the preponderant role that distributors play in the annual collection of these vehicles.  All it takes is one or two large distributors to change partners, and any given fund management company or VC firm can shift from having a banner fundraising year to falling off the map.

I’ll explore this perverse distribution game another time, but in the meantime, invite you to read the full article here (subscription required, though a free trial is sometimes available).

For me, however, the money shot of the article is a citation from an anonymous professional of the sector:

« Les ratios, délais et contraintes de toutes sortes se sont multipliés, selon qu’il s’agit d’un FIP ou d’un FCPI, d’un fonds ISF ou IR.  Un véhicule fiscal peut désormais devoir satisfaire simultanément jusqu’à quatorze obligations différentes, voire contradictoire. »

Roughly translated: [The ratios, deadlines, and myriad investment constraints governing these fund structures have ballooned.  Such vehicles nowadays often find themselves in a situation of having to satisfy up to 14 different investment constraints concurrently, some of which can even be contradictory.]

This is unhealthy.  As we’ve witnessed with the U.S. tax code, legal complexity combined with high stakes benefits the lawyers not the entrepreneurs.

Bogle’s investment values center on favoring the little guy, the individual investor who doesn’t have the capital nor the advanced trading technologies that are at the disposal of professional traders and investment banks.

By lashing out yesterday against the tax rate on carried interest, Bogle remains classically true to form in leveling the playing field for the average joe.  “Carried interest is a bit of a technical fraud,” as he says.

The debate about the tax on carried interest has surged in the U.S. thanks to revelations that potential Republican presidential candidate Mitt Romney paid an overall effective tax rate of less than 14% in 2010.  One of the principal reasons that Romney, whose income was in the tens of millions, paid such a low effective rate is the fact that most of his income came in the form of carried interest from his time at Bain Capital, which was taxed at the long-term capital gains rate of 15%.

I admire John Bogle.  Just as he saw the 2~5% annual management fees on actively-managed mutual funds as a hoodwinking of the public, he exposes the low carried interest tax as a fiscal boondoggle to most private equity and VC general partners who are investing other people’s money.

Perhaps as a VC myself, I should fall firmly on the side of keeping the carried interest tax at rock-bottom.  However, I have two major objections to not raising it substantially.  First, financially, I am not in the same boat as GPs in the U.S.  The effective carried interest tax in France is over 30% when counting all auxiliary social charges.  Moreover, as a U.S. citizen with a French salary, I am paying tax to two countries, setting my cumulative effective income tax rate at an obscene 67%.  So Romney pays 14%; I pay a whopping two-thirds.  I find this infuriating.

Even more importantly, however, giving carried interest a tax break is totally unfair.  Carried interest is essentially a fee paid for managing other people’s money.  This fee happens to be based on performance, but it is a fee nonetheless.  The logic of rewarding investment risk with a lower tax rate is not relevant for a GP whose carried interest income is by and large pure gravy (granted, with a tad of personal investment, but this is extremely limited).

Fred Wilson presents a third compelling argument that taxing carried interest as ordinary income is good policy.  I encourage you to read Fred’s post if you haven’t seen it.

Perhaps it took a circus of in-fighting in the U.S. Republican primaries to bring this issue to light, but I am glad that the media and the public are taking notice.

]]> http://markbivens.com/m/archives/bogle-on-carried-interest/feed 2 http://markbivens.com/m/archives/frances-chopra-moment http://markbivens.com/m/archives/frances-chopra-moment#comments Mon, 13 Feb 2012 19:30:29 +0000 mark http://markbivens.com/m/?p=726 It has been interesting to follow the recent transatlantic flap triggered by Ilan Abehassera’s interview in Betabeat.

Abehassera denigrated the French entrepreneurial scene in a piece that oozed of auto-pr; Liam Boogar of Rude Baguette called b.s. In reality, I suspect both individuals were viewing the same market but through the lenses of different eras.

The brouhaha fizzled before it became exciting, mostly because Boogar refused to play the tit-for-tat game. Which is admirable, though I would have liked to see some fisticuffs on this issue, because there’s clearly a departure underway now from the traditional stereotypes about tech entrepreneurship in France clung to by Abehassera that is a very recent but indisputable phenomenon.

