Friday, October 09, 2015

Boosting the French Tech Ecosystem

The French ecosystem has been booming for the past five years has proven its ability to generate Unicorns like Criteo, Showroomprive or Blablacar and the next wave is coming with a strong number of fast growing and disruptive start-ups including Peopledoc, Withings, Algolia, Doctolib, Food Assembly or Sigfox.

Accel has been at the forefront of this new wave and we have been actively investing in France. In the past few years, we have deployed more than $130m in companies including Showroomprive, Blablacar, Peopledoc and Algolia and we don't intend to slow down.

The current administration - and in particular the ministers Axelle Lemaire and Emmanuel Macron  - have been working hard to help the development of the ecosystem and seek feedback from venture investors.
Emmanuel Macron during the workshop in Versailles

In this context I was invited, together with a large dozen of foreign investors, to participate in a workshop to discuss what France could to do to attract more venture capital from global firms. The workshop was held in the palace of Versailles followed by a dinner at the Elysees to share the salient points of our discussion with Francois Hollande.  

To prepare the discussion, I worked with my colleague Pia d'Iribarne on a short memo summarizing a few elements that could be addresses in the labor law to reduce complexity and increase the agility of start-ups. These suggestions are coming for a large part from the founders and CEOs of several French start-ups we have reached out to and are articulated around four themes:

  1. Limiting the burden of social charges
  2. Enabling start-ups to attract foreign talents
  3. Reducing the burden of regulatory compliance
  4. Send a strong PR message to the Tech and investor community

The core idea would be to create a simple framework for start-ups - defined as companies of less than 10 years old and or loss making - for which different rules would apply. The feedback was well received, so I hope that some of these ideas will make their way in the new laws around labor.

1. Limit the burden of social charges for start-ups

Start-up founders have the option to select any country to start their new company and today, the burden of social charges does not make France standout in a positive light in the global tech ecosystem. Making changes in this area would be a key element in making France more competitive and attractive for foreign investors and founders. We understand that the new law will address all companies and not only start-ups, and have tried to make suggestions more broadly applicable but with a strong impact on start-ups. The CIR and JEI are going into this direction but the following suggestions would help further:

a. Implement a gradual scale for social charges applicable to new companies, which would catch up with the current level after a period of 7 to 10 years. This would help companies get off the ground and create jobs faster while catching-up with the current regulation after a few years
b. Cap social charges for loss making companies in their first 10 years: in a period of stress, companies would be better off keeping more of their workforce but paying less charges than having to layoff massively. Many start-ups are going through ups and downs and this change would both incentivize them to hire more when things are going well and lay off less people in the downturns

Examples from other countries:

  • Russia reduced IT companies’ social contributions from 30% to 14% until the end of year 2017

2. Enable start-ups to attract foreign talent
Access to talent is key to improve the success of tech start-ups. While France is very strong on the engineering side, attracting foreign sales, marketing and product talents is often necessary. A few measures that could help:
Unique perspective on the Galerie des Glaces
without any tourist around!
a. Cap the income tax at 25% for foreigners during their first few years in France (5-6 years – typical duration of a position in a start-up). This measure could be limited to company less than 10 year old and could also be extended to French people who have not worked/resided in France for the past 5 years and want to come back (link to the initiative “Reviens Leon”)

Examples from other countries:

  • Spain’s “Beckham Law”: under the terms of Royal Decree 687/2005, (10th June), enacted to amend the Income Tax Regulations under Royal Decree 1775/2004, (30th July) which govern the special fiscal regime applicable to Non-Resident Income Tax, any foreign nationals coming to work in Spain may apply to be taxed as non-residents. At the time of enactment, the tax rate was set at around 24%, instead of the average income tax rate which was around 43%.
  • The Netherlands has a special tax regime for expatriates - known as the 30% regulation – which entitles them to a tax-free cost reimbursement of 30% of the salary (with some technical adjustments). The employee is then, in essence, no longer entitled to separate general tax free reimbursement of expenses, in relation to the assignment to the Netherlands.

b. Lower social charges for foreigners joining a company less than 10 years old. Given the differences in salaries between France and the US or the UK in particular, having lower social charges would help fill the salary gap as well. This measure could also be extended to French nationals who are coming back after 5 years to France and could be limited in time (5-6 years)

c. Create a visa with express application for foreigners working for companies less than 10 years old. Time is critical for start-ups and having express visa would reduce the hiring friction

Examples from other countries:

  • In the Netherlands, immigration law changed on 1 January 2015, offering a new visa for start-up founders from non-EU countries. The scheme’s associated residence permit entitles the applicant to be a resident of the Netherlands for one year. A prerequisite, however, is that the start-up must be guided by an experienced mentor who is based in the Netherlands. This means that within that year, the start-up entrepreneur can develop a sustainable a business based on an innovative product or service under the guidance of the experienced mentor.

3. Reduce burden of regulatory compliance for young companies under 10 years old

Applying the same regulation to fast moving start-ups as to other companies increases the complexity of running the business, and the cost of compliance in time and legal fees is high. Here are a few suggestions that would help reduce this burden:

a) Comite d’Entreprise and Employee representations: while these representations are very important for larger companies, they are not designed for start-ups and are a real burden for founders. Adapting the law to introduce a notion of company age could be a way to limit the impact on start-ups. For example, the law could specify that companies require a CE only after 5 years post incorporation (in addition to the compliance period, this would be 7-8 years before it is put in place).

b) Standard lay-off package: laying-off people in France is something that any entrepreneur or foreign investor fear because the process is lengthy, complex with an uncertain outcome. For start-ups, this complexity may make the difference between life and death as a few months of cash runway means everything. Giving start-ups the ability to lay-off people with a standard package of 3 months salary without further negotiation would make things easier (this is the way it works in the UK or the US). This measure could be limited to companies less than 10 year old and loss making to limit the scope but make it very relevant for start-ups.
Frederic Mazzella addressing Francois Hollande
and John Chambers at the Elysee dinner

4. Change France’s image with a strong PR message about a new law favoring start-ups
France is mostly known abroad for the 35-hour week, and the 75% tax rate it tried to introduce (and was fortunately considered unconstitutional). However, these measures are always announced first and then mitigated by a lot of exceptions in the law. These exceptions are usually not communicated or understood abroad – they are often too complex and not newsworthy. It is time for France to announce something going the other way, something that would change our image. Some of the ideas above, if well communicated, could help improve the image of France in the eyes of foreign investors.

