The US is one of the largest economies in the world, being home to more than 10 of the top startup ecosystems (with top 30+ runners-up), a +$1 trillion combined startup ecosystem value for just the top 5 US cities (Silicon Valley, New York, Boston, Los Angeles, and Seattle), and boasting world-class resources (access to talent, capital, and numerous investors).
If you are a European-made startup who has ambitions of going global or has started to outgrow the EU, the US could be your next logical (and bold!) step. The US is such a huge and competitive market that winning there is a way for startups to prove their mettle. As the song goes – if you can make it there, you can make it anywhere!
But how do European startups successfully make it across the pond? Does having an investor or VC with significant presence in the US help?
We spoke with Olivier Huez, who since leaving C4 Ventures which he co-founded with Pascal Cagni (Apple, Head of Europe 2000-2012), recently joined Red River West as Partner. Red River West is cross-border fund whose operating platform and data-led sourcing aims to support French/European startups in their US expansion. All partners have US experience – three of whom have scaled startups in the US which went on to become global leaders in their segment (AppAnnie; Purch), with over $100 million in annual recurring revenue and several hundred million dollars raised from VCs such as Index, Sequoia and IVP.
Olivier spoke about his investor journey – from an early fascination in technology, to his experience working in tech and finding his way to becoming a VC including the challenges he encountered. He shared Red River West’s conviction about the potential of French/European startups to become global leaders, their investment criteria, priorities and plans and many more.
What first got you into investing? What is your story?
As far as I remember, I’ve always been fascinated by technology. It probably started when my parents bought a Commodore 64, and I typed my first command line.
When I was studying at Polytechnique in Paris and it was time to choose a specialization, the internet was booming, and I opted for a master in Telecommunication at Telecom Paris. But initially, working in technology for me was very operational; I spent the first 10 years of my career within the Orange Group in various roles, doing IT development in South Africa, developing new AI- and location-based services products in France, as Product Manager in the US and working on M&A in the UK.
I was then COO of two startups in London, one in Digital Advertising and the other around mobile payments. I am afraid none of them were extremely successful.
At the beginning of 2014, Pascal Cagni (Head of Apple Europe 2000-2012) asked me to co-found a new venture fund we ended up calling C4 Ventures. We both had the deep conviction that product-oriented investors with strong operational background could bring a lot to the European ecosystem. Andreessen-Horowitz had shown the way in the US already, but it was still very rare at the time in Europe.
We did about 30 investments with C4 Ventures and were privileged to see 6 of them become unicorns! The 7 years I spent building and developing C4 Ventures were really exciting, but it was time for a change, and last month, I joined Red River West as partner in the French Office.
Could you tell us more about the firm’s connection to both the French and US ecosystems?
France and Europe generally have the potential to create worldwide leaders in technology, but becoming a global leader almost always goes via a successful expansion in the US.
Actually, on this statement, I can share a couple of data points: French startups that have a US presence see their web traffic grow 50% faster than those who don’t, and they raise 2.3x more capital.
For this, you need proper support. Data shows that a French startup, which has a French Venture Capital investor with a US presence, is 4 times more likely to attract a Top 30 global investor. However, despite such evidence, there are almost no venture capital funds in France with a significant presence in the US. Red River West is one of only a handful of French VC funds with a strong presence there, with half of the six partners based on the west coast.
As a VC, what have been your biggest failures or challenges and the lessons learned from overcoming these failures or challenges?
When I started doing investment at C4 Ventures, I was coming from an operational background. I had managed P&Ls, launched products, recruited many people, gone through redundancies, so I could relate to the many challenges faced by entrepreneurs. But what I had not done was building a Venture Capital portfolio.
One of the mistakes I made initially was to do too many (small) deals. They were not bad but because we had the firm intention to fulfil our promise to provide significant hands-on support, that stretched us too thin at times.
When we realized that, we increased the amount we invested per deal and did fewer of them, often choosing to wait and invest at a later stage. I am convinced that when you intend to provide a lot of support to portfolio companies, it’s key to have a very focused investment strategy and do a small number of investments.
What are your investment criteria? What will make you pursue a startup for investment?
Red River West is a growth stage fund which invests in French or European companies who want to become global leaders and to do that, we support their expansion in the US.
The startups we love have such global ambition. They are experiencing high growth but also a level of maturity that will allow them to go quickly to the US, this usually mean at least €5 million revenues and the round is typically a large Series B or Series C.
And then obviously, as we like to provide as much added value as we can, either directly or thanks to our extended team of selected high-level advisors, we need to be convinced that we’ll be able to help them.
Startup founders are always asking how to get face time with investors. Do you have any advice?
Our data team has developed our own sourcing platform which tracks thousands of European startups to identify the best investment opportunities. So very often, we would be the ones approaching the founders because we’ve spotted that something exciting seems to be happening.
