Guest post: Postmortem of a Silicon Valley incubator in Paris

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.