People taking money from French state related funds should be very careful with the small print and study the case of DailyMotion with great attention to detail. Lest you too end up being deprived of a well deserved exit.
DailyMotion "exited" prior to this, as the deal between Telecom Orange (minority owned by France) was scuppered.
On 25 January 2011, Orange acquired a 49% stake in Dailymotion for €62 million, valuing the company at €120 million. On 10 January 2013 Orange bought the remaining 51% for €61 million. (source: Wikipedia)
So, the Dailymotion founders, investors and (hopefully) employees got a $123 million exit. (edited to fix the sum)
That said, in my experience government-based funds and grants usually do contain clauses that limit what you can do for a set period of years, in attempts to be able to reap the fruits of the investments (not neccessarily profits, but also employment, more activity and visibility to local IT sector, etc).
As with all funding, there are always at least some strings attached.
So, the Dailymotion founders, investors and (hopefully) employees got a $123 million exit.
The SIF invested in 2009, they could have blocked any kind of exit involving a foreign (likely American) party after that point.
As with all funding, there are always at least some strings attached.
Yes, but usually those are to make sure that minority shareholders also play ball if/when the bulk of the shares can be sold, not to stop a deal from going through based on Nationalistic grounds.
I never understood why DailyMotion was hailed by politicians and news outlets as a "pearl of french tech". Am I missing something or was it just empty hype by people who didn't know any better?
From my point of view it was just a crappier Youtube clone that managed to remain mildly successful because it tolerated NSFW and pirated content. I saw nothing particularly innovative about it.
Would you warn against any state-owned fund, or the French ones in particular?
For example, in the Netherlands, there's many "provincial development funds" (eg BOM, OostNL, InnovationQuarter), who generally have a pretty good, though somewhat slowish/bureaucreatic, reputation. But in the end they're all government owned one way or another.
True! Your comment actually made me go through some exits from BOM (who have invested in us) and I saw a fair bunch that exited to non-EU owned buyers.
Many French startups, probably most of those you know, take State money in their early rounds. The State has a fund (BPI) whose policy it is to co-invest with the major French VCs. They have favorable terms for startups.
That being said, in general, the state is a passive investor. What happened with Dailymotion is way different.
First, the issue came from Arnaud Montebourg, a powerful Minister of the Economy with statist views in the former Socialist government. The current government is very different. (By the way, Montebourg was replaced by Emmanuel Macron, the current President of France, as Minister of the Economy under Hollande.)
Second and most important, by the time this happened Dailymotion had already been sold. It was a wholly owned subsidiary of France Télécom, the largest telecommunications operator in France (commercially known as Orange). That operator was state-owned until 2004, and even today the State is its largest shareholder.
In other words, the State prevented a former public company it basically still controlled from selling a wholly-owned subsidiary which happened to be a startup it bought before. I disagreed with the decision then, and I still disagree today, but it didn't prevent an exit. Rather, the actual exit of Dailymotion was to a company owned in part by the State...
EDITS:
- Looks like I was too slow to post and senko beat me to it.
- The "FSI" articles linked by others talk about, which invested in Dailymotion, is now part of the "BPI" I mentioned (it was merged with other vehicles that invested at different stages).
- Some French people regret Montebourg style, for instance a journalist recently tweeted his disagreement about the governmental OK to the sale of Photonis, a night vision company, to a foreign group (https://twitter.com/VincentLamigeon/status/11742379454543708...).
Sure. But the side effect of all this was to kill French investment for a while simply because founders had to argue why they thought they would not be given the 'dailymotion' treatment if successful. That these particular founders had already sold to an intermediary doesn't matter, after all it could have been Yahoo! knocking on their door as well, and it was the SIF clause that allowed them to block the deal.
it was the SIF clause that allowed them to block the deal
Not that I know of. The SIF didn't have any ownership of Dailymotion anymore. Their shares had been bought by Orange.
Montebourg just said publicly he wouldn't let Orange sell, and it killed the deal.
Only slightly related: why do French startups need to take State money? Because we have much less private investment, in part due to our social model. We don't have many pension funds because most of the retirement system is state-owned, we have few private universities because the best part of the higher education is state-owned... So basically we have no LPs.
The SIF didn't have any ownership of Dailymotion anymore. Their shares had been bought by Orange.