I’ve been a tech VC in Paris for ten years now, and I submit that we’re now enthusiastically witnessing the Deepak Chopra moment for the French entrepreneurial scene. In other words, French entrepreneurship seems to be finally breaking out of the karmic cycle of risk-aversion, underinvestment, and narrow ambitions (Chopra is notorious for exhausting the metaphor of kundalini teachings in business world applications, but if you’re not convinced, read: The Seven Spiritual Laws of Success). But you have to be on the ground here to detect this phenomenon, trust me.

The new generation of French entrepreneurs are breaking the mold. Every single finalist of the Founders Institute program — and every member of Le Camping I’ve met — pitches a well thought-through yet audacious venture with global ambitions reminiscent of what I heard in Silicon Valley in the 90s. First-time teams that have failed make strategic pivots and try again. French co-founders of bay area companies return to France for their second or third ventures (yes, it really happens). I even know of a few cases of Americans moving to Paris to start their tech companies. Granted, a lot of this evidence is anecdotal, but stories like these were unheard of five years ago, even eighteen months ago.

The government, on which the French often instinctively rely to take the lead in innovation, is stepping up in it’s role too. Between record Oseo subsidy grants, the newly-formed Fonds National d’Amorçage (the new 400m€ state-sponsored seed fund-of-funds), and it’s continued support (for the moment) of the tax-break-incentivized investment vehicles like FCPIs, FIPs, and ISF Holdings, early-stage capital is flooding the market. Does France’s legal framework around labor law leave room for improvement ? Of course. But this double-edged sword has benefits. For example, with programs like the Accre, unemployed workers can receive an advance of 50% of their 23-months of unemployment benefits if they apply it to starting a new business. And the government’s efforts to untangle the red tape of the past has rendered company creation formalities inexpensive and fast. As a matter of fact, just recently at Truffle we aided our partners in incorporating 7 brand new companies in the week between Christmas and New Year’s.

On the investment side, there’s definitely still a ways to go (mea culpa). But with the increasingly ubiquitous collection of professionally-run incubators (see How many startup accelerators is too many?), and seed funds like Isai and Kima, France is no longer totally devoid of U.S.-style early-stage investing.

Yet I submit that it is in the corporate sector where change is slowest. Whether it’s due to conservative values, complex decision-making processes, or insular networks, French enterprises do not have it in their DNA to do business with startups. There’s an old joke that a French software startup has better odds selling into American corporations than into its own backyard that still holds true. It’s no coincidence that the new generation of French startups gaining the most traction nowadays are by and large consumer internet plays.

To all you French entrepreneurial refugees in the States, I salute you for being adventuresome. I hold a (conveniently self-serving) respect for entrepreneurial immigrants in both countries. But also realize that it’s soon going to be safe to come home again.

The idea seemed attractive to the board at the time. With its pan-European footprint of titles like ITEspresso, Silicon, and The Inquirer, the company found itself exposed on multiple fronts: first, B2B technology ad budgets had been slashed by all large tech companies; but moreover, NME’s core markets of France, Germany, Spain, and Italy were all entering recession.

On digital content’s B2C side, things weren’t nearly as dire. Although CPMs were experiencing downward pressure, the diversity of audience and thus advertising base enabled quality consumer-facing websites like CommentCaMarche.com to remain sheltered from the downturn in corporate ad spending. The siren’s call of relative ad revenue stability on the consumer side was challenging to resist, especially when financial investors become alarmed at the impact on the bottom line short-term. Something had to be done !

But to the management team’s credit, they held their ground. Actually, they doubled-down. At the 2009 low point for B2B digital media, NME opened a UK presence. Even more crucially at the time, the company began brainstorming on how to diversify its revenue base while best leveraging its valuable audience of corporate IT decison-makers, such as expanding into lead generation. I won’t elaborate on the details because the story is still being written. But in hindsight it looks as though those difficult decisions at the nadir of the global financial crisis proved genius.

