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STARTUP

6 Keys to Paris’s Growing Startup Success

There are six key factors that determine whether Paris can lead France to becoming a startup hub. Here’s how Paris stacks up.

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BY Peter Cohan - 24 May 2018

Arc de Triomphe, Paris

PHOTO CREDIT: Getty Images

Cities around the world are trying to emulate Silicon Valley or Tel Aviv. Indeed, French President Emmanuel Macron is clearly not satisfied with Paris being known merely as the city of light.For Macron, making Paris capital of Startup Nation is the goal, according to the New York Times.

Having spent a week visiting startups and incubators in Paris for each of the last four years through my Paris Startup Strategy Elective Abroad, I am confident that France will never rival Israel -- which owns that moniker thanks to its leadership in NASDAQ-listed startups per capita.

But visits to startups, incubators, and venture capitalists in Paris between May 14th and 18th with 19 Babson College undergraduates reveal notable changes since my last visit there in May 2017 -- one rapidly-growing local startup, the opening of 1,000-startup incubator Station F, and ongoing labor unrest.

Before getting into these changes, what makes the difference between the handful of highly successful startup cities and the thousands of less effective startup city aspirants?

As I wrote in my February 2018 book, Startup Cities, the answer is the level of development of their Startup Common which consists of six elements. Paris is stronger in some elements than others -- but is making progress. Here's how:

Pillar Companies

Pillar companies are local publicly-traded companies that supply capital and talent to startups, use their products, and help them grow.

Paris hosts a few publicly-traded companies that were startups including Iliad -- the 4.8 billion (2017 revenues) holding company for the low-priced wireless service that enriched Station F builder, Xavier Niel. Paris also hosts Criteo, the $564 million (2017 revenue) Internet advertising supplier.

Its acquired Gazelles include website operator PriceMinister which Rakuten bought in 2010 for 200 million. And one of its unicorns is membership-only ecommerce site Vente-Privee with over $3 billion in revenue.

Universities

Universities supply ideas and talent for startups -- and professors in the best startup cities are role models for aspiring student entrepreneurs.Paris has world-class universities including a great business school HEC -- whose alumni include the founders of staffing giant Ecco and food service leader Sodexo -- and strong engineering schools.Human capital refers to the supply of skills that startups need from engineers to CEOs in a location. Paris is just beginning to develop its entrepreneurial talent.

Investment Capital

Investment capital is the spectrum of capital providers from friends and family, to angels, to venture firms that supply all rounds of capital.Paris has investment capital -- much of it is from the government -- and the level of capital is less than other areas. Dealroom notes that VC startup funding rose from 255 million in 2014 to 2.7 billion in 2017.

Mentor Networks

Mentor networks help startups to supplement the skills of their leadership teams with advice on everything from product development, hiring, culture, and performance measurement. Paris's mentor networks are emerging -- and available at many incubators.

Values

Values refer to the local attitudes towards entrepreneurship versus taking a job in government, banking or consulting.Paris's values still favor the best students -- graduates of Sciences Po going into government, banking or consulting. But startups are seen as cool.

The question is whether enough local success stories will motivate a fundamental change in local values. Local Startup Commons evolve, depending on where they are on something I call the Pillar Company Staircase which consists of five levels:

  • I. No pillars, no Gazelles (e.g., fast-growing startups)
  • II. No pillars, some Gazelles
  • III. No pillars, acquired Gazelles
  • IV. Some pillars in niche markets
  • V. Many pillars in huge markets.

Paris is somewhere between Level III and Level IV. But the big changes in the last year suggest Paris is making progress.

Station F

Station F, the former train station that has been outfitted as a 1,000-startup incubator has been open since last summer.We saw many startups there as well as startup incubators, offices for French venture capitalists, and the homes of joint ventures between established companies like luxury goods maker LVMH and startups.But the big restaurant at the far end of Station F was not yet opened so a few food trucks on the side of the building were serving lunch to the inhabitants.It is way too early to tell whether any of this activity will result in self-sustaining companies. But Station F is certainly Paris's central location for startups -- which also reside in many other parts of the city.

Algolia

The most impressive startup we visited is called Algolia -- which makes a search-engine for e-commerce companies that lets their customers search as they type for products. Its rapid growth is creating demand for talent and when we were there, Algolia assigned a handful of its non-French employees to encourage our students and those from another American university to apply for jobs at the company.I have never seen a Parisian company so aggressively try to recruit talent from the U.S.

Which brings up an important point about Algolia -- it was founded in 2012 in Paris but its headquarters are in San Francisco.Algolia's progress is impressive.

Since I signed a non-disclosure agreement when I visited, here are some facts about its growth from the Economist. In early May Algolia employed roughly 200 engineers and other staff, up from 60 in 2016.Most of them are based in penthouse floors at its new headquarters behind Paris-Saint-Lazare station -- its legal headquarters and a marketing office are still in San Francisco.

As I saw myself, this office features a roof-top space for parties and other social activities with a fantastic view of Paris.Algolia has more than 4,500 clients, more than double the number in 2016. As of March 2018, its platform processed 41 billion search requests a month -- also more than double the 2016 amount.Algolia does not sell ads but charges customers to customize its search engine.

Revenues have grown from $1 million in 2014 to $10 million in 2016 and to $20 million in 2017. And its founders' 2014 experience at Silicon Valley's leading accelerator, Y Combinator, has helped it grow and attract $74 million in capital.

To be sure, the strikes that permeate France -- which is famous for a 3,000 plus page legal code which features eye-popping benefits like granting workers the right to strike and stay out of work until they get paid for the time off -- reinforce the challenges that Macron faces if he wants to make it easier for companies to hire and fire French workers.

If France can make more progress on those six key Startup Common elements, it could make further progress in Macron's bid to build a new startup nation.

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