It was really refreshing to see the openness of the government around these ideas and I look forward to continuing to work on these initiatives to improve the competitiveness of the French ecosystem and enable startups to reach escape velocity much faster!

PS: many thanks to Pia who joined us recently for her contribution to this post

Tuesday, March 24, 2015

Accel APX conference: short take aways


I was lucky to be able to attend our Accel APX conference in San Francisco last week. In an environment becoming increasingly more competitive, it is becoming critical for companies to leverage external platforms & APIs to build a product fast and concentrate their resources on their core products. The objective of the conference was to understand how APIs will power the next great web and mobile companies and share some best practises in understanding when to use APIs or not and how can API company best market to developers. We were fortunate to host  very talented speakers from our portfolio (Ilya Sukhar from FB/Parse, Steve Marx from Dropbox, Bill Ready from Braintree, Ali Rayl from Slack, Eric Wittman from Atlassian, Sam Mac Donnell from HotelTonight...) and from leading companies (Jeff Seibert from Twitter, Mina Radhakrishnan from Uber, Adam Fitzgerald from AWS among others). We had around 300 attendees and our room at the Terra Gallery was packed. I loved it

The major themes of the discussions were around
  • What to build on APIs vs develop internally
  • Developer evangelism and fostering a community
  • How to launch a successful API, documentation best practices
  • Customer service and sales for dev-focused companies
  • Developing an API vs a platform
Here are a quick set of notes that our team (thank you Andrei!) gathered at the event. It is not very polished but was designed for a fast read. I hope you will find this helpful

PANEL: We're built on APIs
Andy Fang, CTO Doordash
Sam MacDonnell, CTO HotelTonight
Mina Radhakrishnan, Head of Product Uber

- what to build in house vs. use from outside: think of what's core to the transaction, use 3rd party as much as you can
- DoorDash "delightful delivering": refuse to outsource customer support; but open to outsource payments, fraud etc.
- HT: don't outsource communication b/c part of core UX even though APIs available
- healthy dev environment around APIs, very important to get confidence you can build your platformon on top of them
- APIs give you freedom, don't have to invest both people and tech in maintain internal platforms
- HT had to totally revamp their infra, to manage 10x supply, allow advance bookings etc., so needed to ingest a lot more data (and already had performance); they totally ripped out their inventory system and moved everything to Elasticsearch, removed their Rails endpoint; got this going in 2 months, would not have been possible 10 years ago
- very challenging to build a solid external API, on the roadmap of HT but need to allocate lots of time and resources for it
- need to be clear about brand guidelines for how 3rd parties use your APIs; T&S are very important for Uber

FIRESIDE CHAT: Launching a platform and driving community
Adam Fitzgerald, Global Head of Developer Marketing at AWS

- founder of Springsource, then at VMWare and Pivotal
- APIs are important for building a community of developers
- need to understand who your developers are
- devs are hard to market to
- devs are the connoisseurs of tech, they've been sold so many techs that never panned out, that they're very discerning about the techs they use
- they're protective about the intellectual capital needed to get familiar with a new tech
- metric is "if I spend X hours learning this, will I save XXX hours later to not do this type of work again?"
- devs very interested in productivity and simplifying their lives, not in chasing new techs
- Rules:
1) Do documentation right: keyword rich, want engineers to write it; e.g. GitHub is using GitHub to write GitHub docs, engineers more willing to do it, and then can easily launch it as part of project, devs can fork it
2) Remove barriers to get started: use free tiers, reg-free accounts, allow people to experiment easily, give starter kits; e.g. Twilio does a phenomenal job; also look how devs are using your services
3) Be responsive
4) Find a community hero
5) Be a cheerleader
6) Listen actively: the opposite of marketing or broadcasting

PANEL: New vertical APIs
Adam Ludwin, CEO, Chain
Daniel Yanisse, Founder & CEO, Checkr
Andrei Pop, Founder & CEO, HumanAPI
- rise of vertical APIs in new categories
- Checkr for background checks (Accel portfolio)
- Chain is a blockchain API: indexing the large volume of data and providing fast access, managing private keys
- Human API: health data API, solves data liquidity and data mobility in healthcare
- need to abstract complexity from end user
- first set of customers: go for bleeding edge or big reference incumbents: once you prove product market fit with a couple of customers it's easier to get additional ones
- Checkr: 200 customers after 1 year live, now they're the 4 or 5th background check company in the US
- Chain: large market share in a small but fast growing market of bitcoin devs. To get started: you can "do things that don't scale": first sales were with customized prototypes
- first hires: need excellent engineers early; where you need domain knowledge is in product and once you start enterprise sales
- when you're building an original product, your team will become that source of domain knowledge in a matter of months
- Human API: no healthcare expertise in house; don't want to hire people with too much baggage (this can't be done), this can slow down company a lot
- for new thinking on old problems, you can't bring old thinkers
- need strong generalists and have to love the mission
!!! ninja hiring tactic: check Twitter lists of engineers, curated, then send them to mechanical turk, and filter them by focus, works well for specific areas like bitcoin
- useful API monitoring tools: Runscope
- tools like intercom are good, but still generalist-targeted
- most big companies end up writing API documentation in house, needs to be alive -- there should be a good tool for that

