18-07-2021

MEETING WITH ROMAIN SERMAN, DIRECTOR OF BPI FRANCE USA IN SAN FRANCISCO

by French Tech SF

The French Tech is becoming more visible, audible, and attractive internationally but, some opportunities remain to take, and some challenges still need to be met to reach the highest levels. Romain Serman, who arrived in San Francisco as Consul General of France before taking over as head of BPI France in the United States in 2014, gives us his view on the evolution of American interest in French startups. We are happy to share it with you.

"In France, we need to make money to attract VCs. No big exits, so no money, so no VC... American or not."

French Tech SF: Romain, you have been part of the Silicon Valley ecosystem for 15 years now: What changes in the perception of American investors towards French Tech companies have you noticed in the last few years?

Romain Serman: I have noticed that American VCs are investing more and more in French startups. American VCs are investing more and more in French startups. For example, last June, there were 16 investment rounds with an American VC participation. Notably, Andreessen Horowitz in BeReal or Sequoia in Pennylane. Other recent examples, KKR and Canaan invested in Contentsquare in a $500 million round, Tiger global management invested in Ankorstore and Accel, Bessemer Venture Partners and General Catalyst invested in Shift Technology's latest round. 

There has been a big change, and there are several reasons for this: 

The first reason is related to the volume of production. There are many more French startups to invest in than there were 10 years ago. Today France produces between 300 and 400 seed rounds per year. That is more than 10 times what it was ten years ago.

The second reason is the quality of French startups, which from the VC's point of view has increased. Overall, they have more ambition, the founder and teams are much experienced, and they tackle new attractive markets like Fintech, blockchain, or enterprise data management.  

The third reason is a market issue. US funds have a lot of capital to deploy, and the US market is saturated and hyper-competitive. So they are more or less forced to look elsewhere. Moreover, thanks to all the governmental support and the number of aspirational startups,  France is becoming more and more attractive and French startups are now under their radar. Finally, those who started investing a few years ago in Europe, particularly in the UK and Germany, are getting to know the terrain and better understand the culture.

FTSF: What are the do's and don'ts for raising money from American investors? 

RS: I would start with the don't: First is to believe that it is easy to raise money in the United States.  Some people still think that all you have to do is to get on a plane and pick up a check. They assumed that because there is more money in the US, it is easy:  which is a big mistake. First of all, because in France and Europe today there is a lot of capital. And above all, it is hard to raise funds in the US, notably because they set the bar high. 

Then, the second big mistake is to come unprepared or even ill-prepared. 

Finally, it is not knowing the competition and thinking that you are the only one to do what you do. 

Now the advice I could give to those who want to come and raise funds in the US:

The first and most important is to come prepared, meaning first and foremost about storytelling. Not about the product or the technology or even the company but telling a compelling story.  And that in France is still something we don't know how to do or don't do well.  It is hard. It can take a long time to get a compelling story, but if you don't have that, chances are you'll come away empty-handed. My advice is to understand storytelling techniques. Buy books on storytelling or the Hollywood series script writers techniques.  Use people who have real expertise to help you.

Then it is about knowing the US market competition. Know what others do, and recognize that they do it well.  Never be critical about the competition but know how to explain why your approach is the right one. 

Finally, it is to engage with American VCs as soon as possible. It is also true with European VCs. Even if you don't raise money, it might even be ideal. But beware: you have to keep in mind that if you talk to VCs, even 12 months before your fundraising, they will have benchmarks and will know most easily if your objectives have not been met.  Anything you say will be held against you.

FTSF:  In your opinion, are there any new opportunities for French startups to raise money from American investors? 

RS: Yes, for two reasons, but also with a catch: 

One, because U.S. VCs have a lot of capital to deploy. This was not the case 5 years ago. The number of investment firms with a billion-plus fund has exploded. And it's not over.

On the other hand, because now American funds, especially the best ones, are starting to go hunting more and more in Europe. This was not the case three years ago. The opening of the Sequoia office in London is a strong signal. 

So yes, but there is a catch, in my opinion. There are new opportunities for French startups, but you have to be hot. That means, for example, opening a new market, having a real differentiating technology... It also means being or appearing as a future cash machine.  Keep in mind that even if American VCs come to Europe to raise money, you have to be hot.