Ah, I did not know that, the way I heard it told - behind the scenes - was that their minority stake had that clause in it which gave them the legal power to stop the deal. I'm not sure on what legal grounds the French government would be able to stop this deal otherwise, if not through their control over Orange, which would seem to be a rather blunt instrument.
Because we have much less private investment, in part due to our social model.
We don't have many pension funds because most of the retirement system is state-owned, we have few private universities because the best part of the higher education is state-owned... So basically we have no LPs.
The LPs in most Western European VCs and PE parties are rarely pension funds. More often than not they are successful business people flush from selling earlier ventures. It is the lack of those that causes the dearth of capital in France, coupled with the rather difficult employment climate.
Does it really have to do with receiving money from state-related funds? It's not unusual for a government to stop foreign acquisition of companies they consider a strategic asset for the country. E.g. Donald Trump recently rejected the acquisition of Qualcomm by Broadcom.
Do you really think DailyMotion is a strategic asset for... anything? They most likely stopped the acquisition because they didn't want the founders to profit from something they built using state money (and maybe rightly so)
The founders built it using state money as an investment. They definitely fucked up reading the fine print though, and these issues were raised at the time they got the funding:
DailyMotion can be a strategic asset for a country like France. E.g. if they project a steep decline of broadcast TV and a YouTube monopoly, having a French-controlled video streaming alternative laying around may become important in the case of a USA-EU "cold war".
The chances for this scenario may be very slim, but countries at the level of France would want a contingency plan anyway.
I think that's reaching. That's not just 'slim', that's vanishingly small, so small that such a factor would never make it to consideration in a case such as this. The real truth is that it was the first time that France had a name on a website that had international recognition and they didn't want to lose that.
Sure, but that does not change the facts: France blocked the previous deal just because it could and there is no way of knowing what kind of a lottery you play if you accept funds like this in the future.
They blocked it because of a misplaced sense of isolationist protectionism. That's arguably very wrong in a global economy but it's not 'just because they could'.
Comments
People taking money from French state related funds should be very careful with the small print and study the case of DailyMotion with great attention to detail. Lest you too end up being deprived of a well deserved exit.
DailyMotion "exited" prior to this, as the deal between Telecom Orange (minority owned by France) was scuppered.
So, the Dailymotion founders, investors and (hopefully) employees got a $123 million exit. (edited to fix the sum)
That said, in my experience government-based funds and grants usually do contain clauses that limit what you can do for a set period of years, in attempts to be able to reap the fruits of the investments (not neccessarily profits, but also employment, more activity and visibility to local IT sector, etc).
As with all funding, there are always at least some strings attached.
The SIF invested in 2009, they could have blocked any kind of exit involving a foreign (likely American) party after that point.
Yes, but usually those are to make sure that minority shareholders also play ball if/when the bulk of the shares can be sold, not to stop a deal from going through based on Nationalistic grounds.
I never understood why DailyMotion was hailed by politicians and news outlets as a "pearl of french tech". Am I missing something or was it just empty hype by people who didn't know any better?
From my point of view it was just a crappier Youtube clone that managed to remain mildly successful because it tolerated NSFW and pirated content. I saw nothing particularly innovative about it.
It was a name that was recognized outside of France. Most French start-ups are only known locally.
Would you warn against any state-owned fund, or the French ones in particular?
For example, in the Netherlands, there's many "provincial development funds" (eg BOM, OostNL, InnovationQuarter), who generally have a pretty good, though somewhat slowish/bureaucreatic, reputation. But in the end they're all government owned one way or another.
I am not aware of any of those ever blocking deals for such reasons as the one what stopped Yahoo! from acquiring DM from Orange.
If you stifle the ability for such deals to be consummated you remove the oxygen from a lot of the lower levels as well.
True! Your comment actually made me go through some exits from BOM (who have invested in us) and I saw a fair bunch that exited to non-EU owned buyers.
Many French startups, probably most of those you know, take State money in their early rounds. The State has a fund (BPI) whose policy it is to co-invest with the major French VCs. They have favorable terms for startups.
That being said, in general, the state is a passive investor. What happened with Dailymotion is way different.