PANEL: Building a business model around developers
Bill Ready, CEO, Braintree
Calvin French-Owen, CTO, Segment
Eric Wittman, GM & Head of Dev Tools, Atlassian

- Braintree: payments are a big part of margins (can be 3% of the 10% take)
- need to remove barrier to entry
- key to propose a very simple pricing, so developers can make the buying decision,  not the CFO
- at scale, can't avoid talking to CFO
- need to build things that allow pricing development over time
- at Braintree they try to be proactive on pricing: when volume increase by 10x they reach out before to decrease pricing before the customer ask
- at Atlassian, they eventually land in front of CFO b/c of virality inside a company
- no one has left Segment b/c of pricing; it helps that they give easy access to customers' own data; if switching is easy, people stay
- Segment: stay away from custom agreements and consulting work; only add feature if they help the whole customer base; do one thing and do it well; don't do consulting work
- most of sales for Segment are inbound, no sales reps involved
- Braintree: don't want sales people who just want to shove product down people's throats; want to make sure sales people try to help customers, understand if product is a fit or not
- don't want to aggressively hit quotas, sell to customers who will churn in a year
- breaking discipline to not do custom work for customers can have huge repercussions down the road: you won't be able to serve customers well because of not maintaining the different tech stacks etc.

PANEL: Best practices for developers evangelism and support
John Milinovivh, Founder & CEO, URX
John Sheehan, Founder & CEO, Runscope
Ali Rayl, Head of Developer Support, Slack

- everyone needs to see all support communication, helps build trust and deliver a consistent message
- need clear SLAs across all channels
- need tiering of support, but no need to artificially slow down support for small customers
- support team needs to be well versed in any language
- support is the one opportunity to delight customers
- Slack: API should not be versionalized, backwards compatibility is part of the customer proposition
- API relationship is a long-term business relationship; e.g. some customers use multiple API keys to override limits, once they scale, do you want to keep them this way? Successful on your platform but not sticking to guidelines, can also affect the rest of your customers
- you need to help developers become more successful
- can you outsource support in an authentic way? No!
- metrics of success: time to first contact, time to resolution, customer satisfaction score
- if you see some feature that's grossly underutilized, it's probably very hard to use
- customer support at Slack: triage channels, basically one each support channel there's a dev that can answer; also all past discussions are searchable

PANEL: Facebook, Twitter and Dropbox - Building platforms at scale
Ilya Sukhar, Founder & CEO Parse/Facebook
Jeff Seibert, Director of Platform, Twitter
Steve Marx, Head of Platform, Dropbox 

- Crashlytics sees about 5B crashes a month
- roughly 3B active users around the world - experience shaped by roughly 3M developers
- customer support: need to respond to everyone fast, but also appropriate levels of depth depending on customer relationship
- Dropbox: app approval process if you want to go beyond 100 users
- people doing automated creation of apps: cat & mouse game, need to use captchas, look at metrics
- Facebook will charge if you get scale, weeds out a lot of folks
- Twitter: make their Fabric API very restrictive, let product guide use cases; by contrast, the broad Twitter Rest API is very broad
- Meerkat: comes down to intent; unhealthy if goal is to build identical graph
- Dropbox: need to be very intentional with why you're building on the platform
- the more data you have on how devs use your platform the better you can scale it. Need to run native code, just relying on API calls not enough

Live from MWC in Barcelona: are we in a tech bubble?

I was interviewed by Seema Mody at the Mobile World Congress in Barcelona. As the Nasdaq reached 5,000 pts that day, the focus of the discussion was not on mobile trends but on valuation and whether or not we are in a bubble. In a nutshell, my argument was that on the public side, the valuation of high growth tech companies do not seem very inflated at this point. For example, if you look at SaaS comps, the average FWD revenue multiple is around 5.4x for a growth rate of 25%. This is very similar of where these comps were in 2006 when I started in venture. On the private side though, things are different and I am seeing a large increase in both the round size and valuation. So is it a bubble? I would say that the private market environment is definitely very inflated. However, in my view, the qualities of the companies and the globalization of the market makes the situation different from 2000.

Tuesday, October 21, 2014

European Unicorns (or not!) @ TC Disrupt London

Exciting couple of days at TC Disrupt London: I had the chance of starting my Monday morning with an interview at Bloomberg TV "On The Move" with Jonathan Ferro and my Tuesday Morning with a panel at the conference led by Ryan Lawler.

Both discussions addressed the theme of European Unicorns  - ie can Europe produce large venture outcomes. A few years ago, the potential was real. Today, it has been realised as Europe has demonstrated its ability to generate multi-billion outcomes with companies like Supercell ($3B), Qlik ($2.5B), Criteo ($2B), Just Eat ($2.4B), King ($3.6B), Zoopla ($1B), Waze ($1B) among others...The questions is now turning into whether Europe can create $20B+ outcomes. Time will tell but all pointers are in the right directions. Unicorn are not supposed to exist but we are seeing a lot of them in Europe these days with the maturation of the European tech ecosystem. May be we should stop calling them Unicorns!

Tuesday, June 17, 2014

Sharing economy: it is not about cost but value

Short interview on Bloomberg by Caroline Hyde on the sharing economy and the London ecosystem during the London Tech Week. It was fun!

