Start-ups: the end of easy money changes everything!

Start-ups: the end of easy money changes everything!


In recent years, an impressive number of French companies have been able to raise funds without too much difficulty on the private equity market and, more particularly, on the venture capital market (which finances start-ups with equity). In 2021, French Tech companies raised more than 12 billion euros, more than double the previous year. This is obviously excellent news. Our capitalism needs, in addition to the credit provided by the banks or the markets, long-term resources provided by shareholders who accept to run a risk. More capital means more investment, jobs and wages. Capital is the friend of the poor! In fact, the structuring of our venture capital market, its expansion, the arrival of players such as the BPI, but also a more attractive tax system on dividends are valuable achievements for the future of the French economy. It is not a question of calling them into question.

But, there is a but. Indeed, this development of venture capital was also supported by the low interest rates and the abundance of liquidities on the financial markets. Monetary policies saved the banks in 2008, saved the euro zone in 2015 and saved the economy altogether in 2020, but they had perverse financial effects. Indeed, money has to be invested and, when interest rates are close to 0 and the value of assets is high, everything is in place for financial players to take maximum risks. However, from this point of view, the recent period is reminiscent of the end of the 1990s, just before the bursting of the internet bubble in 2000.

I no longer count the brilliant young entrepreneurs, often from the best engineering schools, who come to see me asking me to graciously promote their revolutionary product, in the field of energy or health in particular. When I ask the central question “what is your business model?”, I feel in half of the cases a feeling of disbelief, panic or even contempt. One of my visitors even supported me with a very nineties “the more money a company loses, the more it should be valued”. In the best case, the demonstration is “Amazonized”. As Amazon took many years to break even and as, on its very core business (trade), its margins remain limited, all hope is allowed for those who prefer to seduce investment committees rather than customers.

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No viable business without a customer

Because that is the crux of the problem. A business obviously needs customers more than investors. Of course, ideally both are required. But capitalism works when companies find or create solvent demand. Conversely, capital without customers is called communism since it amounts to producing taking into account, not the needs of society, but the money available to manufacture without worrying about what customers would be. ready to pay to validate the technological genius of the discoveries of our young entrepreneurs.

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One of the advantages of the coming period is that the rise in interest rates and the drying up of liquidity in the markets will restore more rationality to the venture capital market. Let’s be clear: it is not a question of requiring start-ups to be able to be profitable after six months. But simply to remind them that a company which structurally loses money thereby shows the inadequacy of its production with regard to the needs of society: it wastes financial, technological and human resources. But we are precisely entering a world of scarcity in all respects. Let’s not water everything that produces a bit of technology in our country with money, otherwise we will scatter our resources and create the seeds of a financial crisis when it appears that the markets have generously financed unprofitable investments. Forgive me for pushing this open door with ardour: a business must be profitable.


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