First, the issue came from Arnaud Montebourg, a powerful Minister of the Economy with statist views in the former Socialist government. The current government is very different. (By the way, Montebourg was replaced by Emmanuel Macron, the current President of France, as Minister of the Economy under Hollande.)
Second and most important, by the time this happened Dailymotion had already been sold. It was a wholly owned subsidiary of France Télécom, the largest telecommunications operator in France (commercially known as Orange). That operator was state-owned until 2004, and even today the State is its largest shareholder.
In other words, the State prevented a former public company it basically still controlled from selling a wholly-owned subsidiary which happened to be a startup it bought before. I disagreed with the decision then, and I still disagree today, but it didn't prevent an exit. Rather, the actual exit of Dailymotion was to a company owned in part by the State...
EDITS:
- Looks like I was too slow to post and senko beat me to it.
- The "FSI" articles linked by others talk about, which invested in Dailymotion, is now part of the "BPI" I mentioned (it was merged with other vehicles that invested at different stages).
- Some French people regret Montebourg style, for instance a journalist recently tweeted his disagreement about the governmental OK to the sale of Photonis, a night vision company, to a foreign group (https://twitter.com/VincentLamigeon/status/11742379454543708...).
Sure. But the side effect of all this was to kill French investment for a while simply because founders had to argue why they thought they would not be given the 'dailymotion' treatment if successful. That these particular founders had already sold to an intermediary doesn't matter, after all it could have been Yahoo! knocking on their door as well, and it was the SIF clause that allowed them to block the deal.
Not that I know of. The SIF didn't have any ownership of Dailymotion anymore. Their shares had been bought by Orange.
Montebourg just said publicly he wouldn't let Orange sell, and it killed the deal.
Only slightly related: why do French startups need to take State money? Because we have much less private investment, in part due to our social model. We don't have many pension funds because most of the retirement system is state-owned, we have few private universities because the best part of the higher education is state-owned... So basically we have no LPs.
Ah, I did not know that, the way I heard it told - behind the scenes - was that their minority stake had that clause in it which gave them the legal power to stop the deal. I'm not sure on what legal grounds the French government would be able to stop this deal otherwise, if not through their control over Orange, which would seem to be a rather blunt instrument.
The LPs in most Western European VCs and PE parties are rarely pension funds. More often than not they are successful business people flush from selling earlier ventures. It is the lack of those that causes the dearth of capital in France, coupled with the rather difficult employment climate.
Does it really have to do with receiving money from state-related funds? It's not unusual for a government to stop foreign acquisition of companies they consider a strategic asset for the country. E.g. Donald Trump recently rejected the acquisition of Qualcomm by Broadcom.
Yes, that was the reason they could stop the deal. Yahoo backed out as soon as they realized that they did not have a way to trump that.
Anybody that wants to argue that the Dailymotion is a strategic asset to France or the EU is welcome to do so but I fear that it will be a stretch.
Do you really think DailyMotion is a strategic asset for... anything? They most likely stopped the acquisition because they didn't want the founders to profit from something they built using state money (and maybe rightly so)
The founders built it using state money as an investment. They definitely fucked up reading the fine print though, and these issues were raised at the time they got the funding:
https://techcrunch.com/2009/10/22/dailymotion-raises-another...
DailyMotion can be a strategic asset for a country like France. E.g. if they project a steep decline of broadcast TV and a YouTube monopoly, having a French-controlled video streaming alternative laying around may become important in the case of a USA-EU "cold war". The chances for this scenario may be very slim, but countries at the level of France would want a contingency plan anyway.
I think that's reaching. That's not just 'slim', that's vanishingly small, so small that such a factor would never make it to consideration in a case such as this. The real truth is that it was the first time that France had a name on a website that had international recognition and they didn't want to lose that.
Links about "the case of DailyMotion", please?
https://www.reuters.com/article/yahoo-dailymotion/yahoo-scra...
DailyMotion was finally acquired 2 years later by Vivendi :
https://techcrunch.com/2015/06/30/vivendi-buys-80-of-frances...
Sure, but that does not change the facts: France blocked the previous deal just because it could and there is no way of knowing what kind of a lottery you play if you accept funds like this in the future.
France blocked the previous deal just because it
They blocked it because of a misplaced sense of isolationist protectionism. That's arguably very wrong in a global economy but it's not 'just because they could'.
Close enough.