E558 | Omri Benayoun, Partech: Growth Equity in Europe

0:00What if playing it safe is the riskiest move of all? If you only do the super, super safe deals, great, you're going to do 1.5x fund. Amazing. That's not exciting for anybody. While Silicon Valley chased growth at any cost, one European investor discovered something remarkable hidden in the numbers. Two-thirds of the companies in our second fund are bootstrapped, meaning they reach 10, 15, 20 million of AR without ever raising additional money. But what does true efficiency actually mean? Efficiency is the ability to invest your cash from operation as a scale-up. into something you're going to do at a high rate of return.

0:36The data tells an incredible story. If you look at the ratio AR per employee, in Europe, if your company is around 120K of AR per employee, usually you're going to be breaking up. In the US, twice as that, 250. So it's crazy. Europe's supposed weaknesses, regulation, fragmentation, capital scarcity, have forged an unexpected advantage. We can't say that the heavy regulation and the fragmentation of the European market is opposite. But for those companies and those founders who manage to emerge and succeed despite that, it shows a level of strength, competitivity that is well-tapped. And now, a new generation of founders refuses to settle.

1:22We are going to build a world-class business. We're not going to settle. How did Europe's constraints become its secret weapon for building global champions? Join us for this episode of the EUVC podcast with Omri Benayoun from Partech, where measured risks and disciplined efficiency are reshaping the rules of venture capital.

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4:18Let's start acting. This show is not investment advice, and the hosts of this episode may be invested in the funds and companies featured. Welcome back to another episode of the UBC Podcast, where we connect and champion the voices shaping European venture. Today, we're diving into the forces forging Europe's next generation of global champions. And joining us is Omri Benayoun, general partner at Partech, one of Europe's absolute premier investment platforms. Omri has been co-leading ParTech growth equity strategy since 2014, with two funds adding more than 1 billion euros. When not investing, he's a family man, an amateur chess player, and a rock climber.

4:55We need to talk about that because they want to go rock climbing in nature. But then, let's get into this topic of today. We'll explore the region's capital-efficient DNA, the role of elite capital allocators, and how Europe's complexity can also be a strength in building, resilient global tech leaders. Oh, my God, that was a big one. Did I get some of that correct around who you are? Yeah, yeah. I mean, you know, all correct, absolutely. I'm very happy to talk about rock climbing as well. Let's just touch on rock climbing. So, Curveball, here, right from the beginning, what does rock climbing give you as an investor as well?

5:32Yeah, look, I picked this up five years ago. So, I'm a recent convert. it really started out in nature because you have rock climbing in the gym, but in nature. And I really started in nature. And it's about expanding slowly your comfort zone and taking measured risks. Because when you are, you know, at 200, 300 meters up a cliff, there's a rope, you know, the gear is good, but, you know, you still have this fear. And so how do you live with the fear and go beyond it? That's replaying with this emotion that's been the biggest thing for me. Have you had any, I wouldn't call it near-death experiences, because your wife or partner or whatever you have listening in would probably be like, don't talk about near-death experiences.

6:25Of course, my husband doesn't have that. But tell me, have you had any experiences on the mountains where you like looked danger right in the eye? So when you rock climb, you fall. So not everybody is Alex Honnold, so does Free Solo, where if you fall, you're not there the next day, but you still fall. And I mean, it's scary stuff. Once I was in the side of France, near Aix-en-Prolence, and I was, you know, like a spider, six meters, you know, just in the void. And so then your partner helps you come up. And yeah, for sure, it takes a good 15 minutes to get back into the shape to keep going. Do you get that when you fall, do you get that life passing by slowly or not at all?

7:19No, it's very fast. Your heart is there. Boom. And yeah, I mean, you're not exactly yourself anymore. And then it comes back quickly. How often do you fall? Less and less. But should you expect as a rock climber that if you go for a two-day stretch, you should expect to fall at least once? Yeah, I mean, my teacher encourages falling. If you fall, you realize that it's not so bad. You can come back up and go higher. So if you're investing in metaphor, if you only do the super, super safe deals, great. you got to do 1.5x fun amazing but you know that's not exciting for anybody and so from day to day you have to do a bit more risk in a controlled fashion incredible we got to go climbing we got to do do a climbing so we do tracks in different places of Europe and I've been wanting to take a group climbing as well so we're actually going to the Alps in September just a small group so maybe maybe we should talk about that so Amri enough about climbing I want to ask you about your background because it spans government, corporate strategy, M &A, and operations, and now you're then co-leading Partex Growth Fund.

