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Start-Up Financing and Cultural Differences

Silicon Valley vs. Europe

Start-Up Financing and Cultural Differences

Silicon Valley vs. Europe


2

San Francisco, Paris

$550M Funds under Management

Early Stage IT

Integrated Model

Institutional Investors

PARTECH INTERNATIONAL

C O N F I D E N T I A L | DO NOT DISTRIBUTE3

INNOVATION FINANCING

Cultural Differences and Entrepreneurship

Venture Capital Overview

The Term Sheet: where it all begins

A Matter of Perspective


THE VENTURE FUND MONEY FLOW

Venture Capital Fund

Institutional Investor IPO/M&A

$200-500M

$5-10M

$10-100M

Entrepreneur

Venture Capital Fund

Institutional Investor


INVESTMENT SLOWING YET PACE SUSTAINED

$94.1

$36.7

$22.4

$20.1 $23.0 $24.5$29.1

$32.2 $31.1

$21.4

248928172967

2754257324312279

2472

3335

6359

$0

$25

$50

$75

$100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

1,000

2,000

3,000

4,000

5,000

6,000

Amount Invested ($B) Number of Deals


YET… SMALLER ROUNDS

$7.3

$20.0

$15.0

$5.0

$3.1

$6.5

$0.6

$1.5

$0

$5

$10

$15

$20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Later Round Second Round First Round Seed Round


MOSTLY IN IT AND HEATHCARE

0

400

800

1,200

2003 2004 2005 2006 2007 2008 2009

Healthcare IT Consumer Services Business Services Energy & Utilities


FOCUSED ON EARLIER STAGE

18%

25%

23%25%

32%

41%35% 37%

4% 3%

0%

20%

40%

60%

80%

100%

4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09

Restart

Later

Second

First

Seed


EXITS: MOSTLY M&A

0% 20% 40% 60% 80% 100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

IPOs M&As


CALIFORNIA: NEARLY 50% OF US TOTALSilicon Valley/Bay Area: 33%

Bay Area 33%

Southern California

9%New England15%

All Other US24%

Research Triangle

2%New York Metro

7%

Potomac2%

Pacific Northwest

5%

Texas3%


4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09$0

$1

$2

$3

$4

$5

$6

$7

$8

12

Am

ou

nt

Investe

d

(€B

)

US VENTURE INVESTMENT

EUROPE VENTURE INVESTMENT

EUROPE WAY BEHIND

France/US: 1/10 in number of deals, 1/20 in amount


A CRISIS?

17.5 18.726.1

21.525.3

45.649.3

26.1

0.8 0.34.8

1.0

-7.7-12.5

-38.4

-2.3-5.3 -1.2

74.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Thomson Reuters

Average IRR by Fund Vintage


KEY ISSUE: TIME-TO-EXIT

2.52.1

2.8

3.7

4.6

5.4

6.06.3 6.0

5.0

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

7.9

8.7

6.8

6.2

5.75.75.7

3.6

4.7

3.1

0

1

2

3

4

5

6

7

8

9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


WHY SILICON VALLEY?

Many VCs: sure, but why are they here?

Culture creates systemSuccessful system fosters culture

Many tried…

Universities: sure, but many other

Sunshine, beautiful bay: true, unreplaceable

Economic and tax environment: not unique

The real reason: culture really hard to reproduce

Good lawyers, PR firms, engineers: not unique


A LOOK AT THE TERM SHEET

Reaction Tells All

Silicon Valley

France (Europe)

Liquidation Preferences

Expected Why?

Employee Option Pool

Negotiate reasonable

range

Eliminate or minimize

Founder Vesting

Negotiate protective exit

clausesMajor shock!

Preferred Voting Rights

Course of business

Hard to accept

Board Structure &

Control

Course of business

Distrust, suspicion



19

•Decision Making

• Influence Sharing

• Capital Sharing

•Hiring and Firing

How cultural context changes everything


A MATTER OF PERSPECTIVE: DECISION MAKING

20

• Silicon Valley• Focus: Act => Fast

decisions• OK to be wrong, just adjust• If you are right 70-80% of

the time…

• Mostly Pragmatic decisions

• France• Focus: Think =>

Optimized decisions• Avoid mistakes at all costs

• Often Emotional decisions

• Example: NEU• Decision to focus on market… painfully long meetings

• Example: MSY• “I know it is the right decision but…”


A MATTER OF PERSPECTIVE: INFLUENCE SHARING

21

• Silicon Valley• Recognize expertise …and

lack thereof• Open management

communications (including strategic matters)

• Uneducated about foreign markets, but know it.

• France• Problem delegating to

functional experts• Tight-lips management

and information control• More educated about Intl.

markets, but harder to let local execs drive strategy

• Example: INO• Could not give up leadership for larger goal

• Example: KTK• We dominate at home, therefore we know…


A MATTER OF PERSPECTIVE: CAPITAL SHARING

22

• Silicon Valley• Ownership is part of

standard compensation• Dilution creates value• OK to own 5-10% of

company at IPO

• France• Ownership is founder

privilege

• Dilution robs founders• Unfair to own 5-10% of

company founded

• Example: SWY• US: everyone a shareholder – France: 7 shareholders (out

of 100+)

• Example: TI• Missed exec hires, conflict with French management and

board structure


A MATTER OF PERSPECTIVE: HIRING AND FIRING

23

• Silicon Valley• Employment is business

contract

• One month notice: you’re a softie

• France• Employment is moral

contract

• One month notice: you’re a cold-blooded capitalist

• Example: SWY• Hunt versus nurture

• Example: IMM• Incapable of hiring execs, looking for perfect match (see

also indecision)


UNDERSTAND THE LOCAL CONTEXT, BUT…

24

• The obvious: (most) markets are global

• Competition can come from anywhere• Ex: CLAP didn’t see European competitor emerging

• Local advantage may be blinding• Ex: MIA ignored rise of US giants

• Cultural advantage may be carry limits• Ex: PCT stayed local lifestyle company

Always keep a global perspective

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