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February 26, 2007
French VC Schmitt From Sofinnova Partners' On Early Stage And Jeroboam Logistics
Today we have a good Q&A with Jean Schmitt, managing partner of Paris-based Sofinnova Partners. He gave us a surprising amount of detail on how Sofinnova invests, where and why, the things it does to help entrepreneurs, and what will kill a tech deal.
The Q&A also reveals that Sofinnova isn't cheap when it comes to celebrating - it's the jumbo 3l Jeraboam-size champagne for celebrations. But you'll have to contact Schmitt yourselves to get the address of the most fantastic and unusual restaurants in Paris -- that's one tip he is not giving away.
The French venture firm is an early stage investor in European tech and life science company. Schmitt is one of its partners that focus on tech deals.
You have investments in Blyk, Accent, and Inside Contactless, located in Finland, Italy and Southern France, respectively -- which means a lot of air travel. Which is your favourite airport in Europe and do you have any tips about travel?
You are right, lots of travel and sometimes it’s simply insane! My favourite airport is the one that I have not visited yet - I love the feeling of being in a place I don't know, being late for check in, running with two pieces of hand-luggage, while I'm trying to insert a meeting on my Blackberry.
Seriously, we are investing in the best companies, wherever they are. For example, I'm also on the board of Esmertec in Switzerland and UPEK in Berkeley USA.
The trick is to structure the boards and the management teams early, have effective committees (compensation, audit, strategy) with clear responsibilities.
The second trick is to have a supportive family; I’m a former entrepreneur , it just looks like my previous life, nothing like an early retirement. [a:c euro Ed. Schmitt founded several companies and sold his last one, LP InfoWare, to Gemplus in 2000]
Do your partners gossip around the coffee machine (euro style) or is it the water cooler (US style)?
Coffee of course. But not just any type of coffee machine: an espresso machine, Italian style, since the arrival of two Italians in the Sofinnova team.
When Sofinnova has a reason to celebrate, like when you floated Vistaprint on NASDAQ or when Parrot floated on Eurolist at very healthy valuations, where do you book a table?
The central point for Sofinnova is to celebrate these successes with the entrepreneurs and their teams, celebrating our successful partnership with them.
We start by sending a gigantic bottle of champagne to the company --pretty complex logistics to deliver a Jeroboam from Europe, I can tell you!
We also mark occasions in time, key dates like our anniversary -- we are approaching our 35th: we have huge parties with many of our friends, at fantastic and unusual places in Paris. By the way, if you need a good restaurant address in Paris, let me know!
How do you source investments?
We read all sorts of business and scientific newspapers in order to detect new ideas at an early stage; we also attend and sponsor many professional conferences. We receive also around 850 unsolicited IT business plans per year from all sorts of sources.
Most importantly, we pick up our phones and get in touch with people - this is the way we found opportunities such as Varioptic or Sensitive Object.
Moreover the best deals are the ones you find after an extensive search in an area you believe is of interest. For example, our active interest in the area of « security and convenience for consumers” led to investments in UPEK or Inside Contactless.
Another example is Blyk which came from our search for an investment in both the sectors of mobile advertising and disruptive MVNOs: the Blyk approach of a free MNVO financed by advertising, alongside with an exceptional team led by Pekka Ala Pietila, former President of Nokia Mobile, made an excellent investment proposition.
Qosmos in the deep packet inspection, spin off from a French public lab is from the same family of long time searched for best of breed technology companies.
We've seen some pretty large-sized venture rounds in the past couple of months for semiconductor and some startups in the telecoms area. Is this healthy for the VC market?
Investments in Europe are still smaller in terms of total size of rounds and number of VCs per round than the ones in the US. Consequently, I believe that Europe is not "overheating".
Both in Europe and US, in order to build significant and global companies, we need to put a lot of money to work. Surely, fabless, semiconductor, telecom hardware companies require large funding to enter into the game.
Other companies, supposed to be more capital effective (such as web 2.0 companies), should raise less money...in theory.
I have the feeling this is a great time for VCs to be selling companies or floating them, but not so great to be investing, at least not as good as it was 12 to 18 months ago. Are valuations climbing in Europe? Is there more competition ?
Yes, there is some competition for investment in companies that are already well established - it is to be expected (and it is the case) that valuation will climb when companies reach later stages.
The surprising development is that some venture capitalists are becoming more inclined to go after later stage than early stage investments, even if they are marketing as early stage investor.
Our metrics show that seed and very early stage funding are getting more difficult. It might be even more difficult if you are not following the fashion. The big mistake is to follow fashions set by VCs, not by the market…
US VCs are under the impression that Europe is under-served with venture capital. What do you think?
Absolutely. Initially, when I joined Sofinnova end of 2001, I felt it great : so many great entrepreneurs and high level technologies, and so few VCs! Now, I tend to mitigate this way of thinking. We need to have lots of entrepreneurial VCs to become an industry, an asset class, not only a few success stories.
However, I am confident about the future; with time, LPs will figure out that European VCs are as or even more capital effective. Returns in Europe are spread among more funds, generating a safer overall return.
