The Father of Modern Venture Capital was F-R-E-N-C-H

Usually when I tell people I’m doing a Masters degree in International Political Economy, they look at me funny and follow-up with a “Huh, I guess that doesn’t really have much to do with tech.” And for a long time, I felt this way too. The IMF, the World Bank, the WTO, sovereign debt, currency crises, oil shocks, etc. didn’t really seem to overlap much with startups and innovation. But then again, startups and innovation are at the heart of economic development and growth. Therefore it’s almost impossible not to draw connections between the two fields. And many of the reasons that we commonly use to explain the differences in startup success across the globe all rest on classic economic, political and social reasoning. So for this post, I’m kind of thrilled to be able to blog about a subject that has to do directly with my Masters dissertation (which is on institutional differences effecting venture capital success in the US and Europe).

Dollar dollar bill, yo.

(Hilarious VC pitch of the iPad)

For anyone who knows me and knows what I like to write about, they’ve probably noticed by now that I’m rather interested in startup funding. After all, access to capital is definitely one of the core elements in just about many model of economic growth, from Adam Smith to Joseph Schumpeter. And while I write a lot about more classical investment rounds on TechCrunch, I have also written on investment-oriented Government initiatives and more innovative funding models that I noticed startups using in France last year. Obviously, the rounds of funding we see in Europe are rarely comparable to rounds raised by US companies; the article I wrote on Wikio’s potential 8-figure investment round was dwarfed by Groupon’s “like, a billion dollars.” Even though many people like to point their finger at European investors and say that they are simply risk averse, there are numerous much more complicated reasons for these differences – which I will avoid going into here for now. I’ve also been critical of local innovation – especially a recent trend in what I felt was unnecessary online dating services in France – but investment differences cannot be strictly attributed to this either.

Georges is my homeboy.

Yet, while venture capital may have developed later in Europe than across the Atlantic, many people may not be aware that one of the “founding fathers” of modern venture capital was indeed French. Georges Doriot, the founder of American Research and Development Corporation (what is considered to be the first publicly owned VC firm), is a name that strangely enough escapes many people in the industry. He also kind of helped create French business school INSEAD but that’s besides the point. Les Echos pointed out in an article published in 2007 that the man who made the Wall Street Journal’s list of Entrepreneurs of the 20th Century next to Jeff Bezos, Henry Ford and Bill Gates was hardly known in his home country. And while he appears in a lot of academic literature that has to do with the development of venture capital, very few books have actually been written about him. I found no books on him at the FNAC and only several on Amazon. For anyone who is interested in reading more about him, I highly recommend this book (free access via Google Scholar).

A French out of water.

What’s funny is that Georges Doriot does seem to have gotten quite a bit of recognition in the US – not just in the Wall Street Journal but his name is mentioned in many publications dealing with investment and innovation. And perhaps rightfully so as he founded ARD in the US and not in his home country (errr, he was also a naturalized US citizen who faught for the US in World War II and went on to teach at Harvard). Whether or not he would have been able to build the venture capital industry in post-War Europe is an entirely different question that may once again underline the differences in entrepreneurial environment and government initiatives between the 2 continents. But, US venture capital industry, on behalf of the République française I’d just like to say “you’re welcome.” (I’m probably going to get the “special treatment” from passport control next time I fly to the US if I keep this up). And regardless of what continent he was on, his name definitely deserves to be added to my list of French entrepreneur names to know.

16 thoughts on “The Father of Modern Venture Capital was F-R-E-N-C-H

  1. Thanks Roxanne for a very interesting post! Having lived in Silicon Valley for over 30 years – and worked in it for a good part of it – I was totally ignorant of this history, and oblivious to it I might add. And yet, without history we often miss out on important insights. We are all so caught in the here and now that we often don’t even make time to study history, and yet it fundamentally affects so much of what we do. A whole new perspective regarding the French, venture capital and innovation!

  2. Thank you Roxanne for this great insights.

    Also, I was curious to find out why he moved to the US in the first place: “La guerre terminée, Georges Doriot entreprend des études d’ingénieur. A vingt ans, il se passionne pour les questions d’organisation industrielle […] Il sait également qu’en la matière, toutes les idées nouvelles viennent d’outre-Atlantique. Décision est donc prise d’envoyer Georges Doriot au Massachusetts Institute of Technology (MIT).” – from the source that you mentioned:

    I went through the same obstacles when I pitched Ketady in France in 2003: “an open network where people can ask questions and get answers from experts”. At that time in France, nobody believed that people would answer questions for free (Yahoo Answers launched only in Dec. 2005). I filed the first Social Search patent in 2004 and then moved to Silicon Valley in 2006 after trying my best to get it off the ground from my motherland.