8:32I'd love to ask you what this multi-sector experience has done to shape your investment approach. Yeah, no, absolutely. Look, before becoming an investor, and it's been 11 years that I do the same thing, I was a very unstable person. And so I was changing jobs every three years max. And I've done different things, and that I think I've been all so much useful to what I do today. If I do from the latest one to the earliest one, I was co-CEO of an e-commerce firm called cdscan.com from 2012 to 2014. A billion-euro revenue business selling non-food items, mostly in France, competing with Amazon. And I think this has really taught me something that I use every day, which is how a real company operates.

9:17From the investor perspective, you can think that everything is all PowerPoint and Excel. but the hard life of managing people, of competing with the best in the world, like Amazon, as far as I was concerned, of having your website go down during the Black Friday week and you have just minutes to get it back up. Otherwise, it's a catastrophe. So I've lived through this and I think it probably gives me more empathy than your average investor on what can happen to founders as they scale their business. Tell me just before we go on to the next thing, cdiscount.com, where are they today? And I ask you this question because a billion revenue is in no way negligible, right?

10:02That's a huge company. And one thing that I find about Euribus, that we don't know the champions in each ecosystem. And that's wrong. We all know the big behemoths in the States. Same thing on the venture side. You can ask where the top 10 firms in the US and everyone can give you 10 names. In Europe, most people stop after five. So for that reason, let's just touch and see discount.com. Where are they today and kind of what's happened? I haven't checked the numbers recently. I do think that unfortunately, the past few years since COVID have been tough. As we know for all e-commerce, COVID has been great, but growth has been so fast that a lot of things broke.

10:45And when demand fell off a cliff for most of e-commerce, and you had some bottleneck issues in supplies and stuff, it's been harder. So I don't know exactly where they are today, but definitely something that I was really impressed when I was there is the quality of the teams. To be able to get to that scale and competing with arguably one of the top three companies in the world. It was amazing. And it was a company that was very much under the radar back then. Okay, then let's go to Casino because you led strategy there. Yeah, so that was interesting. Casino was a food retailer with operations spanning from France to Brazil, Colombia, Southeast Asia.

11:30And it's a group that was led by them by a finance genius, if you will, who started out as a finance folk and did an LBO on Casino and then became an operator. And then a lot of the international expansion, especially, but not just, were basically M &A, where he was operating the group as a whole as his portfolio companies. Because synergies between the biggest retailer in Brazil and the biggest retailer in Thailand, very slim, really. And so here I learned from arguably one of the brightest minds in France what it could look like to be a majority shareholder. As of today, with the growth at Aftek, we only do minority.

12:14We mostly do minority. Only one deal over the past 10 years was majority. But still, it taught me something about what is it to be a good board member, to be demanding, but not too much something like this, I guess. Yeah, let's just touch on that because I do think it is like I've seen it as well, much smaller scale, but I've definitely seen a shareholder, majority shareholder realize, we've got to move much closer to the business than hiring a chairman of the board that was miles above what you'd expect for this size of company. but then went in and was extremely efficient and effective with the leadership team of that company.

12:52And it was very interesting to see what it does when you have talent that ranks above the business, so to say, caring deeply about the business. And I think that, like I won't speak about casino here, but I do think that that's a bit what you have when you have these outlier shareholders that just have seen and done it all, incredible minds and brains and networks that are uncomparable to anything, go in a series of businesses and just work their magic. Yeah, and absolutely, that totally resonates. Something that I was really impressed by is, back at Casino, you had some seasoned retail bosses of business units, people who had been on the short floor and worked their way up, and they had so much respect for Jean-Charles Naoi in this case because he was bringing something radically different and he had this all-encompassing view.

13:50Totally, you could see how this combination, when it works well, can create magic. And I do think that that is exactly why I also am so impressed by the VCs that create magic because it is a bit the same, right? You come in with a toolbox that no one running an operational business could ever have in terms of network and insights and so on. And you can pull that and put that to leverage in a completely different way because you work closely with the founders. So like the power of an elite majority or minority shareholder is just very, very, very clear. Let's talk about systems then. Do I pronounce that correctly and tell me about it?

14:28That's also another huge 50 billion euro market cap software company. Yeah, so this is a company that no one is talking about in Europe, which I think is crazy. because, you know, 50 billion euro market cap in software, there's not so many of them. The company is a spinoff of DeSau Aviation, which produces both military jets and business jets. But it's a full software company, and they are the world leader in what they call PLM, product lifecycle management, but they are mostly well-known for anything around 3D design, production, and simulation software. So I would say most of the cars, most of the planes, most of the machineries, boats, etc.

15:12You see everywhere in the world are designed with Dassault's product. And they started out with the design piece. And then they're really expanding all along the lifecycle of the product. And also down in the data stack for product-centric companies. So you really have SAP in Germany that owns the ERP and all of the finance data. and we have Dassault for product-centric companies that owns the data around the product. And so, yeah, I was there for close to five years and I was running CopeDev over there. So strategy, investments and M &A. And really, this is where I learned almost everything. This company is not well known because it's quite closed.