You are one of the few VCs that has invested in new human machine interface technologies, Sensitive Objects, what’s it like trying to grow one of these ventures and is finding OEMs a challeng?
Generally speaking, technology aims to make our life better, but sometimes it can definitively add too much complexity… I think that we need now to innovate more in order to increase ease of use of the technology, and reach a larger consensus and customer base.
We did a few investments into this direction, including Upek (fingerprint sensors), Wyplay (the “easy to use” media center you dream of for your living room) or Sensitive Object, provider of tactile user interfaces (touchscreens, wire free electric switches).
Sensitive Object is what I would call a “by the book” investment. We seeded the company on one basic patent and an outstanding researcher, out of the ESPCI in Paris (the school where Nobel Prize Pierre and Marie Curie use to teach and research). Then we turned this acoustic patent into a technology acoustic platform, and finally into products. The whole project is managed by a world class team and a strong board.
Today the company is selling thousands of clean keyboards for the medical industry. It's delivering its first breakthrough touchscreens (markedly cheaper for large displays, more reliable, brighter, etc.) and the first electric switches with no wires or batteries. The company has been fully funded by Sofinnova so far.
Concerning OEMs, there is no difficulty when the product is a great breakthrough as in the case of Sensitive Object or Varioptic [a liquid lens for cameraphones]…
UPEK was recently funded to expand into the US market. How is that going?
UPEK is a truly global company. General Management and hardware R&D are in the US, software R&D is in Prague, manufacturing in Singapore and sales are on all continents.
The company is now the leader in its market, which is the silicon based fingerprint subsystems and the consumer authentication software by fingerprint recognition.
It represents the type of company I like a lot: outstanding technology, truly global, on a relatively small, fragmented and very fast growing market. In addition, a lot of people get to enjoy the company's product under their fingers in new laptops from IBM Lenovo, Toshiba, Sony, Acer and more. By the way, if you don’t have one, buy a new laptop!
Finally, it is also a spin off from STMicroelectronics, which is another proof of maturity of the European venture market; we can spin off great companies from great large companies, where technologies are often hidden and management is well trained with true corporate values.
Since we liked it once, we did it again: one year later we spun off another company from STMicroelectronics, Accent, in Italy.
Do you have certain process that you undertake before and after making an investment in technology venture? Do you organize events or workshops for all your portfolio firms executives to get together ?
Yes, there are standard processes before investment; a strong due diligence is a support for a go/no go decision, but it is also the unique occasion to learn about the company upside down. We will never do that afterwards.
So before investment, we interview almost all employees in the company, we do extensive reviews of IP and technology, we work with the management on their strategy, including their future M&A strategy (on the buy side); we also introduce the companies to potential customers, just to check the company's ability to sell.
After the investment, the board organization and the installation of the right processes / reporting are critical. One would think that this is overkill: on the contrary I think that you don’t prepare a company for prime time early enough. It is not one year before an IPO that you start putting an ERP and the right financials systems, but almost from day one.
Regarding best practices sharing, we organize every year technology advisory boards, inviting key technology influencers and top managers, as well as our CEOs.
We also have our well-known CEO day, organized with Sofinnova Ventures, our US colleagues. The mix of CEOs from all continents, with different background being in life sciences or IT, and with some key executives from the industry is extremely rich. The “family” ambiance we are maintaining is also a key differentiator for Sofinnova.
What kind of companies are you looking for - stage, technology, geography? Which partner does what kind of deals ?
We are looking for Early stage investments (from seed to round B). We like to be lead or co lead investors, always rather active on the board. In terms of geography, we don’t care, if the company is great.
In the IT team, we are four partners, with particular areas of focus and interest, but open to invest in all domains. Olivier Protard and Olivier Sichel, former CEO of Wanadoo who just arrived at Sofinnova, are currently more focused on software, both on the technology, corporate and internet sides; Alain Rodermann and myself are now more focused on technology breakthrough and hardware, such as semi-conductors, materials, and more and more consumer sub-systems or systems. Mobile internet is taking off among all of us as well.
What is a dealbreaker for Sofinnova?
A dealbreaker is a great technology with no market, a great vision with no executable plan.
Sounds obvious, but looking at some startups out there, you would be surprised.
Surely dealbreakers are not either an incomplete team (we can always find complementary management-technology skills to build a first class team) or the finalisation of a technology development (engineers are able to solve almost any difficult technology issues). But there is no way to create a market.
What should an entrepreneur do if he wants to meet one of Sofinnova's partners to discuss a new venture?
He should simply send us his executive summary or even a quick email through our website; not need for a 100 pages business plan. He should just tell us what is new about his business or technology and who he is.
It is not necessary to explain us that the mobile internet market is exploding, that the operators need to grow their ARPU, and that Linux is the future… or to assault us with all the analysts’ quotes and graphs.
Just clear and simple. We will build the business plan together during the due diligence process with them if we are convinced of their potential.
Thanks for the interview
Posted on February 26, 2007 07:36 PM | Posted to Venture Capital | Permalink
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