20 Questions with Partech’s Philippe Collombel

Partech is a global investment firm headquartered in Paris, with offices in Berlin, Dakar, Dubai, Nairobi, and San Francisco, and about 70 employees. It was founded in 1982 in San Francisco as a corporate venture arm for the French bank Paribas, originally under the name Paribas Technologies, and then essentially rebooted in 2008 in the midst of the global financial crisis. Today, the firm manage €2.5 billion with a current portfolio of about 220 companies in 40 countries, spread across 4 continents. In September of 2023, Partech launched a new website and a new visual identity.

Partech recently announced its eighth Venture Fund, with a first close of €180 million for what is projected to be a €360 million fund. The fund will back European software companies. Key investment areas will include application software, deep tech software (data and AI infrastructure, cybersecurity, DevOps), B2B & B2B2C vertical platforms, fintech, and insurtech. The plan is to lead investments in 22 to 24 Series A / Series B stage firms (those having between €1 million and €10 million in recurring revenue). Some of the fund’s LPs are Allianz France and BNP Paribas, Bpifrance, CDP Venture Capital, Edenred, FDJ Ventures, JCDHolding, and Lombard Odier Investment Managers.

In addition to the Venture Fund, Partech manages a new Growth Impact Fund addressing fundamental climate and social challenges, the Partech Entrepreneur IV for pre-seed and seed-stage investments globally, Partech Africa II, and a Growth Fund for European scale-ups.

Partech seems genuinely concerned with the social and environmental consequences of its work and as evidence of that has published a broad outline of its approach to responsible investment which explains the integration of environmental, social and governance (ESG) considerations into key stages of its investment process. It has an ESG Steering Committee to develop its responsible investing strategy and policy, a full-time Chief Sustainability Officer, and an official whistleblowing policy.

Philippe Collombel is a Managing Partner and a member of the Venture strategy team. He is based in Paris. He joined the firm in 2001.

Philippe Collombel
Philippe Collombel

A.    The people we want to attract as investors in our funds already have an asset allocation in mind. We are not in charge of asset allocation. We want to be among the best at a niche product which is clearly identified. It’s tech — it’s even more precise, as we don’t do biotech. In this niche, we are trying to build a platform. This means that people who will come to Partech have an idea to invest in tech and within the tech sector we can provide them with several choices. But we don’t want conflicts of interests, we don’t want to be in charge of the asset allocation.

The reason why we have chosen this approach is that when we started the Partech platform in early 2010, when I took over Partech and we rebuilt the platform from scratch, we were convinced that we were at the dawn of a very interesting period that would see the emergence of tech in Europe. I think that we are in the midst of it after almost twelve years and I think it will take another twelve years to get to maturity. We were early, but I think we are beginning to benefit from the dynamic of the market. Even so, let’s be clear, we are facing for the last two years a difficult period.

A.    Let’s start with growth and track backward to seed. For growth, it’s very, very different depending on the type of company you have. There is a type of company that will face issues for years and 2024 will remain difficult. These are company that raised too much money too early or at terms that are unattractive for new investors. Too much money too early means that it will take years to get back to a credible valuation with the compression of multiples. That’s one side.

The other is companies that have had pretty harsh terms. This makes it almost impossible to invest for any follow-up investors. If you have complex liquidation preferences, if you have guaranteed returns, you will have a pretty difficult situation between the current shareholders, the management team, and the new shareholders, and I don’t think we are yet at the stage where there is enough realism in the market to face these issues.

On the other hand, I think there are a lot of companies founded between 2016 and 2019 that were too early to raise money from late-stage investors, growth investors, during the bubble — let’s say between the end of 2020 and the beginning of 2022. A lot of these companies are becoming super attractive, and I am very optimistic because there are a lot of very, very good companies in Europe in this segment. Companies that, let’s say, were in the early twenties in terms of millions in revenue that are now moving to $50 million+ that never had crazy valuations and are becoming, almost, market leaders. I think the market environment will be very favorable for this type of company in 2024.

The reason I am saying that is there are a lot of growth funds that need to invest.  They are paid to invest and LPs are beginning to put pressure and I think that will make a mismatch between supply and demand. This means that those growth funds will have to pay a pretty interesting price to get access to those companies.