Here is a quick summary of my discussion on the sharing economy and wider changes in the European technology scene.
Sharing economy is not about cost but value
Accel has made a few investments into sharing economy businesses. More than simply offering customers a chance to save on cost, the sharing economy revolves around the value of innovation – marketplace services change people’s way of living by granting them access to a new service. For example, BlaBlaCar, the long-distance ride-sharing network, connects drivers with paying passengers, and is now carrying more people per month than the Eurostar for much less investment. Another example, Vinted, the social marketplace for second-hand clothes, allows users to chat about fashion and swap clothes on their mobiles, and is seeing more than one item listed each second 24/7.
Europe is a collection of tech hubs...hard to know where the next big things is coming to come from
Having worked in Silicon Valley, I can say that, while both the US and Europe are full of innovation, the European tech scene is much more fragmented, as it is spread across a collection of hubs, including London, Paris, Tel Aviv, Berlin, Moscow and the Nordic countries. As a result, you never know where the next big innovation will come from. We’ve backed Funding Circle and Mind Candy in London, BlaBlaCar and Vente-Privee in Paris, Supercell in Helsinki and Avito in Moscow.
The flourishing of these hubs has been a really big development for the region. When Accel first came to Europe 15 years ago, most of our investments were concentrated in the UK and Israel. Now we invest across these hubs. As they grow in number and size, it is beneficial for each individual hub, too, as their businesses can leverage them to extend their network and expand across Europe and around the world.
Another important regional development is the number of billion-dollar-plus exits over the last few years, such as Supercell’s partial sale to Softbank, which have been really additive to the ecosystem. We have companies like Spotify and Rovio in the pipeline as well, so there are plenty more exciting things to come.  Europe has reached a truly interesting time for innovation and we are excited to see what’s next.

Tuesday, April 15, 2014

The next frontier of digital services

Six secular trends will shape the future of ecommerce in the coming decade: mobile becoming a dominant channel, emergence of one click services, rise of the sharing economy, deep personalization, instant delivery and Asia becoming a major market.

I remember when the first ecommerce sites launched in the late 90’s with poor dial up connectivity and everyone thinking that a few years down the road everything would be bought online. Fifteen years later, ecommerce has gone a long way and changed our way of life, representing a $1.3T market globally. However, ecommerce represents only 8-12% of total retail sales and there is still a lot of room to grow from here. The fact that companies like Amazon or eBay are still growing at 20-30% annually despite their massive scale illustrates this untapped potential. Looking forward, we are seeing 6 trends that will fuel this growth and shape the future of online commerce:

Mobile supremacy: coming as no surprise, the main trend that is changing ecommerce today is the relentless growth of mobile. Mobile represents 15% of internet traffic, growing at 150% per year but users spend 87% of their time on mobile on applications (vs. mobile internet), so this underestimates the actual penetration. In addition, consumers are spending a lot of time searching for information that they use to buy in retail stores and mobile is a very powerful tool for this use case. The level of engagement on mobile is changing the game of online commerce and already on the path to becoming the dominant channel: Etsy is seeing close to half of traffic and 30% of GMV on mobile. Showroomprive is experiencing similar numbers. Supercell reached 10m mobile users in less than 4 months (it took 27 months for Facebook). HotelTonight is selling last minute hotel rooms exclusively on mobile with more than 6.5m users, growing 300% year over year and the list goes on…

One click services: have you tried to find a cleaner for your home or a sitter for your dog? Today, the process is cumbersome, including multiple phone calls, quotes, sometimes onsite visits…Tomorrow, you will be able to go online and book the service at a convenient time in just one click. Companies like Homejoy, Handybook, Dogvacay or are already making this future a reality in the US and we should expect to see these services developing in Europe soon.

The rise of the sharing economy: when Rachel Botsman published “Collaborative consumption” in 2011, many peer to peer services were emerging but eventually many of them did not reach scale as the friction to deliver the service or product often offset the value received. However,  peer to peer had proven to work and is getting massive scale in several areas: home sharing with Airbnb (10m “guest stays” since launch) and Housetrip, ride sharing with Blablacar (close to 7m members in 10 countries), fashion with Vinted (14m listings) and lending with Lending Club and Funding Circle. Peer to peer marketplaces are here to stay and redefining several areas of online commerce.

Personalize or die: the day of a “one size fits all” for ecommerce are counted. The development of new business intelligence platforms is now making the analysis of large amount of data possible in real time and this intelligence can be used effectively to personalize user experience. Criteo pioneered this field with ad retargeting and we are now seeing a new breed of companies like Monetate or Sailthru pushing personalization further to content, search and email.

Instant delivery: ecommerce has reduced delivery time from a week to next day but to continue eating into retail sales, the limit needs to be pushed further down while keeping shipping price low. Tough challenge that is hard to overcome with traditional courier services but technology is here to help and new services are emerging even though it is very early days. Companies like Uber are floating the idea of using their car fleet to deliver goods, Amazon is experimenting with drones and Netflix is making fun
of it (this may not happen in the near future!) and online/ mobile delivery services like Postmates are starting to grow in the US. Who knows what the future holds but there is a lot of investments and creativity working on this problem.
Asian Tigers turning digital: In 2014, for the first time, consumers in Asia-Pacific will spend more on ecommerce purchases than those in North America, making it the largest regional ecommerce market in the world. China represents 60% of this market with companies like (212m orders and $14B GMV in the first 9 months of 2013), Alibaba ($160B sales in 2012) and IQiyi ($2.6B revenues in 2014) expected to go public in the US in 2014.  India is following with companies like Flipkart which grew its revenues 5x last year. The e-gold rush is happening in Far East!