  3. @Fabien, @Roxanne

    I would be tempted to think that it all boils down to optimism. Because the French are rather pessimistic about the future in general, but don’t lack smarts, they have great ideas but hesitate to push the boundaries—as doing that is setting yourself up for spectacular failure (or success, but a French is pessimistic, get it?).

    A number of french innovations only took flight when supported by the american spirit and economy—which is overtly failure-tolerant and optimistic. Arpanet (granted, a european idea), nuclear fission, DivX, the smartcard…

  4. Agreed Martin.

    And as long as there will be an alternative path of counting on Government charity, why would anyone take such initiative that would put them at stake and out of so much protection?

    Unfortunately, the French current welfare state reinforces the negative spiral by offering even more help and assistance to young entrepreneurs. This is SO WRONG.

    As I already told Mme Kosciusko-Morizet when she was visiting the French Consulate here in San Francisco, my first recommendation to give a chance to France and French entrepreneurs would be:


    Here in San Francisco I discovered a paradise for entrepreneurs, where you never hear from the government. The first year, I didn’t receive any mail. Frankly I was wondering if my company was well registered… Then after one year I think I paid $25 online, which took me 30 seconds. Of course, after hiring an employee and making money, you realize that taxes are actually pretty high in California. But it doesn’t matter at that time, because it works.

    Anyone taking action to do something about it? Let me know so I can join 🙂


  5. Very interesting insights/feedback.

    While I think the optimism/pessimism plays a role I don’t think you can really attribute *too* much to that. Entrepreneurs are by nature and definition optimistic people – perhaps those that stay in France despite all the complications are even more optimistic than elsewhere ?

    But I don’t know that I agree entirely with Fabien’s argument for the State to “stay out”. The reason that the VC industry was able to take off in the US was in part because of government support for the industry – not financial support but rather they created an environment that allowed for the development of SBICs via the Small Business Administration. This is therefore a government-backed industry, as is the tech industry in many ways.

    But I think sometimes the French government is somewhat out of sync with what entrepreneurs actually need from the State.

    After the eG8 many local entrepreneurs are attempting to voice their concerns and ideas, here’s an example of what the CEO of Smartdate wrote to Sarkozy

    Gilles Babinet has also done a brilliant job of initiating a dialogue with the Administration. But we’ll see if anything gets done…

  6. Interesting article, and I like the discussion that’s developed in the comments.

    I wonder as always to what extent french’s socialist system has an effect on start-ups, but more importantly more developed companies— the “functionaire” syndrome and the heavy taxes. Winner does not take all like in the states, so there’s less “hunger” which I see as one of the great driving forces in any economy.

    I was impressed by Fabrice Le Parc on stage at TCFR and his letter to Sarkozy is quite solid. I hate to be the first one to throw the stone, but I was less impressed with Gilles Babinet on stage, especially with the figures he cited for American taxes, and the expense of having a CTO in the states vs France. That being said, his letter to the Echos last month was strong, and if he’s impressed you Roxanne, there must be more to be said.

    L’histoire continue, and I have a feeling the french govt will make some smart moves here in the near future…. though banning “facebook” and “twitter” on the airwaves recently doesn’t seem to be the right direction, does it ?

  7. 1/ @Roxana: when you will have finished your Masters dissertation, we will can read it ???

    2/ Thx for lighting on Georges Doriot, an interest guy to discover 😀

    3/ To see the real difference, read “Democracy in America” (1835) by Alexis de Tocqueville. A french view of the young US (born 50 year before) and compare it to the french monarchy (I agree we live in democracy now, but the minds don’t really change) … the american think like that:
    i’m the only master of everything than concern me, for the things than concern more people or i can’t managed, I delegate the power (to decide or/and to act) to the town/state/federal state. In France, the chief of the state (king or président) give the power to do (not to decide or a few), given to a ministery/town/functionary, you can’t do something without the agreement of a functionary.

    If you push the reflexion, you understand everything: why we don’t have a lot of startup in France, why the fail isn’t accepted (the king give you the power, you fail = he kill you), why a politic can finish in courts in US and not in France (look DSK’s case and Tron’s case), why VC don’t exist in France (but a lot of people have a lot of money), etc etc …

    In France we’re waiting after the state, we aren’t socialist, we aren’t against tech, we aren’t pessimism (sarcastic yes, more than everyone), we aren’t overtaxed, etc … but we are waiting and what is the baddest for a startup ?? The waiting !!!!

