Scality CEO says French startup scene is booming

Startup bosses should move to US when they have viable product

Interview A Register story on DDN opening a Paris, France, research centre mentioned difficulties startups face in Europe, and France specifically.

Scality CEO Jerome Lecat thinks these difficulties were overstated and we interviewed him to find out more.

El Reg: Why do so many French IT entrepreneurs move to the USA?

Jerome Lecat: If you want to be a global leader in ICT [information and communications technologies] you have to be in Silicon Valley, it is almost as simple as that. It's not a French phenomena, it's a Silicon Valley / US / Immigrant phenomena.

Take this article, for example.

The very serious Silicon Valley Index reports that 36 per cent of the Silicon Valley population was born abroad, and that half the families speak a second language at home.

I do recommend to every ICT entrepreneur in France to move to the US as soon as they have a viable product. I actually recommend either Silicon Valley or New York; there is now a very vibrant tech ecosystem in New York. Why?

  • Because the best startups are in the US. And when you want to become a worldwide leader you have to expose yourself very early to the very best.
  • Because the US is the largest market worldwide for ICT, and to become a large company you need to address a large market.
  • Because, especially in startup ecosystems like Silicon Valley and New York, ideas are in the air, and you have a better chance of having the latest ideas early.
  • Because at some point you will want to do some form of partnership with an ICT leader (eg, Google, Facebook, HP, Cisco, Intel) and they are in Silicon Valley.
  • Finally, because the investors are very knowledgeable, and if you can secure funding from a US investor you are gaining access to experience and networks that French investors cannot offer (yet).

It has nothing to do with moving away from France per se.

Now, I must admit that I do know some entrepreneurs who moved away from France for tax reasons, but they rarely go to the US. As a matter of fact the taxes in California are in most cases higher than in France for an entrepreneur.

Firing employees

El Reg: In the light of President Hollande's initiative to reform France's  restrictive employment laws, how can you say "We have no problem recruiting, letting go ... in France?"

Jerome Lecat: I have been managing tech companies for the past 20 years, ranging from five to several hundred employees, with staff in France, in UK, in Germany, in Belgium, in Netherlands, in Japan ... and in the US. I have recruited hundreds of people, and let go of dozens. After the Internet bubble, I had to close down several companies. In 2008, we had to let go of half the staff in Bizanga. I can absolutely say that I have not had problems letting go in France.

In my experience, each country that has a minimum level of social protection makes it somewhat difficult for employers to let go of staff quickly with no reason. The idea that employment is "at will" in California is a myth. Almost 40 per cent of US employees are a "protected class" for one reason or another, and if you let go of a "protected class" employee you should be really careful. It is common practice in the US to always seek advice from a lawyer when letting go an employee, or downsizing an activity.

In my experience, it is especially difficult and costly to let go of employees in Belgium and in Germany.

Altogether, my conclusion is that it is a matter of culture. When you understand the culture in which you operate, the law does not feel too burdensome, but when you don't, you make mistakes, and you can easily get sued. I got sued by a black employee in the US for racism. I can assure you there was nothing racist in my decision to let this employee go.

Also, whatever the country, if there are strong unions, things get complicated. This is true in France. It is also true in US, in Germany, in UK...

Now, regarding France specifically, employment law is archaic and cumbersome. It should be rewritten and made much lighter. But France still carries an image which is 30 years old. Four laws have changed the situation drastically over the past 20 years:

  1. In 2008, a law (Rupture Conventionnelle) was passed that allows employer and employee to negotiate a separation. Prior to 2008, this was impossible, you could only separate if there was a fault.
  2. In 2013, a law (Plan de Sauvegarde de l'Emploi) was passed that allows an enterprise to downsize drastically, and to be guaranteed that negotiations will be completed in a finite amount of time: typically, less than 3 months to let go of up to 99 employees. This is much better than the prior situation where unions could make the negotiations last forever, and prevent the business from doing a downsizing quickly.
  3. In 2015, a law (Resbamen) was passed to simplify the committees that represent employees in companies of up to 300 employees, taking the number of committees from 3 down to 1.
  4. Then, soon, the law proposed by President Hollande will be passed, forced by the government, with 2 key elements:
    • Negotiations within the company will now supersede any decision from the unions – which significantly decreases the power of the union (and this is why there was so much fighting around this law).
    • There is a ceiling to the maximum indemnity an employee can get after a lawsuit for being fired. I can tell you that California wishes they had such limitations!