Let’s move down to venture where there is a contrasting situation. For companies that have done a Series A in ’21 or ’22 it is tough to raise money because they had a very high price. On the contrary, companies that I see that started in ’22 or ’23, I think we see a new wave of very interesting companies which will be in a good position in the next 18 months to raise money.

To finish, on the seed side, in this market there is still some hype. If you put “AI” in in your business plan or in your deck, a lot of CEOs are expecting a valuation that will make it difficult for them when they are facing Series A. As there is a lot of money in seed, they might get a seed round, but they might face bigger problems when it comes time for Series A in let’s say 2025.

A.    As you probably know about us, we have very different funds and each strategy is tailored to the segment we are addressing. In terms of the Venture strategy, we are one of the very few funds that do infrastructure software and cybersecurity. We focus on it and that is something we are super excited about. Valuations are not cheap, but we see AI applied to cyber as very, very exciting. That’s one.

The other area that we like is the B2B platforms. There are some very, very interesting companies that are mixing platform with software with payments, and that is something we are super interested in. We are also very interested by fintech, though the conditions these days are less favorable than they were some years ago.  

A.    Of course. You could claim that AI falls into this category, but it depends on what you are speaking about. We are seeing projects that are super ambitious that require hundreds of millions of dollars at the early stage, that are unproven. There are several projects in Europe that try to replicate what has been done in the U.S., trying to build very large platforms, trying to mimic what ChatGPT has been doing. We think there is overhype and that is something we don’t to want to touch. 

There is always hype in the market. I think the ones that are clearly identified by us at this stage are companies with almost zero revenue that have been able to attract $300 million or $500 million in investments. We don’t think it’s reasonable and we don’t want to touch it. Of course, the market seems to have very different views because these companies have been able to attract investors. But as Partech, we don’t want to touch it.

A.    I think what you are defining is not synergy but conflict of interest. And we don’t want to do it.

There are a lot of synergies. The first one that is important is deal flow synergies. There are knowledge synergies. There are platform synergies. Deal flow synergies are clear. We have unique access to deal flow — especially in Europe. Every time we see a company that comes at seed stage if we don’t do it there is extremely valuable information for the venture team later on. It’s the same if I see a company at the venture stage that I don’t do, there is very valuable information for my partners at the growth stage. 

As far as knowledge synergies, we use our seed stage as a lab. We see emerging trends at the seed stage and then we apply that knowledge at the venture stage or at the growth stage.

The third one is the platform. We have built a strong platform. We have marketing synergies. We have back-office synergies, we have reporting synergies, and we have management synergies. That means that all things being equal, we have a platform that is better and that serves our investors better than a small fund could have.

That’s becoming critical. Reporting requirements have exploded in the last ten years. People don’t really understand that, but it is becoming costly. Having a platform is essential to creating economies of scale.

Something that I want to mention — you alluded to the fact that we could transfer a company from one strategy to another strategy, but it is something that we don’t want to do. Some years ago, we were criticized by people thinking we were leaving money on the table by not transferring a firm from seed to venture to growth. The reason why we didn’t want to do it is to avoid any kind of conflict of interest. We have enough market share in Europe to be sure that we can fill our funds with very good companies at each stage. This means that companies that enter at the seed stage remain with the seed stage investment team. Companies that enter Partech at the venture stage remain with the venture team and the companies that we invest in at the growth stage will always be new companies that do not belong to the seed or venture portfolios. Every strategy needs to fight for its own deals. It’s a lot of discipline, but as you see, no conflict of interest. There is no fancy discussion about transfer price. We take our fiduciary responsibility vis-à-vis our LPs very seriously and the way to achieve this goal is to avoid conflicts of interest.

A.    It depends on what you mean by global. As you know, one of our five strategies is Africa. We have funds dedicated to Africa with a pan-African team.

You are right that Growth is only in Europe, Venture is Europe also but sometimes European founders have moved to the U.S. On the contrary, Seed is global. The reason is that when we launched the Seed strategy there were too few interesting deals in Europe. We had investors that wanted access to attractive U.S. or Asian deals, and a lot of our investors were attracted by the fact that we basically had almost no competition in terms of the global approach. 

To be very clear and to be transparent with you, even our Seed strategy is more and more European in focus because there is more and more competition outside of Europe. And there are some very interesting emerging teams in Asia, for sure.