Charlie McCurdy, CEO of Apprise Media reinforced some of these choices in his excellent presentation at American Business Media’s Advanced Leadership Program on The Future of B2B Media. “Marketers are probably not buying banners or sponsorships for the media exposure, they want to drive leads to their websites. If white papers or Google AdSense deliver, they’ll do that instead.” In terms of b-to-b marketing share, ABM attendees forecast that live events would grow from 45.1% in 2011 to 48.4% in 2016; digital would grow from 12.8% in 2011 to 18.2% in 2016; and print would fall from 29.2% in 2011 to 11.7% in 2016.

In late 2010, NME witnessed a return of the banner ad budgets from corporates, but makes no secret of its appreciation of the importance of a diverse offer for this core client base, nor of the importance of scale. The company recently acquired the German subsidiary of CBS Interactive, and is on the hunt for additional acquisitions in Britain and France.

Nowadays it’s very fashionable in startup parlance to talk about strategic ‘pivots’. Indeed, the accelerating pace of innovation in technology often creates an environment where only those startups capable of redirecting their strategy on a dime can avoid obsolesence. But if there’s a moral to this story, it’s that there are no easy answers. Sometimes a ‘pivot’ is needed. Sometimes it’s better to scrap everything and restart with a blank sheet of paper. And yet sometimes, the old-fashioned wisdom of ‘sticking to your knitting’ prevails.

On January 17, only 31 members of the U.S. House of Representatives opposed the legislation, with 80 in support.  The day after the Jan.18 blackout, the 31-member opposition had surged to 122-strong (see ProPublica).  Even this microscopic blog’s activism elicited a surprising number of reactions here in France, including even from an assistant to a U.S. Congressman that happened to be on vacation in Paris.

But this is only round 1.  The $63m-funded army of lobbyists defending the well-financed old guard media are still in the ring.  David Binetti offers an insightful op-ed in TechCrunch explaining how the lobbyists will most likely take the fight to the most powerful influencers of the opposition directly, i.e. venture capitalists and thought leaders of digital media giants.  Round 2 will prove interesting.

My question is what should we do about this in Europe.  Europe was largely silent in round 1 (heaven knows we have other problems right now).  A typical government policy, like that of the UK, is to not intervene in the domestic legislative debates of another sovereign nation.  This is understandable.  But nefarious ill-conceived copyright legislation like SOPA would affect citizens of Europe as well.  What is the appropriate level of response?  I submit that it has to start with netizens of European digital media as well, a grass-roots effort just like in the U.S.

Hopefully, as Binetti suggests, this incident of SOPA opposition will come to represent an inflection point in the disruption of the entire political industry.  What if a successful political campaign relied not on how well-financed it is, but rather on mastery of social media to communicate a platform of integrity?  Now that would be something.

For more rationale, see: Why SOPA must be stopped

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The divestment allows CBSI to focus on its core markets of North America and Asia. For NME, it enables the company to shore up its previously modest presence in Germany with one of the top online IT media players. Now NME counts a truly pan-European footprint in France, Germany, the UK, Spain, and Italy. Notable online brands of CBSI Germany include ZDNet.de, CNET.de, and Silicon.de. NME combined will now attain close to 20 million monthly page impressions on its network of websites, all dedicated to B2B IT professionals, consistent with the company’s strategy to remain focused on high-value audiences. This acquisition also provides a significant bump in revenues to the profitable venture, which we carved out of the former VNU Group in 2007.

I commend the heroic efforts of Dominique Busso, Anilda Billon, Ruud Bakker, and the rest of NME’s leadership team in executing on this game-changing acquisition, and we welcome CBSI Germany into the NME family.

Here is a link to the announcement in TechWeekEurope.

Part of my mood stems from the thought of today’s hearing by the U.S. House Judiciary Committee on the Stop Online Piracy Act. The SOPA legislation currently winding its way through the U.S. congress would allow the U.S. Department of Justice, as well as copyright holders, to seek court orders against websites accused of enabling or facilitating copyright infringement. The bill would also make unauthorized streaming of copyrighted content a felony.

