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.

Montebourg parisien magazine

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.  

Laughable.

logo dailymotion modded

TERRIBLE SIGNALLING 

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.  

Clowns.

PS – Disclosure : I was investor and board member in DailyMotion and PriceMinister

This entry was posted in Entrepreneurship, Europe, Startups, Uncategorized. Bookmark the permalink.

  • http://twitter.com/oissaly Olivier Issaly

    Has anyone already built a map to show the importance of the french state direct or indirect involvement in french venture capitalist industry ?

    As Dan Primack’s article mentions, you might think twice before accepting the FSI as an investor. But what about other “regular” VCs ? How much are they dependant on the state ?

    • http://www.freddestin.com freddestin

      Excellent question. I believe that they are in most funds. Their website has a (long) list of fund participations. Maybe someone should go push for full disclosure, it’s probably do-able under European law.

  • http://twitter.com/tydanco Ty Danco

    Makes you long for the enlightened government of Belgium.

  • http://twitter.com/bwhalley Brian Whalley

    How ironic that entrepreneur has a French etymology, “one who undertakes or manages” – You would hope that they understood it better as a result.

    • http://www.favebucket.com/ Marcel Cramer

      Well, if its more management than undertaking then you know where its coming from. Administrations in Europe are very good in ‘managing’ or ‘containing’. :)

  • http://twitter.com/HugoMe HugoMe

    What a silly rant…

    This is new capitalist practice, that a shareholder cannot do whatever he wants with his shares ? because he happens to be, err a oH my god, State ?

    As if, when Dailymotion went to FT they did not know that the deep pockets of state were behind to help them survive, and bring them to where they are now. No, everybody knows that with 27% a shareholder is sleeping. Or is he not ?

    As if, it was not clear from the start that the State wanted control of this media, financed by FSI, then bought by FT on condition published in press, of an option in 2013 to gain 100% ownership. And exerced. Oh surprise !

    Interest of Dailymotion ? Debatable. As if Yahoo had not destroyed all the companies they had bought before. As if Yahoo had not the exact symetric position: they don’t want a minority stake

    So Mr Fred Destin knows better that the state what the state should do with its money. And surely not look into any “national interest”. but only abide to its interests and opinions. SPOILER: a shareholder does not necessarily have to have a convergent view with any vested interest VC that is only after short term profit.

    And I don’t even speak of the lavish lip service to the people all through the article.

    What a clown, for sure.

    • Francois Mazoudier

      Wow, some heated debate – good!

      OK, in order.

      1) I think you’re giving both the government mouth pieces waaaay too much credit, Hugo. I really, really struggle to believe that FT (or the FSI) would have any clue as to how to actually ‘bring them to where they are now’. The FSI, or FT, bringing a STARTUP to world leadership and top 30 sites. seriously….?

      2) nobody raises money to be veto’d upon exit. nobody. So no, this can not a clear and well tabled ‘right that they just exercised’

      3) let’s stay it is – it would be absolutely fine to exercise an option to acquire, indeed, but then do it with the interests of those who built the company and backed it when it wasn’t a world leader! Else what signal are you sending co-investors and entrepreneurs – never, ever raise from them? Is that the ‘Strategic Investment ‘ in the ‘SI’ of FSI ?

      4) I personally feel very saddened that, once again, the French gov apparatus acts in such awkward, forceful and anti-entrepreneurship way. What a PR disaster, when France needs inbound investment soooo badly. It’s just one massive waste of a great opportunity to show France can be successful; instead all that the world shall remember is how arrogant, last-century and anti-entrepreneur the country is.
      Shame.

      Relax, and don’t be personal – well, unlike you were behind the strategy, then you should disclose it ! ;-)

      F/

      • Nicolas Labrot

        So all is about the bad communication of the government?

        • http://www.freddestin.com freddestin

          Not bad communication, it was not their business to get involved in this. It’s a terrible signal to everyone.

      • http://twitter.com/HugoMe HugoMe

        Hi François,

        I’m not an insider, just showing common sense and reading pubic information, and knowing a little about the mediocrity of french media and VCs.

