Macron’s Coup de Maitre: France and Technology


On his first day in office as newly-elected President, just after the swear-in ceremony, Emmanuel Macron will rediscover the place where he built his meteoric career.

Five years ago Macron was just another advisor to the President at the Elysee Palace. Now, at 39 and with no prior electoral mandate, he is spearheading the country. Many will remember that his fast-track political career meant defeating three prime ministers and two presidents–among others–to reach the coveted post.

Economists will declare financial markets to have eschewed chaos with Macron’s trouncing of far-right Marine Le Pen, whose program centered around Frexit (a French exit from the European Union). But few will remember where it all started, in 2012, with Macron’s most acclaimed accomplishment: creating Bpifrance (aka BPI), the Banque Publique d’Investissement, a sovereign fund that cemented his reputation as a doer.

Three months before the election CB Insights, never to miss a trend, had already spotted BPI as its number one European sovereign financial institution, noting it to be the most aggressive public investment arm in technology in Europe–dwarfing those in the UK and Germany.

This marks a astounding turnaround for a country that was, until recently, known as a tech backwater, famed more for its protectionism, a prohibitive tax regime and crippling labor laws than proactivity. As recently as  2013, the Minister of Industry torpedoed DailyMotion’s sale to Yahoo!, preventing the local YouTube from going to foreign owners and hand-picking Vivendi, a national conglomerate, as a buyer.

Such episodes kickstarted an exodus of French talents to nearby hubs such as London or Brussels, as American firms wooed highly-rated French engineers across the Atlantic. The nation which had invented the word”entrepreneur” was turning its back on the future.

It was left to a left-leaning government to pick up the pieces. In 2012, conservative Nicolas Sarkozy relinquished premiership to Francois Hollande. The socialist endeavored to right things with a discrete team headed by a little-known former banker in his inner circle: Macron. The hard charging, 18-hour workday advisor pushed for the creation of a sovereign fund, consolidating several entities, endowing them with $23 billion in starting money.

“To be relevant, BPI must have firepower and the right governance,” Macron announced. In less than seven months he guided the process through legislative scrutiny and arcane administrative roadblocks, which by itself set a record.

One more crucial decision remained to be made: identifying the right CEO. France has a large cadre of civil servants whose careers thrive under the public umbrella. The wrong choice would have immediately meant the kiss of death for BPI. Macron and Hollande picked Nicolas Dufourcq, an executive at Cap Gemini, the French IT services giant. Dufourcq was highly-regarded, but also known as a maverick leader. The new appointee joined in April 2013 amid strong expectations.

Dufourcq’s CV does not fit the traditional mold. After HEC, a grande ecole, the French version of the Ivy League, he founded his own startup then bifurcated to public service, through the prestigious ENA, followed by the exclusive Inspection des Finances. At 31, Dufourcq launched Wanadoo, the online arm of the French ISP, managing 6,000 employees. Twelve years at Cap Gemini opened his eye to Silicon Valley and its venture culture.

Having found their man, Hollande and Macron assigned Dufourcq with three key objectives.

The first was expanding France’s investments beyond Paris, France’s sprawling capital, which accounted for 95% of dealflow despite being home to 18% of the country’s population. To harness talent outside La Ville des Lumieres, BPI opened regional offices across France. Its chief began a tech Tour de France, preaching entrepreneurialism at 50 town hall meetings annually.

Red Herring attended one such event in 2015. To ignite passion in his audiences Dufourcq borrowed a term from then-US President Barack Obama: “Yes you can.”

Dufourcq’s Gaule-trotting paid off: 30% of French startups are now located near universities, in regions long maligned. 63% of 2016’s alumni were based outside Paris. Bpifrance expanded internationally, too, forging ties in China, Israel and elsewhere that have stuck thanks to partnerships with CIC, China’s sovereign bank, and local funds like Beijing-based Cathay Capital.

Bpifrance’s second goal is to finance late-stage activity, the Golden Snitch of European tech Quidditch. Its objective is twofold: support venture capitalists, and strengthen the winners’ balance sheets.

In 1997 under Dominique Strauss-Kahn France had attempted to turn on the switch. But French startups struggled to go global due to a chronic lack of Series C or D funding rounds. BPI changed this. In 2015 it opened a ‘fund of funds’ for late-stage financing with $750m in 2015, and $765m last year.

