Nicolas is a fascinating thinker, and must be one of the hardest-working people in European venture. Many of you will be familiar with his newsletter European Straits, where he shares frequent insights on “The Entrepreneurial Age, viewed from Europe”.
As well as running The Family and European Straits, Nicolas writes Nouveau Depart with his wife Laetitia, contributes a regular column to Sifted, sits on the board of Radio France and curates Capital Call with Willy Braun and Vincent Toutai-Thomas.
You can check out our conversation on Spotify or Google Podcasts, or have a look at some of the key insights and takeaways below. We dig into Nicolas' background, how he started The Family and discuss their investment strategy.
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From humble beginnings to the French civil service
Nicolas does not have what one might describe as the “typical” profile of a European VC. He hasn’t worked in investment banking, management consulting or private equity. He is not from a wealthy family. Nor is he an exited founder.
A son of musicians born in Normandy, Nicolas studied computer science in Brittany, in France’s Celtic north west.
After graduating in the dotcom crash, he decided the internet wasn’t up to much and opted to get a “proper job” with the government instead. To do so, he studied public administration at two of France’s “grands écoles” - their most prestigious educational establishments.
First it was Sciences Po; the alma mater of six of the eight presidents of the French fifth republic (including current president Emmanuel Macron). World-renowned luminaries of French culture such as Marcel Proust and Christian Dior are also alumni. After Sciences Po, he spent two years at ENA, the training academy for France’s political elite. As a mathematical thinker, he specialised in finance.
This specialisation led to four years at the French Ministry of Finance, balancing budgets and generally attempting to make France a better place for its citizens. Here, Nicolas noticed a challenge that is only too familiar to those with experience working in the civil service - it is much harder to effect change than you hoped.
It was time to get out, so in 2010 Nicolas entered Startup Land. He ran a SaaS company for 2 years. Whilst he didn’t get the results he had hoped for, he experienced first hand the challenges of running a tech company in France.
In particular, he noticed that the fundraising process was fundamentally broken. Valuations were aggressively low, intermediaries and the VC firms themselves were taking high fees, VC’s were excessively clubby and only accepted warm referrals - in short, the ecosystem was toxic.
Building The Family
The Family came into being in early 2013 as a direct solution to this problem. Nicolas’ co-founders - the talismanic Oussama Ammar and CEO Alice Zagury - are also unconventional venture investors. Why? Like Nicolas, they have founder and operator experience.
This is, surprisingly, still rare in VC’s in Europe. In the UK, for example, just 8% of venture investors have prior experience working at a startup (let alone building one). This compares to 60% in the US.
A firm built by founders, for founders, The Family aimed to form a protective bubble for French entrepreneurs. In exchange for some equity they would give these fragile startups everything a good family does - compassion, advice, support, and access to finance. This, in theory, would protect them from the underdevelopment of the ecosystem within which they existed.
The Family is built on 3 pillars:
There is a technological paradigm shift; software is eating the world. This creates a wealth of opportunities for innovators and the investors that back them.
To capitalise fully on these opportunities outside of Silicon Valley, we need to adapt the way we support founders to their local ecosystem. If the ecosystem in which they exist is young, you need to insulate the most ambitious founders from the toxic elements of this ecosystem in order to optimise for success.
Anyone can become an entrepreneur, regardless of background or education.
They started by renting a flat near the centre of Paris and hosting a wide variety of events - curated dinners, workshops, talks and meetups. They preached their creed to the broader public - projecting power, telling their story and recruiting new founders, investors and disciples into their orbit.
They began by taking a 1% equity stake in the businesses who were joining their collective. Along the way, they also figured out some smart ways to turn their branding and ecosystem-building activity into a revenue source, rather than a cost base. For example, they hosted conferences aimed at corporates, sold entrepreneurship classes similar in format to Ondeck, carried out speaking engagements and ran corporate innovation consultancy.
But their core focus remained helping their crew of founders to build great companies. Over time, The Family increased the equity stake they took to 5%, and expanded their program to accept founders worldwide. They’ve now raised over $20m from Index Ventures, GFC (Rocket Internet) and LGT Capital Partners, providing them with the runway necessary to continue their operations long into the future.
Lessons on early stage investing from Nicolas and The Family
✊ Build a brand by standing for something real
What I find most interesting about The Family is the authenticity behind the (excellent) branding.
You can see that they are doing their level best to foster not just the health and success of their own portfolio companies, but also of the broader startup ecosystem in Europe. This is evidently born of a genuine passion for entrepreneurship and belief in its increasing significance as a tool for positive societal change in the 21st century. This is not a group of people doing it simply for the money - at least not for the short-term gains.