        1) Dailymotion is where it is now thanks to their own efforts AND the investment of shareholders in 2009 when they were still small. The state through FSI put nearly half of the money (7,5/17M€), so they played a definitive part. The other funds, such as Atlas ventures (Fred Destin here) had a minor stake. So yes the state played a major role since the beginning.

        2) DM sold to FT for 60M€ and 49% in 01/2011 on the condition they could exert an option for 100% in 2013, (which they did) enabling AV to make a very successful exit. I hope you understand that Atlas Ventures, which is not your corner bakery, knew exactly what the risk where for DM but played it down to make the exit happen. When you put such conditions in a deal, it is because you want the opportunity to use it. Everyone with a bachelor degree now understands the strategy of DM will depends on FT, then on the state, since he owns a major share in FT.

        Also it is because of this 60M€ that DM could continue to grow. Thanks FT. And I don’t even speak of any advantage that FT, first ISP provider in Europe, might have given to DM versus Youtube.

        3) Now that DM is valued at estimated 300M€ and that FT needs cash because of downturn economy, some people want their big money now. That’s fine. But when the state says, ‘No’, i have other views, you have rants all over the press, including leaked information to the financial press, to say that it is amateurism and anti-entrepreneurial…whereas it was obvious since the beginning except for naive or hypocrite observers.

        4) We haven’t seen any real discussion about the credibility of expanding in the US with Yahoo. See Kelkoo sold to Yahoo and loosing 75% of its value in 4 years… Maybe the decision is not so good from the company, after all, but everyone seems to have a definite opinion that since it was the opinion of the state, this is flawed.

        5) I don’t want to go into politics, but I am fed up to see “once again” a campaign of Government bashing when noone knows nothing.

        (and coming from people who have taken part or supported the whopping 600 000 000 000 € public debt increase in 5 years, and coming giving public lessons in finance and good governance ^^. Not even clownery, it is an art at this level)

        FYI the current Executive VP of DM Martin Rogard was working for former Chirac government in communication, and his father was instrumental in pushing the sarkozyesque Hadopi law. I would be happy that someone one day analyses the reason for success of DM.

        Any way, don’t be surprised on what you see in the rightwing and business press today. And wonder where it comes from. certainly not from Montebourg. Likely not from FT. Then: Yahoo or DM are the likely spinners…

        Oh, and PKM, the brother of NKM has a view too. Sigh.

        Really, you find it “anti-entrepreneurship” that a shareholder wants to keep control of 50% of a company. Well that’s absolutely the position of Yahoo. If entrepreneurship is for you that you can get rich rapidly and to hell with the future of the company, yes there is a problem.

        6) What irritates me most is not the greedy behaviors of some, it is not that people talks without knowing, it is that by spreading irresponsibly those lies a lot of french actors in the business scene are making it a fulfilling prophecy, that effectively damages the economy by altering the image of France abroad and misleads everyone of what is the actual business reality in France.

        To be more positive, you can read Xavier Niel appreciation:

        “You have a pleasant country, with enormous social protection, a tax system that isn’t all that horrible. It’s a fantastic place to live.”
        http://www.ft.com/intl/cms/s/2/22167134-b24a-11e2-8540-00144feabdc0.html#axzz2SnUY85eb

        • http://www.freddestin.com freddestin

          1/ Incorrect. FSI came as last round investor after Partech and Atlas did Series A, then AGF (now IDInvest) and Advent joined on Series B, and we did an additional internal round. I think it’s fair to say the FSI had nothing to do with the development of DailyMotion, though it undoubtedly had much to do with the exit.

          2/I am not sure what point you are making on 2/

          3/ Purely looking at shareholder value, the losers are Orange / France Telecom. I am not sure who “wants their big money now”. You are missing the reason why everyone is upset: the state got involved in decision making in a public company that was privatized a long time ago as part of the deregulation of telecommunications and is acting arbitrarily in blocking the sale of a medium size video sharing company. In doing so, it ignored principles of good governance. The dailymotion disposal was a decision for the executive team of Orange to make, it was possibly a board matter, it was certainly not a shareholder matter given the size of Orange. In fact, I have asked the question of what the legal basis was for state intervention, and no one can give me a straight answer. It was effectively bullying by the state. France is supposed to be a nation governed by solid laws, not a banana republic, sorry.