    I’m optimism because the state can’t help now and for a long moment, why ?? No money, honey !!

  8. Interesting post in an interesting blog !
    Glad you laid the emphasis on G. Doriot, its a great pioneer…

    But I disagree with previous comments:
    1/ France has a great entrepreneurial spirit, as many studies pointed out – and you should come to Switzerland to see how hard it is to make people move !

    2/ We have great VCs like Sofinnova or 3i but you’re also right about deal size.

    3/ The main funding difference to my mind is : you need clients and turnover before gettting any money in France Vs you need a solid BP & team in the US. Therefore startup creation ends in tears and public concours…

    4/ The mains issue is the lack of technological transfer from subsidied instituions (CERN, CEA…) to major and ambitious spin-off with business teams inside. On the one hand you get business people with networks and no IT competencies, on the other hand you get IT guys lost in the nature… Caricatural but right and many examples are on the web. US integrated campus are one of the solution we try to use : GIANT project in Grenoble

    5/ @Roxana : Great thesis which could end on some political hands to be transformed into reality ! I’ll be glad to discuss it with you, my thesis being about the VC valuation issues for new social media startups and as a result new business models required.

    6/@ Sylvain : You’re right Optimism but sarcastic is totally french !

    “Always consider investing in a grade A man with a grade B idea. Never invest in a grade B man with a grade A idea”
    G. Doriot

  9. Héhé…
    @ Martin : you’re right, luck is to be provoked…. but not waited !
    @ Martin Bis : The google query emphasizes on Roxana’s work : avoid clichés by being in a country and live the startup life locally. Moreover Nigeria was the most optimistic country in the study : and the nigerian leader, called Goodluck Jonathan ;), has a lot to do in the delta…

    French people fear the failure, but are more and more eager to start a company:
    “Selon un sondage Ifop sur la création d’entreprise réalisé pour CCI-Entreprendre en France, un sur quatre est prêt à créer son entreprise ou à en reprendre une.”

  10. @Martin: a lot of French are pessimism by stupidity.
    For an example: my mom is seller and we speak about people and their reactions, many times she see functionaries (like teachers) who are afraid to be fired because the news speak about mass-fired … they can’t be fired, they are functionaries, but they are afraid. Claire Chazal speak about mass-fired thus they are afraid to be fired.
    The best: if they saw someone explain he’s afraid to be fired, they’re afraid to be fired !!!

    It’s a problem for the economy, i agree, but when the sun is back, the news show sun and beach, they stop to be afraid, Claire Chazal speak about vacancy, not mass-fired. The sun is back, they will buy again (before the vacancy) !!

    Don’t think it’s a joke, it’s real !!! The people are influenced by the TV and the TV show economics problems, ecology cataclysm, mass-fired, unemployement, insecurity, etc … thus they’re afraid.
    Another example: ask for people who stop to eat vegetable !!

    To finish: they do babies, the true pessimists are really sad and they don’t want babies. If you do babies, you believe in a better (or same) futur (for them).

    Ps: sorry Roxanna, i’m away from your post 😦

    • a lot of French are pessimism by stupidity

      And I thought I was the most French-bashing Frenchman out there…

      I wholeheartedly disagree by the way, I think we’re much too smart for our own good.

      • lol i look like to the bad guy, ok why not, it’s not totally wrong.

        But i would clarify something, i don’t bash the French, only the pessimists who live in a country like France.
        When you are healthy, living in France (or similar), you can’t complain.

        When i see Somali (some europeens compagnies discharge theirs chemicals wastes in front the coasts), Liberia (bloods diamonds), Chad (life expectancy: 48 years), … and a guy who live in Paris is complaining because the oil rises, honnestly i bash. If you stay calm, please explain to me how you do.

  11. This morning on BFM Business:
    “the artwork don’t be taken into account for ISF (taxes on the wealth). It’s more interesting to buy artwork than invest in a startup :(”

    Therefore you invest millions in a startup, you take risk, you help the economy => you are taxed.
    You buy a Rembrandt and will sell it in two year with a bonus, no risk, no support to the economy => you aren’t taxed (or a few).

    The politics don’t see the problem.

    Ps: the law TEPA detaxe the invest in startup … not more than 45000€ with 50% of reduction … no comment

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