Tuesday, January 14, 2014

CAC 2.0: How SaaS businesses can refine their customer acquisition costs

Happy new year 2014! It has been a while since my last blog post but with the new year comes new resolutions and a new design layout for Cracking-the-code. I hope you will enjoy the read

Simple CAC ratio
As many companies are finalizing their 2014 financial plan (feel free to use the Accel template), I thought it could be a good time to write a short post on the CAC ratio - a simple metric that I defined in a blog post in 2008 (time flies!) to measure the sales ramp; marketing productivity of Cloud businesses. This metric measures the ratio of the annualized additional recurring revenue generated by your sales and marketing investments. The simple formula is based on traditional GAAP financials, available for public companies. The target for this ratio should be close to 1 (1 year payback) but for companies with low churn (5 year+ lifetime) and growing fast, anything above 0.5 (2 year payback) warrants further investments.

CAC ratio = [GM (Q4 13)- GM(Q3 13)] x 4/ S&M costs (Q3 13)
(GM: Gross Margin; S&M: sales and marketing)

CAC ratio based on CMRR
While very easy to calculate and benchmark, this formula can be refined at different levels. Firstly, this formula assumes that the revenue recognition time starts one quarter after the actual sale (time to implement the solution and go live) - hence the allocation of Q3 and not Q4 S&M costs in the formula. This is a rough approximation. Secondly, the total revenue also includes, most of the time, non recurring revenue like implementation services or training which are independent of the sales productivity. To have a first level of refinement, it is best to include only the net new contracted recurring revenue in the given quarter or CMRR (see blog post on SaaS metrics). The resulting CAC ratio becomes:

CAC ratio = [Net New CMRR (Q4 13) x GM (%)] x 12/ S&M quarterly costs (Q4 13)

CAC and Renewal ratio separating New Sales and Renewals
The ratio can now compare accurately the new recurring business generated in Q4 2013 with the relevant sales and marketing costs incurred. This is the most standard CAC ratio for early stage SaaS businesses. However, as companies mature, the sales organization usually is broken down between the Hunters (new sales) and the Farmers (account management for renewals and upsells). Each team can be measured separately. While the CAC ratio will measure the effectiveness of the Hunting team, the Renewal ratio will measure the effectiveness of the renewal and upsells team. The challenge is to allocate the marketing spent towards one team vs. the other. I usually assumes that everything regarding lead generation goes to the hunters, while general marketing and branding is split 2/3 for Hunters and 1/3 for Farmers (one short cut is to assign 100% of marketing costs to the Hunters). The two metrics become:

CAC ratio = [Gross New CMRR generated by the Hunters  x GM] x 12/ S&M quarterly costs for the Hunters

Renewal ratio = [Net CMRR (renewals + upsells) from the Farmers x GM] x 12/ S&M quarterly costs for the Farmers

For the CAC ratio, the benchmark needs now to be closer to 1 (or more!) as the noise of the renewals and churn is now eliminated. For the renewal ratio, the benchmark that I use typically is around 5, meaning that it costs 20 cents to renew 1 dollar of recurring GM equivalent to a steady state (flat revenue) where the S&M costs represents around 20% of the recurring gross margin

CAC ratio taking into account sales force quota ramp-up
Finally, for fast growing companies that are hiring many new sales people every quarter, the CAC ratio can be further refined to take into account the sales ramp-up. Let's take an example: if you have 10 sales people active in a quarter with only 6 fully ramped up (100% quota) and 4 of them just starting with a quota of 25% of the full quota, your are only getting an effective team of 7 people (6x100% + 4x25%) = 7 but you will be paying for 10 people. To take into account this ramp-up effect, you can adjust your S&M costs in the formula accordingly and multiply them by 7/10 = 0.7 or 70%. In this case, your effective S&M costs = S&M costs x 70%. The adjusted CAC ratio becomes:

CAC ratio = [Gross New CMRR generated by the hunters  x GM] x 12/ [S&M quarterly costs for the hunters x avg. quota ramp-up (%)]

When using the ramp-up formula, the benchmark should now be 1.0 (1 year payback) given that all the noise has been removed. The same ramp-up factor could be calculated to refine the renewal ratio

So which number to pick? I think it depends on the stage of the company. The simple ratio based on GAAP revenue should be used primarily for benchmarking public companies as it is fairly inaccurate. For most early stage companies (up to $10m annual revenue), the CAC ratio based on CMRR should be the most important one, with the option of refining it with the quota ramp-up. Above $10-15m in annual revenues, it probably make sense to separate new sales from renewal, as both teams have different leaders which would benefit from being measured with different metrics


Finally, to close this post, here is something to make you feel better about your new year resolutions...or the lack of!

Wednesday, October 24, 2012

Eastern European Champions & the 4 V’s of Big Data

Eastern European Champions
I had the opportunity to do a keynote at the IDCEE conference in Kiev last week. It was my first time in the city and I must say that I was immediately taken by the energy of the city and of the entrepreneurs that I met at the conference.

It took me some time to figure out a title and I eventually settled for “Building European Champions” as the region has proven its ability to generate very successful venture outcomes and will continue to be the birthplace of many successful technology companies. I would categorize these champions in two camps: the “Local Champions” and the “Global Champions”. The first category includes companies that have a dominant position in their national market and are often internet or ecommerce companies. This category would include among others Yandex,, KupiVIP and Avito in Russia as well as Allegro in Poland. The second category is composed of companies that have developed a unique IP locally and marketed it worldwide - typically in the gaming, software, security or mobile sectors. Skype is probably the most famous of them, but there are a lot of other examples including Game Insights, Kaspersky and Parallels in Russia, LogMeIn and Prezi in Hungary and Avast and AVG in the Czech Republic.