15:54They have their own culture, almost everything through internal promotions. and they have this very clear view of what they want to build, what is a software roadmap, where they want to go, how they learn from their customers. And this I reuse every day. Every day in all my discussions with SaaS founders, what I learned there about the clarity of a product roadmap, about how you listen to your customers, this is key. And of course, since I was doing M &A, I also learned there what I use now as well, which is how does the acquisition of a software company by a behemoth, how does that work? Typically, you know, something that we talk with founders from time to time, if you launch a process because you want to do some form of exit, if you have not talked to these guys like two, three years before, and if you have not maybe done some form of commercial partnerships, never going to happen.

16:48This is not a fund that can react quickly, et cetera, for those big firms. It's really about a make or buy decision. Should I do it with my own R &D? Should I acquire this business? So yes, it's something that's been useful. I just want to challenge you to give me one reflection on what is an expression of the fact that we have a 50 billion euro behemoth that no one knows and no one talks about. I think the ecosystem loves to celebrate the quick buck. So, you know, the big fundraise very fast, etc. etc. And the companies that adopt a slightly different path, which is the painstakingly somewhat slow building of a company that is going to be the world leader in this field, but it takes a bit more time.

17:37It's less news. You know, Dassault was profitable from day one, so they never raised money. This is, I think, a cultural thing. And speaking of overnight successes versus, because I just did a bit of research and Dassault Systems is founded in 1981. So you're absolutely right. It is a different, it is a different. And we just, for whatever reason, take them a bit for granted and don't talk enough about them. All right, government. Then, so I am on a crusade to get VCs more involved, not in government necessarily, but at least in policy and politics. So I'd love to ask you, what were your reflections there?

18:15Maybe talk a bit about what you did there and how you're now thinking about this topic of VCs getting involved in policy? So it was the beginning of my career. You know, French engineer, it's a bit weird, but a lot of us back in the day, but still today, start by going to the government. I think you have the same thing in Japan, but in not so many countries in the world, whatever. And so I was for four years working for the Ministry of Industry and Finance, basically trying to support in different ways, French SMBs, if you will. Because I heard the other day someone say that they thought that everyone, maybe it would be a good idea for everyone to do a stint in government, either early in their career or later or something, but because it breeds a familiarity and respect for the system, so to say.

19:07But at the same time, it also, of course, brings in talent in a way that you don't normally. So maybe instead of doing military duty, we should do government duty. I think that'd be great because it's important for civil servants and politicians to get a better view of what the economic society does every day and get a bit of this inside. And conversely, the world has changed a lot, if you haven't noticed, in the past five years, maybe five, ten years. And I think up to ten years ago, people could think that, you know, the government was something that was in the background, you know, doing a thing.

19:38but we, us, you know, investors, founders could live our lives in a different plane, you know, of economic happiness. I think history is coming back, right? You know, war, COVID, policy, tariff barriers, etc. I am deeply convinced that investors and founders would have more and more to work with their own governments and other governments to succeed. We're not going to be able to just hide it. I think that government is something for, you know, other folks. Let me hear your reflection on this. I heard Marc Andreessen say on a podcast a couple of months back, he said, if you had told me 10 years ago that the largest arm within the Andreessen Horowitz platform would be their government or policy team, he would not have believed you.

20:26But it is today. What does that make you think? How do you think about it inside Partec? Do you do anything? I am not the only one. to have a government background. Actually, my partner in crime, Bruno Cremel, with whom I started the growth equity strategy at Partec in 2014, was even higher up. He used to be the chief of staff of the minister of economy in the early 2000s. So that tells you something about France, where a connection between the states and the elites is quite close. But it's something that I think France was probably, for better or for worse, slightly ahead of the curve of other countries because of this tradition of a very strong central state who want to project power also through its action in the economy.

21:13And so I think what we're seeing now is this is happening everywhere. You know, when Trump is doing tour in the Middle East and where one of the big takeaways is the investment in AI is projecting power through state means of the economic sphere of all AI companies. is every country is going to do this more and more. And so I don't think as investors, we have a choice to stay absent of this. This is to the service of our LPs and to our founders. Are you willing or able to share anything concrete that you have done or are discussing inside Partec with respect to this specifically? There are two ways.

21:57First, we know founders, we know politicians. We can bring them together. So at least the politicians hear directly from the founders, whether they're daily issues with regard to some regulation, stock option laws, labor laws, stuff like this. So this we do. And the other one is when it's a bit less the case right now because France is in a somewhat deadlock political situation right now. But when governments want to do laws that affects the tech sector, often they would ask folks they know what they think if we had ideas. And yes, we've been able to contribute. Sometimes, you know, they want to do this in a very open forum and we're happy to do this.