As for Growth, only Europe. Why? Because we think we have a very good position in Europe. There is competition — the growth segment is really well-served in the U.S. I don’t think to be an outsider in a very structured market makes any sense.   

A.    We are very free of geographic constraints. Basically, we try to find the best deals wherever they are in Europe. It’s strange to say, but each market is still pretty small. I shouldn’t say that, but in reality, what I always say to my investors is that in a given year, in Germany, UK, Scandinavia, France, there are probably between 10 and 12 outstanding deals. That means that every year my goal is to grab in Europe two or three of these outstanding deals. The market is very, very different from the one in the States. You have a unified market, we are a market that is fragmented. We don’t think it makes sense to invest in one country only, because the market is still too shallow. 

A.    I believe in the virtue of competition. That means that within the Venture team we have people that are specialized by verticals. They are all fighting for the best deal. Competition creates equilibrium because in theory we could have a majority of, let’s say, cyber deals, but in reality, as all of these teams are fighting at the same time for the best deals in their verticals, it has historically been very well balanced. We have four main domains and it’s very rare that any domain takes more than 30% market share withing the fund.          

A.    In theory, it’s very easy. There are four risks: team, market, product, and financing. These are the four risks that are not mitigated when we invest in a Venture company. 

Team: Obvious in theory, difficult in practice. Is the team able to grow a company that is very attractive to Growth funds? It’s a mixture of complementarity, uniqueness, ability to internationalize their companies because we don’t invest in Europe in a company that is only able to get to one market. The national approach ­­— to build a great French company — doesn’t make any sense anymore. You need to build at least pan-European companies and we need teams that can scale companies at least to the European level.

Next, market: Pretty easy. Is the market large enough? 

Product: Is there product-market fit? Does the team have the capacity to develop more products that will fit the market?

Last but not least, which has been underestimated in the recent years, is the financing risk: How much does it take for this company to fly? To get to profitability? It’s something that has been under-estimated when a lot of U.S. and Asian funds have been flying to Europe. It’s something we always take very seriously. 

These are the four main criteria we look at. Easy in theory. Very difficult in practice. Otherwise, we would not make so many mistakes.

A.    It’s an interesting setup because it’s a mixture of decentralization and centralization. That’s the benefit of experience. In our experience, the investment teams make relatively few mistakes at the time of the investment. The big risk is at the time of reinvestment, when people have bias. They are committed, they know the CEO, they think the company is going to recover. That means at the time of first investment, it’s very decentralized. Each strategy makes its own decision but informs the entire investment committee. Above a certain level of investment, you need to come to the investment committee for approval. The more you spend on your companies, the more centralized it becomes.  The more oversight there is.

A.    It’s a very interesting and tough question. I am going to be very, very honest and blunt with you. When we relaunched Partech, we were very, very small in Europe — almost non-existent. We came up with the idea to launch a kind of accelerator, a place that would be unique and where ambitious startups will meet seasoned investors. It was unique at that time. 

We have been imitated by a lot of people and, frankly, currently what we welcome at the Partech Shaker are companies that have a special link to Partech. It’s no longer a domain where we put a lot of marketing effort. Because we have been imitated by people who are doing it at a much larger scale, we have scaled back the Partech Shaker ambition to companies that have special links with Partech. But in 2015 it was unique.

A.    Yes. Very interesting question. We will not invest in the majority of fintechs. We don’t like markets that are commoditized. We aren’t necessarily believing that being a startup makes you better than established companies. 

Let’s take an example: real estate insurance. Existing companies in Europe are doing pretty well. Customers are pretty happy. That means that CAC (customer acquisition costs) for startups are very heavy. Ability to differentiate yourself is very, very limited. So it doesn’t make any sense. 

When we invest in fintech, we are looking for companies that are unique. We have a very interesting example in the States, in New York, a company called TheGuarantors. It’s for people who have difficulty accessing the rental market. They are doing a fantastic job, and as it is differentiated, the economics are very strong.

In the fintech space, all segments that require crazy acquisition costs, they are not for Partech. I took the example of real estate insurance; I can take another: robo-advisors. At one time it was crazy, but we never believe in this market. You could make between $70 and $90 per year on the client, but the client acquisition costs were between $250 and $400. Just to recoup your customer acquisition costs would take four to five years. It doesn’t make any sense. And, it’s totally commoditized and overripe with competition. We don’t like that.