          4/ The entire growth plan of DailyMotion is predicated on international. France is a locked market between Youtube and DailyMotion (and by the way, a smallish market). Kelkoo was a dud asset when it was sold and a terrible acquisition by Yahoo to start with (under previous management) so I don’t think you can compare the two.

          5A/ I am informed on the situation and I have only used publicly disclosed data so that I do not break any confidentiality obligations. In France and whenever DailyMotion is involved, the press always seems to know the next day and be very well informed. Don’t try to throw doubts on what is now extremely well documented.

          5B/ Why on earth are you attacking Martin Rogard because of who his dad was ? You are out of line and ignorant. He worked like a dog securing content deals. Gimme a break. You’re weakening your arguments with these types of ignorant personal attacks. Martin lives in New York right now, I doubt what political levers he is using to secure deals in Madison Avenue.

          6/ You are in denial. It already was a constant struggle 5 years ago to convince people you could build a startup in France. It’s getting worse. When you hit rock bottom you will be ready to take an honest look at yourself.

        • http://www.freddestin.com Fred Destin

          Sorry Hugo but your data is totally wrong.

          A/ The FSI only did the last round of financing. Unfortunately we had to invest quite a bit more money to get to the finish line !! The largest investors and shareholders were Atlas Venture and Partech International. A simple google search will help you recreate the full funding history since 2005 to the present day (Series A EUR7M Atlas / Partech – Series B EUR25M – IDInvest / Advent / Atlas / Partech etc).

          B/ The price Orange paid for the company is not equal to cash going into the company. Your EUR60M is the exit consideration here, not an investment in the business.

    • http://twitter.com/axou Aksam

      He could have made a lot of money in the process. It failed. He is pissed off and wrote an article.

      • http://www.freddestin.com freddestin

        The article is factual and nothing to do with me since I am neither an investor nor a board member since January. It is unacceptable to see the state act in this abusive way. Democracy is a place where people fight for the principles they believe in.

      • http://www.freddestin.com Fred Destin

        I’ve been out of the company and we did our own exit – I am just feeling sorry for all the French entrepreneurs out there. Focus on message not messenger Aksam.

    • http://www.freddestin.com freddestin

      I am yet to understand what “national interest” and DailyMotion do in the same sentence, why a minister who was not even in charge of the “dossier” decided to step in against the wishes of Stephane Richard and the FSI executives. The same minister who appeared on the cover of a Magazine recently proudly touting “Made In France”. If that is not “ingerence politique” and ego maniac political behaviour, I don’t know what is.

      And you, Monsieur, are a grossier personnage who cannot argue without insult. End of conversation.

  • http://markbivens.com/ mark bivens

    Your position as a former insider yet now with outside perspective makes your insights all the more stinging, Fred. Surprisingly, among France’s VC community, the outrage is somewhat tame for the moment.

    • http://www.freddestin.com freddestin

      No one can afford to say anything. You simply cannot piss off the CDC, FSI or your tax inspector. My position as an outsider means I can. The only loud other voices out there are JD Chamboredon or Pierre Kosciusko-Morizet.

  • http://twitter.com/prerok Rok Preseren

    Fred, thanks for the post. Unfortunately you are right, except for one part – that the rock bottom can not be far off. But it is. What you are seeing is just the beginning of French ship sinking, and there is still time to plug the holes. However, I do not believe this will happen, simply because the voices of those that are trying to plug the holes go by unnoticed. The deck is above the water level, and people can still dance. The “national interest” will be running around for few more years, then a bit bigger deficit will kick in, then interest rates will go up, then state will have hilarious plan to save the budget by taxing the people to death who – again surprisingly – will welcome the move. Finally, someone from overseas will have to come save our asses.

    • http://www.freddestin.com freddestin

      I tend to be a glass half full kind of guy and desperately want France / Europe to be successful but I am afraid you might well be right.

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