Many European companies jump the Atlantic and set-up shop in Silicon Valley every year. One of them is VirtuOz, a company of French origin who develops virtual support and sales agents for web-based customer service. The startup made the move in 2008 and today counts US clients like PayPal, Ebay, HR Block and Chegg. For all the other European companies out there that are currently considering how to successfully enter the US-market, here are a few words of wisdom from the company’s co-founder and VP of Business Development, Pascal Levy-Garboua.
Hello, Pascal. So, as you’ve been based in San Francisco since 2008, can you first tell us why VirtuOz decided to set-up a US office? And why did the company ultimately move its headquarters to Silicon Valley?
The decision to set-up an office in the US came from 2 factors: first, there wasn’t a strong leader in the virtual agent space in the American market. So after we had success with our agent “Louise” with Ebay in France, we managed to stretch our solution to Ebay and Paypal in the US. Even without a local office, we quickly became the leader in the US in terms of the number of interactions on our platform. Plus, a majority of big-name companies in the SaaS space are leaders in the US. Therefore, we quickly expanded our US network and started doing what was necessary to set-up an office.
In spring 2008, our CEO, Alexandre Lebrun, and I started spending 2 weeks out of every month in the US to meet with clients and investors. Our other founders, Laurent Landowski and Callixte Cauchois, continued to develop the client base back in France. Within 3 months, we had 2 term sheets and finally raised over $11 million with MDV in July 2008, even though we were already profitable at the time. We ultimately moved the HQ following the request of our new investors, quickly recruited our first US employees during summer and finally started our activity on September 1st. Today, we have approximately 75 employees – with about 2/3 in France, including all our R&D – and the remaining 1/3 in the US.
In your opinion, is it absolutely necessary to have a local office in order to succeed in the US or to get funding from American VCs?
Setting-up in the US is a long process. We started testing the US market in the spring of 2007, even before our regular monthly trips. This allowed us to get a better understanding of what our potential clients and partners would expect: if we need to have a local team, a formal office, American clients, etc. Then in 2008, we started making monthly trips to Silicon Valley in order for our clients, investors and prospects to have a regular, local contact with the team. Eventually, they seemed to forget that we weren’t permanently in the US – which definitely made setting-up easier when the time came. This intermediate stage was definitely essential for creating our local network, testing the market and preparing the French structure for the future changes we would make.
A local presence is definitely necessary for clients and investors. VCs need to be able to see the entrepreneurs easily and frequently. Clients also need a local team in order to build trust, especially when buying services in addition to mere licenses.
VirtuOz raised 2 rounds of funding: one with French VC fund, Galileo Partners, and the other with the American fund, MDV. Did you notice any differences between raising funding in the US versus in France?
I have to say that for both Galileo and MDV we were extremely lucky. In both cases, we fell right in front of investors that believed in us and in what we were trying to do, and listened to our vision and our plan of action.
But rather than comparing these 2 rounds of funding – which obviously corresponded to different stages of development for VirtuOz – I would compare the process of fund-raising in France to that of the US (placing the UK somewhere in the middle). In France, the investors seemed a little more precise when it came to the business plan, whereas in the US, the questions were more focused on the size of the market, the technology and the clients above all.
Not only did our potential investors in Silicon Valley ask to call our existing clients, but they also introduced us to potential clients to test the market demand. This is how we met Chegg, for example. The phrase “due diligence” perhaps corresponds nicely to the way the investor tests the team and the potential of the product within his own network. It’s also a way for the VCs to clearly show the power of their networks to the companies that solicit funding.
When you arrived in San Francisco, were you ready to launch right away? Or did you need to make changes to your strategy for the American market?
Within a certain measure, we were ready because we already had US clients when we arrived. It was definitely a good thing but definitely gave us a less realistic vision of the actual market demand. The economic crisis was also very visible at the time that we set-up our team in San Francisco. Therefore, we definitely had changes to make – partially as a result of the US market and partially because of the economic climate at the time.
Generally, French companies with a B2B activity are weaker in product marketing than their American counterparts, relying more on services than the local companies. VirtuOz was like the rest, so we had to change the way we presented and packaged the offer in order to adapt to our clients purchasing habits. And this took some time.