In a typical vast overreaction to a threat of a limited group (remember the Patriot Act?), the SOPA bill risks enshrining Internet censorship and crippling the Internet. I recommend Fred Destin’s post on Five reasons why SOPA is luddite legislation to understand how braindead Texas congressman Lamar Smith’s sponsored bill is.

The other item chapping my hide is the fact that I just submitted my U.S. tax return for last year. As an American working in France, I am required to file two tax returns: one with the France fiscal authority and a second with the U.S. IRS. The U.S. is one of only two countries in the world that taxes its citizens globally, no matter where they live, work, and pay taxes. So every year I have the luxury of paying taxes on my French income, and then an additional chunk to Uncle Sam on my same French income. Granted, there is a limited foreign tax credit, but all in, I’m contributing between 60% and 70% of my gross income to both governments.

I don’t mind paying French taxes and social charges, even their elevated amount. It’s the U.S. IRS’ demand of its pint of blood for income that I earn and am already taxed on in France that I find particularly egregious. This is double-taxation without representation. Adding insult to injury are the myriad penalties on many French investment products (like IRAs and mutual funds), rendering such vehicles so costly as to be unpalatable. No wonder that many Americans living overseas refuse to play by the rules. I’d like to see the “tea party” take on this cause with as much fervor as their other ideas.

Worse yet, the threat of new tax legislation called FATCA will increase the obligation of Americans worldwide on all of their financial assets. Foreign banks in particular will bear a significant reporting burden. An officer of a large French retail bank mentioned to me that if FATCA is implemented, his bank will likely no longer accept American customers due to the associated costs.

Americans living overseas are the foot soliders in the U.S. government’s battle to win hearts and minds. We could represent the States’ ambassadors writ large, but sometimes it feels like we’re being treated as traitors.

Among the takeaways of LeWeb’11, we are led to appreciate the inevitability of ‘social’ and ‘mobile’, as testified by the success of companies like AirBnB, or the famous “cross-over” of Google Maps into permanent predominance of mobile usage.

But the verdict on ‘local’ is mixed.

Gabe Rivera, CEO of Techmeme, suggests that ‘local’ is over-rated, and would not launch a local offer.  Why ?  Quality of local content is spurious.  More significantly, local content is not sufficiently abundant.

AOL’s Patch service boasts 10 million unique visitors across its network, built over the past 18 months.  Is this significant ?

Is local content sufficiently interesting to advertisers ?  If not, how will local be monetized ?  Just as we witnessed the small-town newspaper as the first casualty of the digital media age, does local offer enough scale to make business economics work in a global world ?

To be continued…

• A java back-end developer, to work closely with the Head of Technology and the Game Development team.
• A mobile games content manager, responsible for testing and selecting new mobile games that fit the audiences of the various gaming portals.

The above opportunities are based in the Netherlands.  Any interested candidates are welcome to contact me directly by email.

]]> http://markbivens.com/m/archives/portfolio-job-openings/feed 0 http://markbivens.com/m/archives/these-premises-are-utterly-confidential http://markbivens.com/m/archives/these-premises-are-utterly-confidential#comments Tue, 29 Nov 2011 21:41:04 +0000 mark http://markbivens.com/m/?p=666 Fred Wilson captured my feelings perfectly in his post today about Reception Desk NDAs.

Thankfully, this practice has not taken hold in Europe yet, European subsidiaries of US firms notwithstanding.

European startups, particularly their fundraising advisors, love asking VCs to sign an NDA.  As I’ve written before, I think NDAs waste precious time, bring little value, and backfire on most firms trying to raise capital.

Reception Desk NDAs represent one of the rare habits I sincerely hope Silicon Valley does not export.

So I’m looking for an ambitious intern with the following profile:

• a dynamic and entrepreneurial individual with aspirations to spend 6 months working in a VC fund
• authorized status in French university to qualify for a ‘stage’ (typically the French undergraduate business schools are the primary source of interns, but this is not a requirement.  any French university could work.)
• a self-starting individual able to work in an unstructured environment (read: fun but chaotic)
• a comfort level with the digital media, mobile, and software domains
• a willingness to perform a variety of professional tasks, some highly intellectually stimulation, others less so
• proficiency in 2 of the following languages: French, English, Japanese, Portuguese

Any interested candidates are welcome to contact me directly by email.