When we invest in fintech we are especially careful about the positioning, the uniqueness, and the unit economics.

A.    Partnerships. Competing with giant companies is very difficult. The way we usually develop those companies is we try at the beginning to prove our case. Once we have proven our case, we can go to established players to do a partnership. 

I agree with you, it is very, very, difficult to make a partnership at the very beginning. We have a great example: Kantox, a Spanish company managing the F/X risk. We started as a stand-alone company. We proved that we were relevant to the market. We began to do partnerships with big established players, and ultimately, we were bought by BNP. But it’s tough. Market data is very difficult to access.

Large companies know the value of this data and you need to prove to them that it’s win/win. The reason why we were able to do a deal with very large institutions in the case of Kantox is that the large companies understood that our software was better than what they had internally. You need to realize that there is really a “software-ization” of banking. That means that a lot of manual processes and bankers will be replaced by software. And that is an opportunity. But you need to play it well and right.

A.    I would probably say Paris or Frankfurt. Some years ago London was the obvious answer, but with Brexit the UK has totally lost its edge. The market cap of large companies is now bigger in Paris than in London.

A.    I think I would lie if I told you that there is not an immense capacity to improve efficiency. But I think a domain that has been underestimated is risk management, because AI is very, very powerful to find patterns — there is no bias, and in risk management it is super important not to have bias. That’s going to be a very interesting space. The issue is that you need to change your processes. That’s not easy for a large institution but I think it’s an immense opportunity.

A.    Critical. Let me step back for a second. In neither France nor Germany are there pension funds. That’s a huge competitive disadvantage. That means we don’t have long-term money. Insurance companies have limited capacity to invest in venture funds because it’s a short-term investment. It’s liquid after three or four years. If you are the asset manager of a large life insurance company, you can’t put more than 2% or 3% of your assets in venture. That means we have a very large funding gap and Bpifrance has played a critical role in bridging this gap. It’s a great team; very entrepreneurial. That being said, I think there is no way out of putting in place a pension fund in France. As you probably know, it’s currently a pay-as-you-go system. It’s crazy.

Households in France are saving almost 20% of their net income. Compare to the U.S., where it’s less than 5%. But 90% is in government bonds. That means there is no long-term money to finance the French economy.

A.    I don’t know if it’s the right way. I don’t want to feel arrogant. What I think is important is that you work on succession, you address the issue of succession. It’s never pleasant. Every founder believes he’s going to be immortal. The only recipe is to raise the issue, to identify talent and to attract talent. To be able to attract talent that doesn’t necessarily have the same view as you but to have enough respect for them to see them in the position to manage the firm in the future. It’s tough. It’s probably the main reason why a lot of successful U.S. firms have failed ultimately.

The other idea I will always put forward is that the firm is more important than the partner.

A.    We are still small. The opportunity is immense. The current crisis is tough, but tougher for some firms than the others. I will not be so arrogant as to say we are benefitting from the crisis, but at least I see a scenario where we are getting out of the crisis stronger than when we went in. 

There are a lot of opportunities. We are the only firm that is dominant in venture on a continent — Africa. It is the only continent where a non-U.S. firm is market leader. We really want to continue to dominate the African market. That is the first step.

There are a lot of unexploited niches in tech. You saw that we just launched a Growth Impact Fund. We have a lot of ideas to introduce new funds. Certainly, there are new geographies that we want to explore. That means doubling down in existing markets, exploring new strategies, exploring new geographies. There is a lot. Short term our objective is to reach $5 billion. Medium term objective is to reach $10 billion in the next five years. We are currently at slightly below $3 billion. There is a market opportunity for the next 10 years for sure.

A.    Our best ambassadors are our CEOs. The best way to reach Partech is to ask for an intro from one of our CEOs. We really think that we have two clients — our investors, but at the same time, our CEOs.  We do yearly NPS. When you see our reputation with our CEOs, it’s really outstanding, it’s something we nurture. My advice is speak with our CEOs.

A.    The question that you didn’t ask is something that is fundamentally the difference between European markets and U.S. markets in terms of exits. It’s a very long discussion but a very serious one. We don’t have IPOs in Europe. When I see a company in Europe, I know that there is a 95% probability that it will be a trade sale or an exit through a tech buy-out. That is something that we have really thought very hard about at Partech. It changed the entire firm strategy. 

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