Benjamin Paternot, who joined Bpifrance in 2015, heads up that fund. His remit is clear: investments must be made in best-of-class European funds like Index Ventures of Switzerland, or British brand Balderton Capital. Those funds will then boost French-based firms around the world. Last quarter BPI acquired part of a VC fund founded by Eric Benhamou, a French emigré to Silicon Valley, who during ten years headed 3Com, the networking giant.

Simultaneously, the sovereign fund recruits twenty professionals, mostly from the private equity sector, to support its mature and late-stage tech companies. Not only does the BPI stamp of approval attract other equity investors in funding rounds, such as Goldman Sachs, HSBC or Upfront ventures; but it gives these companies resources to become worldwide leaders.

These companies share a common trait: most of their revenues are generated outside of France. Some of them, such as Talentsoft (human resources software), Delair-tech (drones), Fraudbuster (telecom) or Kyriba (treasury and risk management) are recognized leaders in their space.

“For the first time, we are watching a structured approach at work,” says Alban Wyniecki, a late-stage VC at Paris-based IDInvest. “On one hand, (Bpifrance) are not restricted, like normal funds, to a cash-on-cash return. Also, they can also lend money and issue convertible debt. On the other hand, they bet on the long term with companies such as Ynsect, and it works.”

Dufourcq’s third mandate: build a digital economy that will last. French startups had received boosts before–most notably from former IMF head Strauss-Kahn in 1999–but, according to industry veteran and Banexi Venture chief Michel Dahan, the “whole food chain was faulty”.

Thanks in no small part to Macron, Dufourcq and a second wave of French innovators, that food chain has been shaken up completely. Engineering schools churn out thousands of graduates annually. Those working abroad have brought back valuable insight and experience.

This second generation, winning admirers worldwide, is now getting the financial backing its talent deserves. In 2016 Bpifrance backed 6,000 startups with $1.4bn of capital. Beneficiaries receive multiple funding points, unsecured loans and guarantees, in addition to equity from BPI in under six months, that is seconded by pan-European resources.

Those startups that survive and thrive across three years with a a minimum 25% annual revenue growth are given a ‘BPI Pass’ that signals their performance. Of 84 startups selected by Bpifrance in 2016, the average revenue growth is 186%, half of which are above 100% year-on-year.

“Undoubtedly,” says Dahan, “BPI has the best portfolio in France.”

Macron, who showed a remarkable understanding of the complex rigors of startup management, was vindicated in his appointment of Dufourcq–and then some. Not only does Bpifrance support traditional startups, but it also lends money to medium-capital companies forced to transform for the digital age.

“It is absolutely undeniable that BPI saved French technology,” says Jean-Marc Patouillaud, managing partner of veteran cross-Atlantic fund Partech. “Venture was at its lowest in 2008…BPI pulled it away from the brink.”

Dufourcq recruits half his staff from the private sector, some from the private equity world, and is known for his strict adherence to gender equality rules. Half his executive committee is comprised of women–a rare fact in France or, sadly, anywhere else.

Bpifrance may have more manpower than the average VC firm, admits Wyniecki. “But it is run by a group of young past entrepreneurs who know the game and are trusted by their hierarchy: this is their secret sauce.” Its flat organization, headquartered at a 19th century Hausmannian building a few blocks from the Paris Opera, runs 24/7 on emails and texts on his Blackberry.

It is an American habit Dufourcq has picked up over the years. But his love of music has been with him far longer. Once a month, schedule permitting, he switches off the light in his office at 7.45pm, hops on board his scooter and shoots to a concert or ballet du jour.

“The next adventures are in France now,” Dufourcq wrote confidently, in a recent annual report. He knows there are plenty of challenges too. Bpifrance needs exits (some have already taken place) to cover its next round of investments. Rumor has it that some of Dufourcq’s investments will soon achieve hallowed ‘unicorn’ status. That will return high multiples to the French state.

Another challenge Bpifrance shares with corporate investors around the world, is to effectively manage late-stage portfolio companies and avoid pushing to above average valuations, according to observers. Inside the ecosystem, some fear that Dufourcq’ success may have drawn too much attention, and some could lure him away from BPiFrance. Over a coffee and bagels, Dufourcq remains placid: “the job we are asked to do is on its way. The team has built a formidable machine and it has already transformed France’s psyche over the long haul”.

Macron, starting this week, has a larger portfolio of issues to handle. But if Bpifrance is a blueprint for his tenure, the world will begin to notice.

Alex Serge Vieux