By Jérôme Faul – Président du Directoire d’Innovacom
Large French companies are not buying up enough startups. They could contribute to the virtuous circle that is being created in our country by becoming the main beneficiaries of innovations that entrepreneurs bring to the market.
“Somebody, somewhere, is developing a product that makes yours obsolete. “wrote Georges Doriot, the Frenchman who invented innovation capital in the United States in the 1950s. This is even more true today: Moore’s law, globalization, the Internet are obligatory.
In fact, almost all major innovations, i.e. those that radically change the way we live or work, are currently the work of startups. These young companies can focus on the products or services they develop without fear of cannibalizing an existing product or service, with teams whose interests are perfectly aligned, according to agile processes. Above all, they address markets that are initially niches that large companies do not even see.
The financial resources they need do not come from past profits or self-financing capacity, but are increasingly available from innovation capital funds. What has been true in the United States for decades is increasingly true in France: entrepreneurs have the means to achieve their ambitions. They can take technical innovations out of their laboratories and make the marketing innovations they have come up with a reality.
A real enthusiasm exists in our country: an engineering culture, a generalized awareness, a desire to undertake, public aid, private capital inflows. Many projects are logically being created, but they lack an essential element: the medium/long term perspective. The startups thus created will only be marginally listed on the stock exchange, and will have difficulty finding funds capable of supporting them at the rate at which American or Chinese funds support their own startups.
They are therefore doomed to failure if they do not have the opportunity to support larger companies which, by integrating them, will be able to continue to expand their offers and further accelerate their developments. Less than a quarter of French startups are bought by a corporate company, which is too little. In half of the cases, this one is French, it is also too little.
Indeed, French companies could benefit more from the innovative products or services developed by start-ups as well as the markets they have conquered. They have all become more or less aware of the issues and are developing different types of relationships. Many have partnership programs, some have set up investment funds, most have business relationships with startups.
The relationships thus created are obviously essential for a well-established company to be able to project itself into the future. Knowing its current position and its own development capacities, it can understand precisely what its future competitors will be able to do. If it wants to go fast and stay ahead of them, it must go further and seriously consider acquisitions of young innovative companies.
Three types of actors play a role in the acquisition process of a startup by a large company.
First of all, there are the startups themselves. French entrepreneurs are in an environment that is not very favourable to their exit with generally few cash-outs and a tax system that has not always been clear. A certain risk aversion and a desire to maintain control over their company during development phases often prevent them from seeking the best possible growth – synonymous with dilution. A lack of geographical mobility, a lack of international knowledge and an intrinsic difficulty in addressing the most promising markets (America, Asia) also hinder their deployment. French entrepreneurs may also be less close to the established industrial fabric than Germans, for example. Unconsciously, their founders make their startups unattractive to an acquirer.
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