"Investors See Failure in a Positive Light...on Certain Conditions"

By September 26, 2011
Keywords : Smart city, Europe
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Experiencing difficulties starting up a company is beginning to be more tolerated in France. Those who are financing a startup might well see a businessperson who has capitalised on his mistakes as worth investing in.

Interview with Marie Ekeland, partner at Elaia Partners, on the sidelines of FailCon Franceconference on 22 September.

The FailCon concept comes from the United States. Is it more acceptable over there to make mistakes, is it seen as part of the startup process?

Yes, American entrepreneurs are quicker to recognise their failings. They find it easier to accept that if they can’t find a new investor, or if their product doesn’t take off, then there’s a problem somewhere. They stop at once and try to see how they can start up the project again in a different way. So it’s linked to a cultural ability to own up to things, but also to the fact that USindustry is more mature. On the investor side, the amounts put up are also matched to the particular risks. One of the differences between US and European investment funds seems to be that Europeans waste too much money on companies that don’t make it. USinvestors pull out faster when they sense that the product isn’t catching on.

Do you think that both accepting failure and capitalising on failure are starting to be part of French business culture?

Failure, from a venture capital point of view, is starting to be seen in a positive light, but, obviously, on certain conditions. The company has to own up to failure and take responsibility for it. And the entrepreneur must have got something out of the failure. That is to say, he will have asked himself what he should have done, be able understand the reasons why his business didn’t take off. It’s also important that he still has good references behind him, in terms of his relations with other financial partners

And on the entrepreneur’s side?

The same here as well, for the very good reason that the average age of people starting a business has gone down. For a long time, our idea of success was obtaining a select job in a large corporation, which doesn’t exactly encourage risk-taking. These days the average age of people starting up the kind of firm that we’re talking about, such as Ykone or AllMyApps, is 25.

So, if the chances of failing are more acceptable, that should immediately impact the appetite for risk-taking?

That’s true. Especially as in Francethe overall landscape of innovation and investment is less well signposted than before. So adjustments are needed, particularly on the investment side where, now that money is tight, we have to be selective. This is sometimes difficult, as the quality of the projects put forward for funding is getting higher all the time.

What else is needed, apart from a change of culture?

We need role models, some examples of companies that first faced disappointment before bouncing back. There are a few. Scoop.it grew out of Goojet, which had some success, but its ROI was too low for the investors. Then there’s Criteo, which we’re investing in. There we had to bite the bullet before success came. We succeeded in the end because we recognised pretty quickly that things were not going well, worked out why and tried to see how to get round the problem. There are some genuine examples of failures which led to success. And I think that long term this will be a very good thing as regards stimulating French innovation.

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