Why Eastern Europe?
Looking forward, Eastern Europe has several assets and macro trends that will contribute to foster more innovation and create successful technology companies:
  • 400m+ people in the region
  • GDP of $3T+ with most countries growing 2-5%+
  • “Runet” (Russia Internet) is the largest market in Europe with 53m internet users and given its under-penetration (37%) it is still growing at double digits, increasing the gap with Germany which is currently number two and growing at 2% per annum. Out of these 53m internet users, 15m are shopping online, creating a fast growing $11B ecommerce market in Russia alone (expected to reach $19B by 2015)
  • The mobile penetration is among the highest in the world with 1.7 mobile phone per person for the Top 4 EE countries (vs. 1.2 in GE, 1.3 in Brazil and 0.8 in India and China)
  • The region has an exceptional talent pool: Eastern Europe was the first country to send a man into space in 1961 and has a very strong network of universities. It is not by chance than a Moscow team won the 2012 FB Hackathon with Boostmate, a tool to analyze social interactions and rank your closest friends.

In addition, the availability of cloud and open source technologies has further reduced the cost to get a technology business started as now anyone can get computing and storage capacity in the cloud or build a LAMP stack for a few hundred dollars. This low entry barrier should accelerate the pace of innovation.

A few facts on Big Data
I took advantage of this keynote to highlight a few areas where we see a lot of opportunities globally and in particular for Eastern European start-ups: Big Data, Cloud Computing and Mobile. I will elaborate a bit on the first one – Big Data.

Big Data is a key area of focus for our firm to the point that we even created a $100m “Big Data Fund” recently. Going through several reports, I found a few mind-blowing stats on the growth of structured and mostly unstructured data. Here are a few examples:
  • 247B emails are sent every day (and the scary bit is that 80% is spam!) 
  • It costs $600 to buy a disk drive that can store all of the world’s music
  • 30B pieces of content are shared on Facebook every month
  • Projected growth in global data generated annually is 40%. By 2020, the production of data will be 44 times what we produced in 2009
  • 15 out of 17 sectors in the United States have more data stored per company than the US Library of Congress
Big Data is indeed…big! And getting bigger and bigger.

The 4 V’s of Big Data
Big Data is different from "large amount" of data. We have tried to define Big Data around a framework of four V’s that explain the essence of the concept: Volume, Variety, Velocity and Value:
  • Volume: the first V is easy to grasp as it is about quantity. The proliferation of mobile phones, social media, machine data, web logs has led to large amounts of data being generated, stored and processed and this volume is increasing exponentially with the growth of new computing platforms and the shift of activities from offline to online
  • Variety: this is where big data starts to differ from “a lot of data”. Big Data is not only about volume but also about the type of data. Large volume of structured data can stored in relational databases and accessed quickly by queries. Big Data contains structured data but mostly unstructured data (which is the key driver of growth as shown in the graph above). And this unstructured data contains valuable information that can now be extracted if the right infrastructure is in place (e.g., sentiment, preference, mood, purchasing intent)
  • Velocity: Time is of the essence with Big Data. Business users need faster and faster response rate to derive the most value from information. Sometimes it needs to be in real time. The more data to analyze and the more challenging this becomes as all the pieces of the infrastructure needs to be perfectly tuned
  • Value: This last V’s characterize the underlying purpose of storing Big Data – to derive business value. This means that on top of the technical aspect of storing and managing Big Data, there is a need for a strong BI and visualization engine to drive insights beyond data scientists

Looking at these four V’s helps define the underlying opportunities around Big Data: there is a need for larger and cheaper storage, fast access, data management tools, platforms (like Hadoop), BI and visualisation engines and new business applications that can help businesses capture, organize and derive the most value from Big Data.

I will finish this post with one example that came out of a discussion with the IT executive of a large US bank. One of the big data team collected and analyzed all the data of accidents on Route 101 linking San Francisco to San Jose. They found that a large part of the accidents were due to random objects falling from trucks on the road. Digging deeper, they found that a large part of these objects were real estate signs and they were able to correlate spikes in the number of accidents on route 101 with a shift in the real estate market in the bay area in quasi real time. Impressive! 

And this is just the beginning.

Friday, October 12, 2012

French Tax Law for Start-ups: Ringing the Alarm Bell

Accel has already invested over $60 million in French start-ups and we would like to invest more – but will there be enough entrepreneurs left if the new Tax laws are voted in? 

This post is a translation of the article: « Pigeons » : le cri d'alarme d'un fonds américain published on LaTribune (12/10/2012) and is a response to the proposed tax law proposed by the government of Francois Hollande, suggesting to tax all capital gain at the same level than salaries or 60%.


While France has been a fertile ground for innovative start-ups, the new fiscal law threatens to disrupt an ecosystem that has slowly emerged over the past 12 years. Instead of increasing the tax burden on these companies driving job creation, why not take full advantage of this evolution of the tax law to position France as the most attractive country for entrepreneurs in Europe?

France has proven its ability to develop innovative internet models

Over the past three years, we have invested over $60 million in French technology start-ups with Showroomprive (number 2 in Europe for online private sales), BlaBlaCar ( the European leader in ride-sharing) and Shopmium (offering coupons via a mobile app) and as a result have contributed to creating close to 600 jobs. While our investment focus covers all of Europe, we consider France to be a very important market for our business and we are actively seeking new investment opportunities.
France is indeed a country with a proven track record of developing innovative business models.
Here are a few examples: the “flash sales” model was launched by VentePrivee and Showroomprive, the two European leaders and has been copied in the US by several companies such as Gilt Groupe; “online retargeting” was invented by Criteo, who currently operates in 30 countries with over 3,000 customers and whose success relies, among other things, on its 10,000m2 R&D centre located downtown Paris. Since its launch, Criteo has created 800 jobs, 40% of those in R&D; France has also been a pioneer in the space of ride-sharing with the creation of, a company that has built a strong community of over 2 million members and transporting a number of passengers equivalent of 1,000 high speed trains every month. And the list of success stories continues with companies such as Free, Meetic,, PriceMinister, SeLoger…
The second strength of France resides in its talent pool of entrepreneurs. With the experience accumulated during the first internet boom, this talent pool has grown considerably and gained in strength over the past few years. Those who have enjoyed success have given back to the community as business angels, through the creation of seed funds such as ISAI, Kima Ventures or Jaina Capital, or by sharing their personal experience through forums, conferences or teaching. A good example is the creation of École Européenne des Métiers de l'Internet (EEMI) in September 2011, founded by Marc Simoncini (Meetic), Jacques Antoine Granjon ( and Xaviel Niel (FREE).
Finally, another notable strength of France resides in its Telecom infrastructure. Indeed, France enjoys the highest penetration rate for broadband in Europe (32.7% for France vs. 26.5% on average in Europe according to Eurostat, Jan. 2011).