22:39And sometimes they want to test ideas with us and we would answer like everybody else, I would say. With respect to the hearing from founders directly, one statement that I heard that resonated very well was that the problem is that in most countries, and especially in Brussels, the ICP of the people that are building lost there so to say is a farmer and his two children and we really need to do everything we can to make that create another ICP for them which is the founder in Europe and I think that that's a powerful narrative to use you know now in every country you have a sovereign fund that is really acutely aware of this in French you have this entity called BPI in Germany KFW in the UK BPC.

23:28And then you have EIF at the EU level. And those folks are much closer to the political echelon that we are at Partec. And they're also quite close to us and to our founders. And often they're also a very strong instrument in getting this proximity closer. For better and for worse, and let's leave it at that. You've been a driving force behind Partec's growth fund strategy. And I'd love to ask you for that reason, what gaps you see in the European market that really made you say in 2014, let's really double down and do a growth fund in Partec? Yeah, I mean, up to 2014, Partec was really doing early stage investment with two different strategies.

24:12One seed led by my partner, Romain Laveau, and one, let's say, venture led by my partners, Jean-Marc Batouilleau and Philippe Colombat. And back then, what they did see is founders up to this point were sometimes happy to sell early, but they were starting to see more ambition. And more ambition sometimes meant, you know, more fundraisers. And there were almost no growth fund in Europe back then. I think you had Hive in Europe that was on this podcast not long ago. Candid partners. And maybe that was it. But the demand from founders and companies was there. The supply wasn't. So some of this supply was brought from U.S.

24:54funds, but we felt that the market was expanding and there would be demand for domestic growth capital. So this is why Baudelaire and I started the journey. And then tell me now in 2022, you did the second fund, which means that we have a third one very soon, I'm sure. So tell me about 2022 or 2020. What were the reflections coming in to 2020? What had changed? What did you see that you needed to? Yeah. 2020, interesting times, right? We all remember. I cannot say that there was a lack of capital in 2020. So there was really too much of it. And so here we decided to go to a probably slightly less shiny, exposed part of the market.

25:43and with fund two that we are finishing to invest as we speak, we went after bootstrapped companies. Two-thirds of the companies in our second fund are bootstrapped, meaning they reach 10, 15, 20 million of AR without ever raising institutional money. And here, this is the gap we saw. We saw that capital was going after the growth at all cost type companies, but that if you were more on a say 25 to 40 percent growth mindset but you know with EBITDA between zero to 20 you were not interested interesting for the VCs because you know if you're profitable if you're profitable it means you have a problem in your head but you were not in interesting for the mid-market LBO guys because you know at 10 percent EBITDA You cannot really leverage.

26:39You cannot even value it on EBITDA. So, you know, what can you do? And so we went decisively to this part of the market. Not just, right? But also this part of the market. And it's been good for us. And we're very happy of the founders that are backed with this fund as well. It's a bold move to make in 2020. In 2020, almost everyone raised money to just put more money into the fast-growing companies, not thinking about capital efficiency at all. What allowed you, what do you think made you and your partners build the conviction to double down on such a contrarian strategy for the market? Like 2020 hindsight, it was absolutely beautiful.

27:22But in 2020, I think everyone was like, why don't you just raise a billion and just plow that money into some scooter companies? I think that's a good point. I remember people asking me, so are you going to do it? And we stayed away. I mean, I don't know. You only realize in retrospect that what you did was different. It's not that we said we're going to do something different. But none of the four partners of the fund, so Bruno, who I mentioned, also André, Andrew, and myself, none of us have been swimming in this tech investing ecosystem for decades before. We all come from a different background where basically we just filter out the noise and we only try to apply, I guess, what people in our ecosystem now call the first principles.

28:16You know, we just look at the business. We look at the business. Is this a good strategy? Do you have the beginning of a moat? Are the unit economics excellent? And is the founder ambitious, but a good steward of capital? So if we have all of this from pure bottom-up perspective, whether it's, you know, we like it because if you can compound at, let's say, 35, 40 % growth for a long time, you can make a lot of money. And this is it, really. And it is beautiful. Let's talk a bit more about the capital efficient advantage of Europe. It's often being touted as a European strength. I'd love to ask you what you think the structural and cultural factors that contribute to this are and how you have seen it play out in your portfolio.

29:01Yeah. So first, I think we need to define what efficiency means. Especially because in the recent years with this race to become profitable or break even, some people are decided to conflate profitability and efficiency. It's not the case. Efficiency is, and this is, I think, I will quote my partner Andre, is the ability to invest your cash from operation as a scalar into something you're going to do at a high rate of return. So efficiency is only that whatever investment you are putting in R &D, in sales, marketing, you know that it has a high rate of return. And so we are very interested in this because this is how you create long-term shareholder value.