Also, it’s preferable to hire Americans for marketing as well as for sales positions. The culture, working customs and previous experience is definitely a huge advantage and gain in time – even if this also has an impact on the company culture.
We all imagine that everyone in Silicon Valley is a 20-something-year-old entrepreneur in jeans who works non-stop. Do you think the image that we give professional life in Silicon Valley is valid?
In a certain way, yes, especially in B2C activities (web 2.0, mobile, etc) – but in B2B, and especially with larger companies, things are very different; the founders are often older and companies are definitely looking to work with managers with more experience – which comes with selling solutions to more “traditional” companies.
With respect to the word « startup » – which can mark an experience of 1-2 years with a B2C company as with a B2B company – the big difference is that in Silicon Valley, your friends also work for startups. This means that if they work a lot and go out less, you naturally do the same. And this phenomenon perhaps touches developers more than the rest of the population, but is also the reason that some companies manage to gain momentum and produce faster than startups in Paris, for example.
So clearly you saw differences in the B2B space between the US market and the French market?
There are many. The first that comes to mind is the importance of the IT department in decisions in the US. We practically never came across a contact in IT in France without our sales cycle, which we come across regularly and almost systematically in the US. Another difference is that our American clients like to have the control when it comes to the tools, so they are very interested by the features we put in front of them. In France, this is perhaps of less importance to our prospects, who tend to be more concerned by the additional post-sales services that we can provide.
A final major difference is the Webex culture in the US: in short, fewer people actually hold physical meetings – especially in preliminary stages of the sale. But recently, during the final presentation for a proposal request, we were the only sales team to make the effort to meet in person. And I’m definitely sure that had an impact because we ultimately won the deal.
Even though you already touched upon the advantages in hiring Americans, especially for sales positions, is there any type of advantage in being French or a foreigner in the US market?
In general, no. For us, what is particularly interesting is that the US and the French markets are at different levels of maturity – so we can use what we learn in one market for the other. If we look only at the hi-tech market, it’s true that France tends to be more creative in the e-commerce space (with actors like Vente-Privée, Criteo, Cdiscount, Pixmania, PriceMinister, VoyagePrivé, etc.). Silicon Valley isn’t exactly the most developed region in the US when it comes to this domain. Americans are pragmatic; they don’t hire people simply because they come from one country or another – but rather because of what they can offer. As there are more and more French people in the Valley, it’s clear that this facilitates building an initial network – but isn’t sufficient for success.
Do you have any final bits of advice for companies hoping to follow in the steps of VirtuOz?
I’d like to give 3 bits of advice to companies that want to follow our path, which is far from perfect:
– Going to the US and specifically to Silicon Valley can be very structuring for the company. If you make the move to the US at a later stage – at US, we were roughly 40 people at the time we decided to expand – you should make sure that the founders and the long standing managers/executives can be permanently present, at least for the first few years. Hire someone on the ground right away leads to failure in 99% of cases – there is too much difference in perception regarding the market, difficulties and perhaps a lack in network in order to properly advance. But structuring the organization with a solid management team and strong ties between the 2 offices makes all the difference. Otherwise, the situation can be unmanageable, with problems arising on both ends. If you make the move to the US at an earlier stage (at the time of a 3-5 person team, generally developers), you may as well just move the company. You’ll ultimately lose less time in relation to the distance, the time difference – and the cultural difference also becomes stronger as more time elapses.
– When hiring a local management team, it’s easy to attract people with incredible resumes when you have strong momentum and a good VC. Next, it’s necessary to find the right equilibrium and to give them the right tools to structure the company. A standard complex entrepreneurs have in relation to professionals is that they often are too in awe of their previous accomplishments and overlook details. Therefore, you should pay attention and try to find the right balance.
– Finally, if you want to make the move, don’t wait! Talk to people who have already done it – to me or to others – and reaching out to the Chamber of Commerce could also be helpful. Everything will obviously go better if you are well-prepared and it’s definitely worth the trouble!