Amendments proposed to the 2013 Tax law are insufficient and threaten to destabilize the ecosystem

I will not go over the initial regulation proposal, which recommended a 60% tax rate on profits made by entrepreneurs after an exit (basic idea is to apply same tax rate on salary and capital gains). Instead, I will focus the discussion on the recent amendments suggested by the minister of economy and explain why these amendments are insufficient and threaten the growth of a booming ecosystem that has already proven to be and should remain a source of job creation.
The first amendment relies on the definition of « founder » and imposes a minimal ownership of 10% of the company and a holding period of two to five years to benefit from a lower tax rate. Let’s examine first the ownership constraint proposed by the amendment: the ownership level of a founder in his / her company depends on two key factors: the number of founders in the start-up and the potential dilution that occurs with fund raising (needed to sustain the company’s growth). Imposing a minimum ownership threshold on founders penalizes teams with several co-founders, while the combination of talents and skill sets coming from having several co-founders is usually core to the success of a start-up. This proposal also penalizes companies that have struggled to grow and had to raise several round of funding before reaching a critical mass, and have therefore been diluted more than they would have liked. Finally, it puts a break on the fast growing start-ups that could benefit from an additional injection of capital to fuel their growth but won’t do it to avoid further dilution. In our portfolio, we have companies with founding CEOs who own less than 10% of their companies for some of the reasons I just listed. Why should they be penalised in such an arbitrary way? The duration criterion is also very punitive for start-ups playing in the dynamic technology market. Let’s take an example in our portfolio: Playfish, a “social gaming” company, was launched in London in 2007. It enjoyed explosive growth, created 200 jobs in two years, and was acquired in 2009 by the American giant Electronic Arts. If that company had had to comply with the proposed regulation, its founding partners would have faced the following dilemma: either forfeit 60% of their gains in tax, or … ask Electronic Arts to come back later. Why should rapid success stories be penalised more than companies whose success is slower to come?
The second amendment proposes to apply tax rebates on capital gains applicable over a six years period for those who cannot meet the founder status. While this measure also relies on an arbitrary duration, which does not account for the dynamic environment in which start-ups operate, it will also create inequalities among start-up teams by dividing them into three “classes”: the “founders” who will be protected in some instances, the employees who have received stock options (and will fortunately not be impacted by this regulation) and the employees who have received shares and will be subject to a complex tax waiver scheme. Is this the “social justice” announced by the government?
To conclude, the ecosystem of internet start-ups is based on three key stakeholders: the entrepreneurs, who create the start-ups, the employees, who contribute to their success and the investors (business angels and venture capitalists), who invest capital to fuel growth. Those three constituents share the risks and play a key role in the development of start-ups. The proposed law, instead of bringing more cohesion to the ecosystem and aligning stakeholders’ interests, will in fact introduce inequalities that will ultimately lead to disequilibrium and conflicts… in addition to adding unnecessary complexity to the model. 

Why not take advantage of this law to make France the champion of Entrepreneurship in Europe?

Instead of introducing extra layers of complexity and penalising both start-ups and entrepreneurs, why not going back to simplicity and proposing positive changes that would position France as a beacon for innovation and entrepreneurship in Europe?
If we all agree that start-ups need to be protected given they are a unique vector of economic growth and job creation, why not take a step further and give them an attractive tax rate that could apply equally to all shareholders independently of any ownership level or duration? Why not apply a 15% tax rate on all capital gains coming from start-ups? Not only would such a measure boost the French technology ecosystem, but it would also attract entrepreneurs and investors to France.
One way to create boundaries for this proposal, would be to apply it only to shares acquired during the first twelve years of a start-up’s existence, after this date all transactions would be taxed at the current capital gain tax rate (regardless what the rate is – although I personally do not agree with the tax rate currently proposed by the government).  So why twelve years? While that threshold should be thought through, it would apply well to our current portfolio: among the 250+ active companies we have funded, the proportion of those founded before 2000 is minimal.
Such a change would play to France’s advantage and give a boost to the start-up ecosystem. Why not take a chance?


Friday, October 05, 2012

The Accel 5 Mantras of Ecommerce in Turkey

I was lucky to enjoy the sun, warmth and excitement of Istanbul in the past couple of days to attend the Webrazzi Summit, which is the poster child of Turkey’s vibrant start-up scene. I have been to Turley several times in the past 18 months, and find the region very exciting. There is a lot to like in this country with a large and fast growing internet market still very underpenetrated:
  • Strong macroeconomic trends with a 2011 GDP growth of 8.1% and a GDP per capita which grew from $6k in 2001 to $14k in 2011
  • Good infrastructure with 38m internet users (5th European country), mobile penetration above 90% and a very strong logistics and payment networks (45m+ credit cards)
  • Very attractive demographics with half of the population below 30 year-old and very active online (5th country on Facebook, 8th on Twitter)
As you can see, I am Istanbul-lish!

