Jacques Chirac: mooney to spend.
French president Jacques Chirac last week announced plans to invest €3 billion over six years into the country’s most dynamic small companies.
According to the details of the plan for the new fund “France Investissment”, most of the money will go to innovative start ups through venture capital firms. The question is: Are they ready?
How the others do it
While France is putting in public money along the investment chain, other European governments focus on using public funds to promote the formation of start-ups.
For example, the UK government’s Enterprise Capital Fund (ECF) is aimed at high tech businesses caught in the equity gap. There is proven scarcity of capital in the £500, 000 to £2 million range, due to the fact that the cost of making investments, for example due diligence and legal costs, are largely fixed. This makes it more attractive for commercial funds to seek larger deal sizes.
To date six ECFs have been approved, which use funding from government to pull in private investors. All investments are made on commercial terms.
The funds include the Seraphim Fund, a £30 million generalist fund that will invest alongside business angels and other private investors. The fund will be managed by a coalition of business angel networks, investing across the UK.
Another, Amadeus Enterprise Capital Fund a £10 million fund, with £6.5 million from the government and 33.5 million from private formally got off the ground this month (see Amadeus closes new fund)
Meanwhile, the IQ Capital Fund has £25 million to invest across the Cambridge, Oxford and Bristol areas, and the 21st Century Sustainable Technology Growth Fund is a £30 million that will invest in companies developing sustainable technologies.
Another example of a public private collaboration to provide seed money is the European Investment Fund (EIF) partnership with the quoted UK technology commercialisation company IP Group Ltd to form a venture capital fund to invest in university spin-outs.
This was the first fund to be set up on the basis of recommendations made in Technology Translator Accelerator, a pan European study of technology transfer activity funded by the European Commission and published by EIF late last year. The EIF intends to set up more funds based on the IP Group model of negotiating long-term technology transfer deals with universities and research centres.
The new fund, IP Venture Fund, had a first closing of £15.5 million of which London-based IP Group put in £1.4 million The total fund size is expected to be about £30 million.
France Investissment will be managed by a board leaded by former president of the Association for Enterprise Creation, Rene Ricol.
With only €1.4 billion invested by VC funds in 2005 in France, this new fund has the potential to significantly fulfil some of the urgent capital requirements of the country’s technology start-ups.
And at first glance, this all looks like good news for the French VC community. CDC Entreprises, the venture investment arm of Caisse des Depots said that by the end of 2006 it will put €50 million into some early-stage venture funds, €70 million in national later stage funds and €35 million into regional VC funds.
CDC Enterprises says it will invest in French venture capital and development capital funds alongside private investors, in the form of both equity and debt. CDC Entreprises may also back these private funds by directly co-investing alongside them in certain businesses in their portfolios. Other types of intervention will be considered also.
“Thus, the whole spectrum of private equity, ranging from technological start-ups, at both national and regional level, will be covered,” claims CDC Entreprises.
Still looking for jam
However, for veteran venture capitalist Philippe Pouletty, President of the trade association France Biotech, Chirac has not delivered on his commitments.
“One has to keep in mind that at the beginning of the year when Chirac first mentioned setting up a state-sponsored fund for venture capital, he promised €2 billions per year. While €500 million a year for six years is still a significant number, once again the promise fell short when time comes to deliver.”
Despite Pouletty’s reservations France Biotech welcomed the “rapid” launch of France Investissement, holding a meeting yesterday [22 Nov] to discuss the opportunities it presents for the sector with Jérôme Gallot, Chairman of the Management Board France Investissement.
France Biotech noted that the new fund needs to boost simultaneously the entire financing chain from seed capital to venture capital and stock market listings.
It called for France Investissement to encourage a diversity of investors, to help the country’s private equity sector catch up with its counterparts elsewhere.
France Biotech also called for improvements in the country’s VC infrastructure saying there should be a requirement for VC firms managing France Investissement funds to recruit specialist, internationally acknowledged senior partners. “Many of France's VC fund management teams are non-specialised and lack the entrepreneurial and industrial skills that a lead investor in high tech and biotechnology needs.”
Furthermore, it is essential to diversify and create more competition within the French venture capital sector.
Pouletty expressed his personal concern at the relative weakness of the French VC community, and in particular the shortage of appropriate skills. “It is not a sound market when you have only five French VC firms that are able to take the lead in dealmaking as is the case with biotech start-ups.”
“Therefore, it is crucial the new fund of funds not only invests in VC firms but pushes those VC firms to expand their expertise and attract international talents.”
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