🕵️‍♂️ A First Take on French Startup Mafias

Overlooked #37

Hi, it’s Alexandre from Idinvest. Overlooked is a weekly newsletter about underrated trends in the European tech industry. Today, I’m sharing with you my first findings on the rise of French startup mafias. It’s an ongoing work. Any help to complete the mapping or to introduce me to the Corleone family is appreciated.

PayPal is famous for being an entrepreneurial success. The company went public in 2002 and was sold to eBay one year later for $1.5bn. But, PayPal is even more famous for its mafia that has brought the Silicon Valley to the next level. Its former employees have built, run and invested into extremely successful businesses like SpaceX, Tesla, Youtube, Pinterest, Lyft, Kiva, Square and Yelp.

I’m confident that similar mafias will rise in Europe. I’m starting to dig into this topic because I think it’s a good way to measure the maturity of an ecosystem. In this paper, I’m looking at French mafias and trying to unpack the following themes:

  • The rise of mafias as a good illustration of the rising maturity of the French startups ecosystem with a mapping of the most mature mafias,

  • Two use cases with Exalead (the grandma of numerous French startup mafias) and Otium Capital (the best place to learn how to build and invest between 2008 and 2014),

  • Ideas on the present and the future of these mafias.

The Rise of Mafias is a Good Illustration of the Rising Maturity of the French Startups Ecosystem

Measuring the growing maturity of the French startups ecosystem is hard. You can look at the evolution of the number of funding rounds and amount raised by startups overtime. But, you are missing the bigger picture of an ecosystem in which capital is mixed with talents and education. Instead, we better dig into our local startup mafias.

Startup ecosystems are growing thanks to positive feedback loops generated by successful exits. You may remember the below graph shared in a previous issue of this newsletter. A successful startup journey means that founders, employees and investors are all rewarded financially. They are also much more educated on how to build and fund venture backed companies. As a result, a positive flywheel starts rotating in which capital, talent and education are reinvested into the ecosystem shortening the time from creation to exit and reducing the risk of potential failures.

Criteo is a good illustration of this flywheel. Criteo is an advertising company that helps merchants to better target and convert their potential customers. The company was founded in 2005 by Jean-Baptiste Rudelle, Romain Niccoli and Franck Le Ouay. It raised $61m with investors like Elaia, Idinvest, Index and Bessemer. Criteo exited in October 2013 through an IPO on the Nasdaq Stock Market.

This success story had a strong impact on the French ecosystem with numerous positive feedback loops including:

  • Criteo's founders starting new companies like Lifen, Less (exited to Blablacar) and Pigment.

  • Criteo's founders investing and supporting the next generation of French startups. For instance, Franck Le Ouay invested into Memo Bank, Inato, Sancare, Riminder and Karos.

  • Idinvest and Elaia raised their following funds based on their exit performance on Criteo.

  • Index doubled down its investing efforts in France and is now investor in companies like Alan, Swile, Spendesk etc.

  • Jean-Baptiste Rudelle created an association for French startups called Le Galion that has standardized certain fundraising deal terms, lobbied in favor of the ecosystem and shared knowledge between founders.

Criteo is not the only mafia in the French ecosystem. Other mafias have risen over the past decade around successful exits like Withings, Exalead, Stupeflix, Teads, PriceMatch etc. I subjectively tried to map some of the most active French mafias from companies that were exited or that have reached a certain critical size ($500m+ valuation).

It's an ongoing work. Don't hesitate to ping me at ade@idinvest if I missed a mafia or a company that should be included in these mafias. I will try to update this graph on a regular basis.

Exalead - The Grandma of All French Mafias

When I started to dig into this topic and asked people around me about French mafias, my oldest acquaintance in the tech world told me that I should look at Exalead and read a paper on this topic written seven years ago on Rude Baguette by Liam Boogar.

Exalead was founded in 2000 and sold to Dassault Systèmes in 2010 for $162m. Exalead was working on semantic search. It had an open web search engine for consumers indexing 8bn pages in 2006 that was used as a vitrine to sell search engines for companies. On the consumer side, Exalead did not manage to out compete Google despite a great underlying technology. The company was sold to Dassault mainly for its B2B products.

Exalead had a world class engineering team with 60 people in its R&D department at the time of exit with people coming from top French engineering schools (Polytechnique, ENS Ulm). These people were attracted because they were offered to work with other brilliant minds on crazy R&D projects. Exalead had also a culture to build everything in-house. It's almost absurd to have an organization like this for a startup but obviously it was a fertile ground to grow entrepreneurial seeds.