Now, beyond the law we do have some difficulties in France:

  • Because there is a high level of unemployment, employees are much more risk-averse than in the US, and there is less job mobility, which makes recruiting senior engineers more difficult.
  • For exempt employees, the law is to have a 3-month notice period. This is too long in the startup world!

Under-funding startups

El Reg: How does the French capital-raising environment compare and contrast to that in Silicon Valley?

Jerome Lecat: There is money in France. In proportion to the number of startups that need capital, there is as much money in France as in Silicon Valley. Money is not the problem.

Yet, there are two problems:

  1. French VCs tend to under-finance startups. When you grow a company really fast, you are bound to do mistakes. It is almost part of the job. If you don't do mistakes you are not taking enough risks, and someone else will pass you. To be able to take such risk you need to be slightly over financed. Also, you need a comparable amount of financing to your best competitors ... And in ICT, they are in the US...
  2. French VCs do not bring as much experience as US, and especially Silicon Valley VCs.

The good news is that there have been quite a few successful French exits in the past 10 years, and entrepreneurs are becoming active business angels who bridge the experience gap.

El Reg: How does the French company formation and closure environment compare and contrast to that in the USA?

Jerome Lecat: For formation, the steps are different, but the result is very similar for the entrepreneur: you take a lawyer and for less than $5,000 you have a functional company in 3 days. That's true in the US, and that's true in France. Honestly it's been a while since I have done the steps myself, so I cannot give you much more detail, but again, it is really simple in both cases.

In any case, what a company in formation is thinking about is building a minimal viable product, letting the word out, finding initial customers, finding funding... And that's all much more difficult than company formation.

It's been too long since I have closed a company to comment on closure, but as far as I know here again it is quite similar: you have é regimes, either you believe there is hope and you ask protection from the tribunal (Chapter 11 in the US, Redressement Judiciaire in France), or there is no hope, and you go bankrupt.

It used to be that going bankrupt in France would prevent you from re-opening a business, but this law was changed in 2015, and the interdiction against re-starting a company only applies if you deliberately did not go bankrupt ... 45 days after stopping to pay your invoices.

Scality move to the USA

El Reg: Why did Scality move its headquarters to Silicon Valley from France?

Jerome Lecat: For the reason described above, and in addition specific to Scality, we sell infrastructure software: 50 per cent of the world's data centre decisions are taken in the US. The company was born in France, which is 3 per cent of the worldwide market; it's just too small!

El Reg: What other ideas do you have concerning French startup businesses?

Jerome Lecat: The French startup ecosystem is booming. Its exponential growth started about 5 years ago, and now attracts more and more of the young talent. See this.

France was not historically seen as a startup country, and it wasn't. But things have changed. It is now the second largest startup ecosystem in Europe (after UK, but ahead of Germany), and may be about to become the first.

There are some amazing initiatives like Ecole 42, which just launched in Silicon Valley as well.

It is becoming recognised in Silicon Valley. As an example, John Chambers has on numerous occasions mentioned that he saw huge potential in the French startup ecosystem; for example, in a Fortune article.

I expect that we will see the spirit of startup go beyond tech, and enter other industries where France has real knowledge, like food and fashion.

El Reg: What is the FrenchTech initiative?

Jerome Lecat: The initiative was announced in February 2014. It's only 2 years old, and already very successful.

I realise this is all a bit lengthy ... but I am passionate on the topic! Note this article I wrote a couple years ago. Many of the initiatives I was calling for at the time have been started. ®

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