• Scan & Target
• Utel
• CrowdyNews

All three were investments in conjunction with 3 of the 16 independent holding incubatrices vehicles we advise.

As readers of my blog know (yes, I’m talking to both of you), I’m not a big fan of vc blogs that merely regurgutate news bits, but rather prefer those that actually provide at minimum some interesting opinion and better yet some insight into the rationale for doing something.

In this spirit, here’s an excerpt of why we decided to make these investments. Our seemingly valid rationale today will most likely be proven inaccurate tomorrow, but that’s what makes this exercise fun.

Scan & Target

We suspect that Scan & Target’s tremendously powerful technology of contextual intelligence, battle-tested in military applications, could be perhaps even more relevant in the social media space. One of our investment beliefs at Truffle is the disruptive nature of social media on the enterprise, and this fits well within this theme. We co-invested in this transaction alongside the “Internet Holding Incubatrice.”

Utel

Utel, and their flagship service Fotochat, offers casual dating over mobile. It’s a sector with a broad array of high-potential niches. We believe that Utel positions itself smartly on a select few of the most promising ones. Our main rationale for investing was two-fold: i) a highly opportunistic secondary transaction, and ii) a crazily positive (and positively crazy) entrepreneur brilliant at monetization. We co-invested in this deal alongside another holding vehicle “Holding Incubatrice Mobile”, aka Solomoco.

CrowdyNews

Rounding out the trifecta, CrowdyNews has a clever algorithm based on Twitter that places relevant Tweets alongside online news articles. It’s no secret that newspapers are struggling to find ways to replace their declining classified ad revenue. CrowdyNews helps them do this, while also adding a real-time UGC opinion component to their websites. We think we can complement Crowdy’s U.S. penetration with an entrée into Brazil. Yet another of our 16 holding vehicles, the Holding Incubatrice Internet & Mobile, led this investment.

I’ve long argued that the VC model in Europe is plagued by the tendency to keep Zombie startups alive, to the detriment of plowing more time, resources, and capital in the real disruptors.

Johnson cites recent research from the UK’s National Endowment for Science, Technology and the Arts indicating that when it comes to job creation, the new companies that really make the difference are not the mass of start-ups – which will never grow much or employ many staff – but the gazelles.  These ambitious, bold ventures that innovate and build something significant are transformational in terms of jobs, technology and wealth creation.

Johnson prescribes the same model to politicians eager to spur innovation and stimulate job creation:

It is partly about targeting money and assistance towards opportunities that offer enormous upside. Funds and government support should be directed at situations that address large markets, not tiny niches. And these markets should be growing: mature sectors rarely see hyper-growth entrants. Deregulation, tax breaks, credit – all these initiatives should be channelled towards the most dynamic and professional start-ups, which are typically raising venture finance. They are the projects most likely to make it big.

 

Politicians should forget about being fair. Resources must be focused on real talent where there is a better chance of a breakthrough. If anything, they must increase inequality to ensure help reaches the right places.

Uncertainty causes unease. Unease causes indecision.

Startups: if you sell products or services to enterprises in Europe, prepare for longer sales lead times, deferred purchasing decisions, and extended payment terms. And if you’re in the process of raising VC money, close your round lickety-split, because I can assure you that every VC in Europe right now is entering wait-and-see mode.

I’m asking my portfolio companies to prepare a crash case scenario, not necessarily to act on any drastic measures, but at least to begin the mentally draining process of thinking about it. To be continued…

The only reaction this three-letter acronym would elicit in France, however, would be ‘Tony Parker’. And even that is limited to a select sub-segment of the general public.

Now, I have a feeling that all this is about to change. Within the span of a week, I’ve heard two separate entrepreneurs boast about their Minimum Viable Product.

The concept of Minimum Viable Product is anathema in France, running counter to almost everything product development here stands for… and I think it’s brillant.

