Guest post: Postmortem of a Silicon Valley incubator in Paris

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This is a guest post by Alain Raynaud, Director of the Founder Institute Paris, an incubator that bridges Silicon Valley and France. He is also the founder and CEO of FairSoftware, a TechCrunch50 Finalist, and the organizer of the Founder Conference.

Ask any European entrepreneur why they don’t move to Silicon Valley, and you are guaranteed to start an intense discussion.

I have lived in Silicon Valley for 10 years, but in 2010 started the French branch of a famous Silicon Valley incubator called the Founder Institute. As such, I witnessed firsthand the pros and cons of doing a startup in Europe. So I couldn’t resist sharing my impressions when we graduated the first class of the Founder Institute with Nathalie Kosciusko-Morizet, the French Minister for the Digital Economy. While I can’t share what she told me afterward, I can disclose the points I made publicly.

The Freedom To Innovate

At the Founder Institute Paris, we started with a group of 30+ entrepreneurs, all eager to build their startup. Many still had a day job, which is ok as our program takes place in the evening. But very quickly, some had concerns that starting their own company would conflict with their current employer. One entrepreneur showed us his work contract, which essentially stipulated: “you work only for us, full-time, and cannot have any other activity”.

Based on my long legal experience in California, I wasn’t concerned: such a broad clause surely must be void. Surely you must be free to innovate and work on your own personal projects as long as it doesn’t interfere with your day job. Just be sure, we checked with our French lawyers. The contract is valid. I was shocked. In my speech, I believe I used the word “slavery”. If there is one change of the law I would want, it’s the freedom to innovate. Everyone in Silicon Valley is starting a company while at their day job. As long as you follow some basic rules, it’s safe.

Dead-Simple Legal

The second point I brought up is the complexity of incorporating a company. France did a good job of not requiring any upfront capital anymore, so you can form a SAS (the equivalent of an American C corp) with €1. As we expand the Founder Institute in Europe to Belgium and Germany, we are discovering that not all countries have made that switch yet. Belgium for instance still requires significant capital to form a C corp, way beyond reasonable for web entrepreneurs. And C corps are the proper structure to give co-founders and early employees stock-options. Too bad.

Anyway, you can now start a company in France with €1, but you are still required to deposit that sum on a bank account first, then jump through hoops, before the company is created. In the US, you create your company first, and if you felt like it, you may never open any bank account at all. The French system suffers from obsolete regulations. Some aspects were simplified (€1 instead of 250,000 Francs) but old regulations still apply that don’t make any sense with the simplified rules. Similarly, the status of auto-entrepreneur was a major step forward, except it cannot be used as soon as you have a co-founder…

A huge strength of the Delaware C corp, the standard for startups in most US states, is that most decisions can be made by the board of directors, by unanimous consent. What that means is that in the early stages of your startup, you are the only person on the board of directors. By just signing a paper that your lawyer drafts, you can issue stock-options or take most corporate decisions. It’s very efficient because in that early stage, you are the only shareholder anyway.

It doesn’t work that way in Europe. In France, significant decisions require a meeting of the shareholders (that would be you). They must be notified by certified mail at least 30 days in advance. Which means any decision takes a minimum of 30 days. And for issuing stock, there must be a report from a certified accountant, which means a major expense, so the shareholders (again, that would be you) know what is going on. Bottom line, it’s a pain and it costs money that would be better spent hiring developers and UI experts.

Think Big!

Not all is bad in Europe though. Our engineers have nothing to fear: they are even smarter than their American counterparts. That’s the good news. The bad news is that when it comes to marketing and business, Europe is far behind. One of the entrepreneurs of the Founder Institute Paris, who shall forever remain nameless, initially pitched the following business plan. For the first three years of his expansion, he would target France only. If everything went well, then by the fourth year, he would expand his business to Belgium. Need I say more? A mantra that we repeat the first month of the program is “Think Big!”. It takes a while to sink in, but it eventually does.

By the way, every time an entrepreneur tells me that their initial target is France only, I try to politely respond: “fine, as long as you made that choice because you studied the alternatives and came to the conclusion that it’s the best place to launch that sort of business”. I can’t tell them right away that they should launch in the US (a market with more consumers), it’s too much of a leap. And for some businesses such as tourism, France is actually a great initial market. For many, it’s the wrong choice.