Being invited to speak at the conference, I decided to present some of the things that Accel learned after speaking to dozens of internet and ecommerce companies in the region. I summarized these learnings into 5 “Mantras” that are developed in the presentation embedded below:
  1. “Me too” is not enough: don’t be the 50th private shopping club or Groupon clone. There is no room for you in the market. Think “differentiation”
  2. eCommerce is not a cheap journey: be prepared! Most successful ecommerce companies raise more than $50m during their lifetime, so watch every penny you spend and pay specific attention to (1) Inventory and working capital and (2) marketing costs (in particular a repeat basket is not free!)
  3. Run your business with numbers: eCommerce is all about numbers and doing a 100 small things right
  4. Build your brand by focusing on user experience: a strong brand is necessary to reduce your CAC and increase your profitability and the best way to build it is to focus on providing a great user experience (product, service and payments)
  5. Mobile will be bigger than you think: mobile will represent 20%+ of you sales before you realize it!

Thursday, July 19, 2012

Tired of paper and pen?

Who is not tired of having to sign a document on paper and then send a copy by fax or scanner? Or even worse, have to travel for a signture: last month, I had to sign a notarised document for a family matter and the only way to make this happen was to travel to Paris and show up at the notary's office to sign one single document. Very expensive signature both in terms of time and travel costs....Isn't this crazy XXIst century?

Hopefully, this will be over soon as Docusign expands its network of 20m users, who have already signed more than 150m documents in 188 countries. Venture is all about investing in disrupting technology and Docusign is disrupting a very basic process: signing a document. It sounds very simple but the complexity is to make this service as easy and simple as is a signature on paper, while being able to manage the flow of the document and provide the required security to make signatures reliables.

This technology is impacting nearly all the areas of a company: from human resouces employment contracts and onboarding documents, to procurement, sales, legal and finance. Signatures are everywhere and with a digitized workflow, documents can travel across department, subsidiaries and countries within seconds, shortening the execution cycles from days to minutes. In addition, the rise of tablets and mobile devices will accelerate the growth by making the signature process ubiquitous.

Facebook is your social network, LinkedIn your professional network and Docusign will be your identity network.

As several sites announced last week, Docusign raised a large $50m round to fuel its growth, in particular in Europe and Accel participated alongside Kleiner Perkins and existing investors. I look forward to work with Keith Krach, Mike Dinsdale, Tom Gonser and the rest of the Docusign team on this great adventure!

Wednesday, July 18, 2012

Apple in numbers

Apple posted some interesting numbers that I thought I would share with you, as some of them are mind-boggling:

400m card accounts linked to iTunes (this is now more than any other store on the planet, larger than the US population and close to 6% of the worldwide population!)

There are over 650,000 apps on the iOS app store, of which 225,000 are iPad only apps (this is an amazing stat show developers are now just focusing on iPad instead of iPhone)

Over 30B apps have been downloaded – with consumers downloading more than 50M apps a day. This represents more than 4 app per person on the planet

Over its lifetime, Apple has paid $5B to iOS developers compared to $12B to music labels – Apple now pays more to developers than music labels and will generate $5B in gross income this year.

By Q1’2012, there were 365M iOS devices in the market

Amazingly, apps are sending 7B notifications a day! Close to 20 per device...

SMS businesses are hurting – of the 365M devices, 140M use iMessage (Apple free messaging platform), sending 1B messages a day or close to 3 per device

130M devices now connect to GameCenter (which is basically Apple’s attempt to harmonize leader boards/stats across games

So, does this justifie a $560B market cap?

Perspective on gaming and mobile apps on Bloomberg

I was invited for the second time by Maryam Nemaze to talk about investing trends in technology. It was a but surprising to see the first question starting with Apple earnings but that's part of the game! It was a fun session. I did talk about software but unfortunately this part was cut in the online video. I guess the gaming and mobile sectors are more consumer friendly.

Monday, January 16, 2012

BlablaCar - Travel Revolution

Some countries in Europe may have lost their AAA ratings, but they have not lost their appetite to innovate and create new online services. Blablacar is one such example of innovation: with a fast growing community of 1.6m members in France (, the UK ( and Spain (, this company is changing the way people travel on the old continent, becoming a very compelling alternative to trains and planes.

The website connects drivers and passengers who are willing to share a journey in their car. While the site addresses all kind of trips, from short commuting to long distance, most of the activity is around trips of 150+ miles. The passengers compensate the driver for the gas and toll costs, making it a fair trade. For example, a trip from Paris to Lyon (290 miles) would cost €25-30 compared to €100+ for the train. On top of being cheaper (cost is of course an important driver), people are also using the service because it is more social (a lot of people don't like to drive alone), more granular (with the scale, you can find a driver closer than the nearest train station!), and of course more environmentally friendly.

Blablacar is to cars what Airbnb is to houses: a way for people to monetise their unused assets on one hand and to consume differently on the other hand. This trend, described by Rachel Botsman in her book "The Rise of Collaborative Consumption" is growing as people becomes more and more inclined to use things rather than to own things. This explains the success of companies like Netflix or Zipcar, but like Airbnb, Blablacar is pushing the concept further with the assets being owned by the consumer instead of the company.

It is interesting to note that this model has been invented in Europe (Blablacar started in 2006) and while there have been some similar and more recent initiatives in the US (e.g., Zimride, Ridejoy), they have not yet seen the explosive growth that the service has observed in Europe with more than 1 Billion miles shared by the community and more than 8m passengers transported!

As Techcrunch announced earlier today, Accel led a $10m round in the company to help them develop their service across all Europe. We are happy to jump on board this rocket ship and help the company change the lives of millions more people!