Shame on France : the Yahoo – DailyMotion debacle
I was on the board of DailyMotion for many years, starting with the first round of financing in 2006 and ending with my resignation off the board in January 2013.
We made many mistakes along the way but we survived and finally thrived. The company is a great success; 200 million uniques a month, a big revenue number and profitable, and a top 30-35 global slot amongst the largest websites in the world. More importantly, it’s a company that was built on product excellence and managed to make in the face of full frontal competition from the biggest internet juggernaut ever to grace our shores, YouTube. Veoh, Metacafe and all the other better funded and better equipped competitors died, and we thrived.
So when I see the French government scuppering the best possible growth deal that the company could hope for, I just want to throw my hands up in despair.
POST DEAL MINISTERIAL MEDDLING
After rumors first emerged in Le Monde that the government was intervening in the sale, the Wall Street Journal revealed the details. Here is the what the Minister reportedly told the CFO of Orange: ”I won’t let you sell one of France’s best startups,” Mr. Montebourg told Mr. Pelissier, his voice raised, according to people briefed on the meeting. “You don’t know what you’re doing.”
Now you have to understand the Mr Pelissier is the CFO of Orange / France Telecom. He usually does not get involved in deal negotiations of this size directly – he has an extremely capable team that would have done that for him, including the CEO of DailyMotion Cedric Tournay, his M&A department and probably some of the senior talent in digital strategy such as for example the excellent Stephanie Hospital.
The late intervention of the Minister tells me the deal was agreed when they got wind of it and decided to step in. As major shareholder in Orange they have a right to make their voice heard, though given the scale of Orange I doubt that a divestiture of a majority stake in DailyMotion required any form of shareholder approval.
Cute Montenbourg champions “Made in France” on the cover of a leading French magazine – tainted by a desire to be famous perhaps ? I prefer boring technocrats.
HYPOCRISY AND POOR DAMAGE CONTROL
I don’t know whether to laugh or cry about the pathetic attempts at damage control that are now being undertaken.
Mr. Montenbourg says in a statement that he “regrets that talks between Yahoo and France Télécom did not lead to a satisfactory agreement for all parties involved”. It’s nice to try and spin this as a business disagreement but it’s clear from the reports that the deal was agreed between the parties and the state killed it on issues of control. Indeed, the CEO of Orange, Stephane Richard, indicates that the state intervention spooked the buyer in this article. And who indeed does that surprise ? Yahoo probably thought they were negotiating with a private company that was privatized a long time ago in the form of Orange, not a state owned Telephone Company still sometimes called France Telecom.
Then you have Fleur Pellerin saying : “there is no need for Dailymotion to remain wholly French-owned, and all options must be studied”. Who is she kidding really ? Do you think a $300M acquisition happens without “studying all the options ?”. Indeed, Stephane Richard indicates clearly that the search for a partner started 6 months ago, over 60 partners were contacted, and the French State was involved at every step of the way through the FSI.
The French State has now effectively told people that it considers it OK to meddle into transactions between private companies. It told founders that after working hard for years, they feel it is their right to come and step all over your carefully negotiated exit.
The issue is : it can do this on a large scale.
Consider this: the State is the largest direct Venture Capital investor in France and the largest fund-of-fund operation in France (both through FSI), as well as being the largest shareholder in the leading telecom and ISP in the country. Dan Primack pursued that line of thought in connecting all the dots of what he calls the French Connection.
Do they now really expect that a fresh-faced investor will be happy being a minority investor alongside a shareholder who behaves in this way ? Stephane Richard might be putting a brave face on it for political reasons, but there is no way anyone I know would accept to be locked into a minority investment where an exit can be blocked in political or ideological grounds.
They’re hurting us through tax, insane regulations and now this. It has to stop.
WHAT’S NEXT ?
The battle for DailyMotion is not in France, where growth is limited. It’s all about nailing the international strategy – no amount of posturing is going to change any of that.
Now they killed the deal with best possible partner to go execute on that strategy. That is all. Take your responsibility. As Pierre Kosciusko-Morizet, the awesome founder of PriceMinister, put it : “if DailyMotion does not find a strong international partner. in the end, it will die”.
I hope this pyrrhic victory acts as a watershed moment in France when the startup community, #geonpis and others realize it’s time to say STOP. Maybe we have not yet reached rock bottom, but it cannot be far off now.
In the meantime, all I can think of is Cedric, Martin, Luc, Giuseppe, Olivier and all the others still trying to crank the wheel and put a brave face on this, all because of some ego-maniacal ministers who think it’s OK to destroy shareholder value, taxpayer money and more importantly the aspirational nature of entrepreneurship in the name of some vague “national interest” that no one asked them to protect in the first place.
PS – Disclosure : I was investor and board member in DailyMotion and PriceMinister
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