In her speech, Nathalie Kosciusko-Morizet was conciliatory. While she would rather have French entrepreneurs not move to Silicon Valley, she knows that many who move will eventually come back and contribute to the local entrepreneur scene.

In the end, we all agree: we want to build bridges between Silicon Valley and Europe.

  • JDS

    Interesting article, but you’re falling into the trap of implying that ‘Europe’ is a single legal system. It’s not – there is some harmonization between member states of the EU, but legal systems and incorporation requirements vary from country to country. The UK, for example, is a lot more flexible than France and Belgium for company incorporation – it is much more like the Delaware process you describe. Which is not surprising, because US law has the same foundations as that in the UK, while the continent has a different legal tradition altogether.


    Agreed on most points. However in France: for a SA (societe anonyme) you must sent a *regular* mail with 15 days notice. In a SAS (SA simplifiée), you decide in the bylaws all the rules.
    But indeed, granting stock options or other privileges you need a certified accountant whose report must be submitted before the 15 days, hence indeed expanding the delay.

    Nevertheless, it’s pretty easy to run a company in this country, regarding the legal obligations. There is a cost of course (lawyers, accountants, auditors), but the real difficulties are no there.
    I’d point out again and again :

    * employment regulations : you don’t have the flexibility to let go people; tons of anachronic benefits; employee “startup mentality”

    * CEO / founder benefits : basically none : no unemployment, basic medical coverage, full legal and penal responsibilities, no holidays whatsoever (employees get 5+ weeks / year)

    * large corporation buying policies : they basically don’t buy from startups (requiring 3 years of published accounts !), required ever-lasting tender, squeeze them from the get go in the buying department, and not paying invoices even after the compulsory 2 months (because you need to include a delivery slip that you never get on time…)

    On the other hand, you could stress that tax regulation is VERY favourable :

    * if you hold a stratup company through a shell company, capital gain taxes are < 2% after 2 years
    * you get research credits (money!), and social benefits reimbursement if you qualify as "innovative"
    * deferred tax mechanisms make you pay no tax for at least 5 years usually …

    All in all, the worst part of France is probably not being able to work at the speed of Silicon Valley because you're too far from the ecosystem. Meetings and opportunities just don't happen the same way.

    • Arno

      Very true !

      My opinion : from the legal point of view, founding a company is easier in France than in the US. And it takes less time ans it is less expensive. Sorry too long to explain.

      And I definitly agree with your analysis of the French advantages/drawbacks ;-)

  • Gab

    They can always incorporate in Delaware or London, no?

  • walter de brouwer

    It is not because your domicile is in Belgium or in France that you have to set up your company in the village where you live. You can set up a C corporation in Nevada, or an S in New York or a limited in london in less than 24 hours on the net. It does not matter anymore. Where we live, where we reside, where we bank, where we incorporate are all different things, sometimes even better to keep them apart.

    • Alain Raynaud

      Walter, you are technically correct, but what happens when you start having a bunch of full-time employees? Most of the time, you will need a local corporation to handle that, unless you push the model to its extreme and do full outsourcing (through service companies like TriNet in the US, or SSII in France).

  • Pierre Beyssac

    Good article, Alain. I can still remember the slavery part but I’m not sure exactly when you said that ;-)

    I think you somewhat overestimate the chores of bureaucracy. We Europeans (esp. French people) are used to it, and I see US entrepreneurs complain in mostly the same terms about paperwork in the US system (regarding taxes and contracts), so perhaps it’s a psychological obstacle?

    About the “think big”, you’re right-on and I think you’re doing a good job changing that mentality here. We are not used to that in Europe. Perhaps it’s due to the more fragmented market and/or more limited funding (both being probably correlated anyway).

    Regarding starting a company while at your day job: some employers let you do that; a middle ground also exists where you need to ask for your employer’s permission. Note that there are very interesting laws for state employees that the government voted to try and reduce the head count and increase job mobility in the public sector. Employees can request to continue their current job part time so they can start their company on the side, and it *can’t* be denied to them except on very exceptional circumstances. Or, they can ask for a sabbatical lasting up to 6 years to start their company so in case they fail, they can get back in a position equivalent to their former job. It’s mostly theoretical (people rarely come back) but it really helps in a risk-adverse culture like ours to know you have a safety net.

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