Minimum Viable Product is not merely a beta version or a stripped-down service, it is a methodology and a mantra for product development (I defer to Eric Ries’ comprehensive explanation). And I think that as a guiding principle it has the power to transform tech entrepreneurship in France.

An MVP mindset will give entrepreneurs no choice but to throw out the part of their engineering training that encourages the pursuit of technology sophistication and perfection, forcing them instead to start with their hypothesis of the market need, and ask what is the bare minimum necessary to validate their hypothesis in order to develop a v2.

I’ll be looking forward to hearing more entrepreneurs pitch me their minimum viable products. Perhaps even one day Ecole Polytechnique will institute a course on the methodology like Harvard has done.

I think we’re on the verge of something monumental.

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Here in France, unemployment improved slightly in Q2 but still hovers between 9.5 and 10%.  Relatively speaking, the figure is not quite as shocking as in the States.

But I think this will rise further for one simple explanation that highlights the contrast between France and U.S. labor markets.  In France, most unemployed persons receive 23 months of unemployment benefits equivalent to approximately 70% of their previous salary.  This is a very comfortable remuneration for 100% free time.  Talk about a paid, extended sabbatical that most working Americans could only dream of.

One modest proposal that re-surfaces every few years yet falls on deaf ears involves forcing the unemployed to work.  The idea of forced labor triggers unpleasant reactions.  But the latest incarnation of the concept actually strikes me as not unreasonable: the unemployed would only be forced to work in order to maintain their unemployment payments above a certain minimum threshhold; they could choose the company in which they work; and the work commitment could be structured as a part-time gig to allow the individual the critical time for activities like a proper job search, continuing education, or trade re-training.

The details would necessarily require substantial and legitimate debate, but it seems that the idea merits discussion.  What I like about it is what this could mean for France’s startup environment.  One of brakes on entrepreneurship in France is the challenge startups face in assuming the financial risk of hiring.  Reforming France’s restrictive labor laws is the systemic solution, but enabling startups to benefit from supplementary personnel without any financial risk would be more politically-palatable to implement and interesting to test in practice.

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The swim featured a three-loop lake circuit with a “double-australian” exit and a tight transition area. Not ideal, but ample width in the lake made for a pleasant swim with minimal combat swimming.

The 44km bike course proved to be my downfall. A particularly steep and gravel-filled descent took out a handful of cyclists, including me. I left the race in an ambulance with a fractured clavicle. Season over. Major fail.

To look on Monty Python’s proverbial bright side, there are a handful of ways to spin a positive light on this:

1. I found an excuse to escape the grueling 12km run course which I was dreading.
2. I can claim to have lost out on the bike split to Laurent Jalabert, former Tour de France cyclist who was also competing in this race.
3. Most importantly, I witnessed the best in human nature: A fireman triathlete who happened to be behind me stopped his race in order to resuscitate me and call the paramedics. I figure I cost him at least 8 minutes off his finishing time. This man is a saint and reinforces what triathlon is truly about.

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The initial calamity of not being able to play Flash on the iPad (and not being able to do this even faster on the iPad2) has subsided. This is probably due to a number of factors, such as the rising legitimacy of Html5, tools like Google’s Swiffy that enable Flash to Html5 conversion, the increasing willingness of content owners to offer iPad friendly sites, and in my opinion the fact that the iPad is so cool that consumers were willing to overlook this defect pending the rollout of Html5 versions of major sites.

Still, Peter Judge provides some interesting testimony in eWeekEurope about why Flash still has legs, notably for reasons of lack of seasoning when it comes to security.

At our portfolio company BoosterMedia, we’re fairly agnostic in the debate. The company’s primary thrust in social mobile games centers on the Html5 standard, but currently the bulk of its portfolio of mobile social games are developed in Flash. Html5 has come a long way in the past year, and it is only recently that the technology is sufficiently sophisticated to enable a social game. In fact, to my knowledge, BoosterMedia is the first company to offer a browser-based social game on mobile based on Html5 (see http://jewelclubgame.com).

So, Five alive, but Adobe’s no flash in the pan.