But if they match the criteria we discussed before, and we haven’t talked yet, founders can reach out to me directly: when you know our domain name, my email is easy to guess 😉
Most of the founders we’re talking to have gone through a couple of fundraising rounds already so they’re used to talking to VC funds and easily avoid the typical mistakes other teams could do at early stage.
That said, what we’re looking for is a real willingness to create a global leader and do what it takes for a successful expansion in the US. Very often, this could require one of the founders to relocate there for a period of time.
Do you think it is an absolute necessity for European startups to establish presence in the US? There are European startups (i.e. Alan or Blablacar) who chose not to expand to the US, but maybe these are exceptions rather than the rule? In your opinion, what conditions that would necessitate the cross-over?
Of course not! As you point out, there are successful startups which never expanded to the US. But not that many though, it’s usually because of complicated regulation constraints or because the proposition just doesn’t work in the US – given the difference in culture or the country topography. Actually, if you look at the 15 French unicorns, all but three have a significant US presence, and some of them have even moved their centre of gravity overseas.
We live in a world where you can work from anywhere, so it can be tempting to think that you can address the US market without establishing a local presence. It might work for a few businesses but in the end, it’s not a question of location but of understanding the challenges, culture, knowing the main stakeholders etc., which comes with experience.
And also, except if you’re a night owl, it does help to be roughly on the same time zone as your target customers 😉
Could you tell us your impression of the current VC landscape in Europe? How have you seen it change in the last 5 years?
The ecosystem is extremely dynamic and the number of VC funds has increased over the last few years. So even more than ever, the best entrepreneurs get to choose their investor, in order to maximize their chance and value for an exit.
Some would base their choice on the VC’s brand and that’s usually a safe one, but others will want to choose their investor based on their needs and the VC’s expertise. So we’re likely to see increased specialization within the VC landscape in Europe.
When I was at C4 Ventures, we opted for a strong sector expertise and that allowed us to be chosen by great entrepreneurs. Obviously, at Red River West, we’d like to think we’re an amazing partner for French and European startups looking to expand in the US in particular.
What practical actions do you think need to be carried out to shift the funding landscape in the next 5-10 years, and by whom?
I am not sure the landscape needs to “shift” actually. I think it’s going in the right direction so it’s rather about doing more of the same, for example supporting the creation and expansion of late-stage Venture Capital funds. For many years, there was a shortage of growth funds in Europe which was detrimental to creating companies that could become global leaders. In France, TIBI Report has put a strong focus on this. The TIBI initiative stems from a report commissioned by the President of the French Republic and published in July 2019, which highlights in particular the lack of Growth Equity financing (after the Venture Capital stage) for French technology companies. The aim of the TIBI committee is thus to unlock financing available to such high-growth technology companies.
I love deeptech opportunities, and one thing that we’re not doing enough in most European countries is collaborating with research labs in universities. Close to where I live, the EPFL in Lausanne has managed to create an exceptional ecosystem between the R&D teams of large corporates, students, PhDs with the aim of helping turn a research project into a startup. It is the same in the UK, as Imperial College, Oxford and Cambridge have led the way. We have that in France in Grenoble or Paris Saclay, but we need more of that if we want to create deep tech giants!
Finally, attracting top foreign talent is another thing that should accelerate, this goes via facilitating visas but also providing more appropriate tax rules for stock options awarded to employees. For example, in the UK, a startup can offer stock options to its employees with an exercise price which is much lower than the last round’s share price. Doing the same in France would not be possible within the BSPCE framework and would trigger unfavourable taxations.
Diversity quota in investment firms, yes or no? Why?
I’ve always had the deep conviction that diversity in any teams brings tremendous value – not only gender but also age, culture, religion, education etc.
I personally have dual citizenship (French and British) and I’ve always strived to shape my teams to be as diverse as possible. I remember that when I was COO at Weve, there were more nationalities in my team than there were people, thanks to a few other dual citizenships ;-).
Any initiative we can collectively find to increase diversity will lead to better performing teams, well-functioning companies and bit by bit, will make the world a better place!
That said, even if I have two daughters, I personally think there are other ways than quotas to promote diversity and change things. For example, CrunchBase now includes a diversity indicator in their listing. The French BPI is asking the funds they’re LP in to report on gender diversity in deal flow and portfolio. These are steps in the right direction and there is still much to do. At Red River West, we’d like to think we’re a responsible investor. For example, we’re proud signatories of SISTA, a collective that aims to reduce the inequalities in funding between women and men entrepreneurs. We are taking concrete actions to bring more diversity within the team, and we have an ambitious ESG roadmap: one of our portfolio company is a B-Corp and another one is about to be.
But there is still much more to do for everyone!