Following the Dassault's acquisition, many employees left to build their own startup. For instance, Florian Douetteau (VP of R&D) founded Dataiku. Nicolas Dessaigne (R&D director) and Julien Lemoine (R&D director) founded Algolia. François Lagunas (Scientific Director) and Nicolas Steegman (Product Manager) founded Stupeflix.

Exalead will become the grandma of numerous French mafias. Coming back to my three examples, Algolia and Dataiku are still both VC backed but Stupeflix was already sold to GoPro in 2016. When you look at all the promising companies that were created by former Stupeflix employees (Mojo, Hugging Face, Waldo, Photoroom etc.), just imagine the mafias that will rise around Algolia and Dataiku... It's starting with early employees leaving the companies to start their own startup journey but the movement will be much more massive at exit.

Otium Capital: Learning by Building and Investing

Between 2007 and 2014, Otium Capital operated as a Startup Labs. Pierre-Edouard Stérin and Antoine Freysz launched Otium to build businesses in the leisure, travel and entertainment sectors - which had synergies with his gift experience company Smartbox.

Pierre-Edouard started the Smartbox back in 2003 after numerous entrepreneurial failures. He has turned the company into a global leader in its market with a €500m turnover, 1k employees and a presence in 10 countries as of 2019.

To launch Otium, Pierre-Edouard recruited Antoine to build a team of talented and young people to operate or build from scratch businesses. The most famous success is La Fourchette majority acquired by Otium in 2008 and sold to Trip Advisor 6 years later. During this period, Otium also launched other businesses like Balinea, Weekendesk and Camping & Co.

Following the La Fourchette’s exit, Otium turned into a more traditional early stage venture firm. This structure has been a fertile ground for people wanting to start their own journey either as entrepreneurs or investors. Two of the most exciting French success stories, Doctolib and Manomano, were started by former Otium employees. Same for Kerala and Frst which both brought a fresh air in the French seed landscape.

What are the ingredients to enable the rise of a startup mafia within your company? It seems that it’s less a question of company size and exit amount and more a question of company culture. Successful mafias are growing on the back of companies with a radical culture of entrepreneurship and ownership.

I have an outsider perspective on these mafias. It’s not a given that the mafias mentioned in this paper consider themselves as mafias. Do members really get along? Do they help each other to share best practices to grow their next businesses? Do they have the feeling that they belong to the same network?

What can we Learn from the US Startup Mafias for the Future of our Mafias?

Needless to say that the US ecosystem is much more mature that the French ecosystem. It's therefore a good proxy to understand what could happen when French mafias will become more mature.

  • Venture funds will rush to hire employees from these mafias to have a better access to the companies funded by their peers. In the US, a16z recruited Andrew Chen who was leading growth at Uber. Andrew is hosting monthly dinners with entrepreneurs who were former employees and has already invested in several companies founded by ex-Uber. In Europe, Sequoia did something similar to build their European office when they hired George Robson (Revolut former product lead) as a partner.

  • Startup mafias employees will start venture funds to back their former colleagues when they also leave to build their own company. In the US, former Airbnb's employees left and started Wave Capital to invest in their peers.

  • Employees from startups which exited successfully will start their own funds challenging the existing venture capital landscape. That was the play when Paypal cofounders started Founders Fund in 2005.

  • Companies which feel that they have a culture prone to the rise of a startup mafia will launch a fund to invest in its own employees who are leaving to build a company. In February, Lattice launched the Invest In Your People Fund to invest $100k tickets in their former employees leaving to start a new company.

What are the Potential Next Steps?

As I told you in the introduction, this is only a first look at a topic that needs to be further investigated. I have the following ideas for other papers on this topic:

  • Adding companies and mafias I missed in my mapping,

  • Making a deep dive on Exalead and Otium Capital mafias,

  • Mapping European mafias beyond France (and starting with Sweden by digging into Skype, Spotify and Klarna mafias),

  • Making an update in one year from now and add the mafias from our largest tech startups (Dataiku, Algolia, Voodoo, etc.).

If you are interested to dig into these topics or if you have other ideas on startup mafias, I would love to have a chat. Send me an email at ade@idinvest.com


Thanks to Julia for the feedback! 🦒 Thanks to Nicolas for giving me the historical depth to write on a topic like this one! 🚴‍♂️ Thanks for reading! See you next week for another issue! 👋