Venture capital firms driving digital transformation. An interview with Philippe Collombel
Reading time: 6 minutes
by Guia Pirotti
SDA Professor of Strategic and Entrepreneurial Management
Digital transformation and technological breakthroughs are pushing for a radical change in the traditional way of doing business. The consequent, growing competition could erode the value and decrease the market share of those large companies that will not be able to implement innovative solutions and keep up with new technological trends. Only a few companies are able to realize the potential of every new finding or have the necessary resources to exploit them. Investing in start-ups is one of the most effective ways to embrace digitization and increasingly involves building partnerships with venture capital firms or incubators and accelerators.
Partech Ventures, a venture capital firm, invests in high growth companies in the digital and information technology fields and recently opened the Partech Shaker, a campus dedicated to start-ups. In this interview, relying on the experience of the managing partner of Partech, Philippe Collombel, we will try to understand how venture capital firms are evolving and may facilitate the digital transformation process inside companies.
Mr. Collombel, what is your professional background?
I am a managing partner at Partech, responsible for the early stage fund. I joined Partech in 2001. I started my career at Accenture where I became partner. Before joining Partech, I was Head of Innovation at Carrefour. I serve on the board of many successful start-ups such as Kantox, Lendix, Lima, Menlook, Milleporte, Qapa, Secret Sales and TVTY.
How does Partech work? Do you see a convergence between VCs and accelerators?
Partech Ventures invests in high growth companies in the digital and information technology fields through three funds: seed, venture and growth capital funds. We are located in Paris, Berlin and the Silicon Valley. We receive hundreds of funds applications every week and we select the best start-ups that have the potential to grow big and expand internationally. We source deals directly through the work of our investment team and we receive deals from our network of portfolio entrepreneurs and corporate and institutional investors. We believe the role of a VC is to provide “smart money”, not just money. This means access to know-how, a network of connections and business development opportunities that are relevant to the entrepreneur and his/her business.
This is also why in December 2014, we opened the Partech Shaker, a campus dedicated to open innovation for start-ups and corporates. In this space we support the exchange of experiences and cooperation between start-ups and major groups, alongside providing turnkey prime location office space at competitive prices. It is the first time that a venture capital fund has created its own start-up campus and it’s neither an incubator nor an accelerator. We provide start-ups with advice and support on strategy, legal and financial issues and communication. We also involve global partners in the handholding process: they regularly meet the start-ups to understand their projects and potentially work with them. Co-innovation and mutually beneficial exchanges between corporates and start-ups are the main objectives of the Partech Shaker
Which are the main advantages for start-ups?
Partech has the money, the competences, the services and the network.
- The first, of course, is money. Throughout its history, Partech Ventures has completed more than 300 investments, with 70 exits above $100 million and currently has $850 million under management.
- Competences. We have our experienced view of technology backed by a proven track record of disruptive and successful businesses. We are focused on IT and digital economy startups, in particular in e-commerce, Internet of Things, fintech, adtech, cloud computing, and marketplaces and Saas business models.
- We offer services. As mentioned earlier, the Partech Shaker is a fantastic co-working space in the heart of Paris. We reconverted LeFigaro’s former headquarters into state of the art offices. Having office space in Paris is a big issue as it allows young businesses to greet business partners and potential clients in a formal and easy to reach setting.
- We help companies in the internationalization process. Our transatlantic model is part of the reason why we can take European startups to the United States and vice versa. In the ‘90s for example, we were a seed investor in Business Objects and we helped them cross the Atlantic! Business Objects founder Bernard Liautaud is now a partner at Balderton Capital.
- We offer an enviable network that we use to create what we call an unfair advantage. We give the opportunity to our startups to establish links with many large corporates, most of which are investors in our funds. We have a dedicated resource who works on supporting business development of our portfolio businesses, the aim is to facilitate and lay the foundations for pilot projects, POCs, business partnerships and sales leads.
Which are the main advantages for corporate investors?
Corporate investors have two main reasons for investing in Partech. There is of course a long-term financial return they’re after, so if they have liquidity they can commit to a VC they trust then this represents a good investment. They feel safe with us, we’re strict in our evaluations and say no to about 98% of the businesses that come to us. We evaluate technical know-how and business skills and our corporate investors are involved; we support their management teams when the business is facing strategic questions.
Secondly, and possibly more interestingly in our model, being a corporate investor in Partech means they have access to our open innovation programme. This means they can learn about new trends and start-ups that are relevant to their business (core and adjacent), meet talented entrepreneurs who have been briefed and supported in preparation for their pitch, receive targeted reporting on selected topics and have an external and expert view on new business models.
Why do large companies decide to invest in external sourcing of innovation? Do they invest because they lack some resources?
Companies know that innovation is fast and that they need to rethink and reinvent themselves ever more quickly. The advantage doesn’t come from being big, but from being agile. No one is safe from disruption in their market and digital transformation is everywhere. Companies are aware of this so they invest in external sources of innovation which are faster, more connected and with an expert approach to screening and evaluating new businesses and business models. It is necessary to put forward the expertise of more agile performers such as start-ups and constitute a powerful engine that fosters innovation. Large companies need to move to open industry and Partech is the right partner to do that; we protect companies against hurricanes! As for resources, not every large corporate can dedicate a team to scouting for new opportunities and there are certain skillsets that might not be readily available. A good way to develop these skills is to partner with someone who has them and build and learn together by sharing each other’s core expertise. Many of our corporates support us during the due diligence of companies that work in industries they know well, possibly better than us.
You have a peculiar expertise in the financial services industry. The speed of the technological and market evolutions requires a big adaptation effort by the financial services. How do you see the role of financial services firms in the future?
Powerful forces are changing the banking industry. New technologies are appearing in the market, customer interaction processes are being reshaped, new providers, ranging from large digital companies to start-ups, are combining different expertise - digital and banking/insurance competences - to create innovative business models. Financial services have not developed technological competencies as a part of their core business. Now other industries have a competitive advantage. They need to collaborate with fintech companies, not just try and compete and fight them off.
Since you mentioned the emerging fintech industry: do you see any major trends in the future?
- The consolidation of the P2P model. Eliminating the cost and complexity of traditional bank lending by offering a marketplace where users can directly invest and borrow from each other is a powerful innovation.
- P2P is evolving in the block chain model. Banks serve as secure storehouses and as a center for transactions. Blockchain can address the same function, this means a wave of disruption could affect banking in the coming years. Not surprisingly, banks are among the growing number of firms investing in blockchain startups.
- Insurance under pressure. Everything will be shared, including risk. Insurance businesses will be under pressure as the risk of disintermediation is high.