FTSF: What are the differences in mentality and investment behavior between European and American investors? 

RS: If we compare American VCs and European VCs of the same level, I think there are two mains differences: 

The first is that, in general, an American VC and a European VC do not have the same approach. The European VC is more defensive. They will ask you:  what could go wrong with your company?

The American VC approach is more aggressive. They will ask you: what happens if it works? In other words, can you become a cash machine? 

The second point is, as I explained before, the bar is higher in The US. The market is huge and the competition is not the same. There is more capital but also more funds with more experience, covering more areas, and finally a lot more startups coming from everywhere. There is even more choice, and therefore quality. 

In addition, American VCs have much higher performance requirements than in Europe.American LPs (limited partners) will expect a much higher return on investment from these GPs (General Partners) than in Europe. They manage $1 billion funds, and their LPs require them to return $3 billion in 10 years when they have 10 to 15% of the company. Otherwise, the fund is in danger. It makes GPs more vigilant and standards very high.


FTSF: Is there a type of startup or industry that interests US investors more right now? 

RS: I will start with the official version! Today, some areas are considered hotter than others, like vertical SaaS platforms, No code, departmentalized in software. For the others, like Add-tech, hardware, or on-demand business, it is more complicated. It doesn't mean that there are not great companies or investments. They are just not hot.

In addition, you must also be aware that the Valley works like a thunderstorm. Except it is raining money! But you know, thunderstorms are temporary. They last a year or two. For example, in 2013 / 2015, it was the on-demand rush and, since 2015, it is over. From 2020 it is the future of work.  It still is a little bit today, but I think, by 2022, it will be over. 

The unofficial version now. Most VCs, with a few exceptions, are sheep. So hot or not hot, it doesn't matter. The reality is if a startup starts attracting a top US fund, all the others will follow and the startup gets hot.

FTSF: How do they spot French startups?

RS: Of course, it depends on the stages of maturity.  For early-stage startups, it is through referrals and networks. VCs go through other VCs, through their LP, through other founders they know in the portfolio or who were in the portfolio several years ago. It is also good to know that the hotter you are, the earlier you can benefit from this network effect.  A mega-hot company, even in the seed stage, can attract a  US megafund. We could see it with Sorare for example. 

But don't talk to me about demo day! VCs, whether they are American or not, hate demo days!  

For late-stage companies, it is different. Funds are more and more sophisticated.  They either have software, or analysts, or sometimes both, to remotely monitor French companies without the company knowing it and then start engaging when they feel the company has reached a certain level they deem necessary. The more sophisticated ones even purchase data.

It is not the majority of American late-stage funds that operate this way, but I think that in 5 / 10 years, 100% of these funds will be doing this way. 

So early-stage referral, late-stage, generally we are already under the radar of the American VCs when they are not too bad.

FTSF: The French Tech ecosystem is growing and attracting more and more foreign investors. What are the future challenges for the French Tech nation to continue to attract these investors?

RS: If we consider that the environment does not change, that there is no black swan, for me, there are two: 

The first is talent. It is this capacity to continue attracting more talent to France. I am not necessarily talking about someone who has graduated from a top high school, as is often believed, but someone who has Scale experience, whether in sales, marketing, product, or a founder. Like we say: rinse and repeat.

That is the only way Tech in the US has grown, and in France, we don't have enough of that. It is still a French workforce and not international enough. 

The second point, and in my opinion, is THE Achilles heel of France are exits. We need to make money to attract VCs. No big exits, so no money, so no VC... American or not. There are some French IPOs but the problem is that there is no strong European Nasdaq. And above all, IPOs represent only 2% or 3% of US exits. It is the M&As and acquisitions that make the US market today.  In Europe, there are no giants and therefore no environment for big exits like in the US. So it is not easy. It will take time but today's scale-up companies may be tomorrow's giant companies that will be able to buy up French companies at a high price, like Datadog. There is also the question of the French corporates: are they able to buy up companies at high prices?  

Without all of that, the big exits will continue to be in the US. That is the main Futur challenge for French Tech.

FTSF: How would you present French Tech to American investors? 

RS: It is my daily work. I present the French Tech ecosystem to them with data. Only data and nothing else. I mean, the way to talk to an American VC is not with words but with metrics. Words are opinions. You can't convince an investor with opinions but with data.

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