EXCLUSIVE Q&A: ISAI CEO Tells Us How Screwed European VCs Are And Why He’s Not “Smoking Pot”


ISAI is a micro-VC fund of around $50 million seeded by some 70 successful French web entrepreneurs with a specific investing thesis and a unique outlook on the VC and startup market in Europe.

The fund is celebrating its 1 year anniversary this week so we thought we’d catch up with ISAI’s CEO, Jean-David Chamboredon, who spent 10 years, two bubbles and two continents as a VC before starting ISAI, to talk about the company and the VC market.

In the Q&A given while smoking at his office window, Chamboredon gives his blunt, straight-talk assessment of the VC landscape and tells us how many VCs are going to die. In short? Many.

Here’s some highlights:

  • ISAI has a specific investment thesis where they invest around 1 million in companies with “progressive ambition”.
  • The difference between a superangel and a micro-VC is that a micro-VC follows on and takes board seats.
  • Most European VCs are screwed. Except for the top few funds, most of them are trying to raise money and can’t make it.
  • But there is a way entrepreneurs and VCs can make money in Europe, by “not smoking pot.”

Here’s the interview, edited for clarity:

Business Insider: So, what’s specific about ISAI?

Jean-David Chamboredon: A few things.

First of all we’re a fund by and of entrepreneurs. Most of our committed capital comes from around 70 successful entrepreneurs we’ve worked in in the past. And they’re active. Some of them take board seats for example.

We also invest at a specific stage: after business angels, but often before most VCs will invest, typically rounds around 1 million euros.

Second of all, we’re looking for a specific type of company. We want companies with what we call progressive ambition, meaning a company that can modulate its growth. We’re not looking for companies with a binary outcome, that will either be totally huge or fail. This is why we invest in around one company per quarter, which is a slow pace.

We’re a small fund and we’re looking for specific types of companies.

We have to be really disciplined and invest in few companies because otherwise we can’t follow on. Super angels put a little bit of money in plenty of companies. We can’t afford to play the odds like that. So we invest in few companies with a clear, predictible business model and that are capital efficient.

And finally, our market is French entrepreneurs. We invest anywhere in the world, but in French teams.

BI: So would you say you’re a superangel? A VC? Or what?

JDC: We call ourselves a micro-VC. The difference between a super angel and a micro-VC, to me, is that a micro-VC will follow on his investments and invest his pro-rata in every round, and take a board seat.

BI: You’ve been a VC for a very long time, in France, the US and London. What do you think of the state of VC, in general, in Europe and in France? What’s going on? Is everyone dying?

JDC: First, let’s look at how VC works in the US.

In the US, VC is extremely profitable for a small number of winners. In the industry, 80% of the profits are achieved on just 2% of the deals. So you have around 20 VCs on Sand Hill Road doing very well, and thousands of guys just jerking around. These guys are going away. And the ratio of failed VC funds is going to be worse in the US than in Europe.

But there will always be VC, because you still have the potential of huge exits. If Facebook goes public, that’s what, a twelve figure IPO? If you have that possibility, you’ll always have LPs and VCs dreaming they can get in on that that. And if you only get a 10 billion IPO, that’s not bad. (Laughter)

BI: So, how is it in Europe?

JDC: In Europe it’s different. Even the biggest deals, like Skype, Vente Privée or MySQL, are in the billions, not tens of billions of dollars. So you have plenty of guys who are telling themselves: “I’m going to pretend I’m Sequoia or Kleiner and I’m on Sand Hill Road.” In the US the chances of a huge hit are very small, but in Europe they’re zero.

In Europe, even if you had the potential for a hundred billion dollar exit, it wouldn’t be possible. You don’t have the market. You don’t have the public market analysts. So even if it was possible to have a company like that, you couldn’t exit.

I don’t want to smoke pot like these guys.

But where Europe is good, is that if you take out the top 2%, European VCs actually have better returns than US VCs. Why? Because we build similar companies but for less money.

The returns on trade sales in Europe in terms of multiples are higher than in the US. In the US, if you sell your startup to Microsoft, that’s a failure; to us it’s glory.

BI: So what do you do?

JDC: We do what we do well. We handle the complexity of the European market, because it’s a very complex market, and sell them to the US. I’ve sold companies to Microsoft, Rakuten, SAP, you name it. Never sold to a French company, which must mean I’m good because they only buy s–t. (Laughter)

BI: So is Europe just screwed? Are we only ever going to build medium size companies?

JDC: You could be fatalist and tell yourself that it won’t ever happen. Or you could say we’re in a very long cycle.

So for example, right now one company which is looking like one of the most successful French VC-backed startups is Criteo. I passed on them, because I thought their business wouldn’t work. Turned out I was right but they found one which was even better. (Chuckle)

Well Criteo was started by a serial entrepreneur who’d already had a small exit, was able to raise a bunch of money so that when his first idea didn’t work he found one that did. Criteo wouldn’t exist without that earlier generation of entrepreneurs.

So maybe by 2020 we’ll have our huge, 10-billion-and-above companies.

BI: Given all that, how is VC doing in Europe?

JDC: As I said I think the long-term outlook is good but the short-term is bad. VC spending was high in 2010, but the reason is that you had plenty of funds that raised in ’06 and ’07 and aren’t going to be allowed to invest in ’10/’11, and because they didn’t do any investing in ’09 because of the recession they had to shoot their wad in 2010. Already Q1 numbers are down. So 2012 is going to be brutal.

In France and in the UK, all except the top few funds are on the road and not raising money.

BI: What about Germany?

JDC: After the dotcom crash, the government killed the VC industry, so there’s no VC in Germany. You have Wellington Partners and some government money and business angels and that’s it.

BI: Pivoting to another subject, I wonder if ISAI doesn’t reduce on net the seed money available to startups in France. Some entrepreneurs who have been investing in ISAI have said it’s because that way they don’t have to do angel investing.

JDC: It’s a good question but I don’t think so. The entrepreneurs who put in a lot of money, around 1 million, are people who don’t do business angel investing. They’ve told me that they tried, and it’s too much paperwork and they lost money. They want some of their money to go back into the ecosystem but they want to go back to their country house or their boat, so that’s the way they’re doing it. So that’s money gained, not lost. As for those who invested amounts closer to 100,000, they do keep angel investing. So I don’t think we reduce angel investing on net.