They want to believe in people, be their first yes, and join them at the very beginning of the journey when nobody else backs them. It just feels so much more exciting and authentic than “we back SaaS visionaries (with at least $30k MRR)”. And to founders, this stuff matters.
However, if we dig deeper into this philosophy we can see that there is a very strong long-term investment rationale. You see, Nicolas, Alice, Oussama and the rest of the team at The Family have recognised three important secrets: a rising tide lifts all boats, pre-seed indexing is a smart way to make money (if done right) and long time horizons can be a competitive advantage.
🚣♀️ A Rising Tide Lifts all Boats
A welcoming, collaborative, open-minded ecosystem is a strong one. It’s what makes Silicon Valley work, and it builds more successful companies. All those Silicon Valley VC's aren't geniuses, they're just in the right place
The health of the ecosystem in which your portfolio companies exist is deeply intertwined with the success of your portfolio. A slow moving, toxic ecosystem kills baby startups when they most need nourishment.
What exactly is a toxic ecosystem? It’s hard to narrow to any one point, but the following seem to contribute:
High market opacity (poor information flow between investors, meaning fewer investors know when a company is fundraising)
A need for warm intro’s
Long DD processes ending without a cheque
Lack of value-add beyond capital
Financially-focused (rather than product-focused) investing
Didn't go to the right university? Wrong colour or gender? I'll need more evidence I should invest
Lack of risk appetite
Poor liquidity (including poor secondary liquidity for founders and early angels)
These are, it could be argued, historic contributors to the relative lack of performance of Europe’s startup ecosystem (vis-à-vis the USA, China or Israel).
Our collective failure to spin the flywheel of the entire ecosystem at its earliest stages by embracing a culture of collaboration, fast decision making, entrepreneurial intuition and paying it forward is one of the key reasons Europe continues to underperform. This is well described in a short piece by The Family’s own Balthazar de Lavergne (I know, cool name), as well as this piece by Alex Danco, which I’ve previously referred to. I also wrote about it at length in the context of the UK (one of Europe’s stronger ecosystems, but still a laggard).
By protecting founders from ecosystem toxicity, the Family aims to improve their odds of success.
🌱 Pre-seed indexing is a smart way to make money
If you read this blog much, you’ll know I’m a fan of this approach.
Investing very early with the right model guarantees you a very good entry price and a healthy level of portfolio diversity which means better IRR over the long term. Nicolas quotes David Teten in his piece 11 notes on Y Combinator:
‘“angel investors earn higher returns than small VCs, who in turn earn higher returns than large VCs, let alone most other asset classes.” Yet the same angel investing has been overlooked by the asset management industry for a reason that’s almost unspeakable (or rather laughable): you can’t make fees on angel investing.’
The Family’s business model is an especially interesting take on angel investing. By building a powerful network of quality VC’s and supporting ridiculously early-stage founders, they have succeeded in convincing people to part with 5% of their equity for no cash.
The capital in this equation comes on demo day, from the VC’s that The Family introduces. What this means, concretely, is that if we assume The Family’s cost per incubated company to be somewhere in the region of €30k (I don’t have any numbers on this, so it could be lower or higher), they are getting into every business they back at a €570k pre-money valuation, with a decent equity stake. Even if we assume a much less conservative cost per company of €70k, we are talking about a €1.33m pre-money - well below the entry price for most seed rounds nowadays.
What’s more, quality founders are happy with this deal, because The Family is solving a problem other investors are not. People are getting the education and support they need. Combined with a strong brand and network, raising a round of funding at a reasonable valuation becomes much easier.
The Family, in short, are doing their job.
⌛ Time Horizon as a Competitive Advantage
The Family’s business model is, of course, not without its challenges. You’re not going to earn any management fees (because you’re not investing any money), so you need to figure out other sources of revenue. Investing very early also requires an incredible amount of patience, and won’t make you much cash in the short term. Realistically, it’s likely to be a 10 year journey for most of your portfolio.
This is an unviable challenge for a lot of VC firms. LP’s in a fund are usually expecting their money back on a 5 - 8 year time horizon, and most GP’s are looking to pay themselves £100k a year. Therefore, they stick to investing at later stages, where they can manage larger funds, earn more fees and exit quicker.
It’s an advantage that compounds exponentially. As you keep backing lots of businesses and build an incredible, thriving ecosystem of founders, you drive stronger network effects and get more access to more great early stage companies.
All you need is a little patience.
As we know, good things come to those who wait. ☘ 🇫🇷
Thank you Nicolas for taking the time to speak with us! If you’re interested in finding out more, click below ⬇️
If you’d like to join future Odin discussions live…
Co-written by P.R. and Jon
📚 Go deeper:
11 Notes on Berkshire Hathaway - The Family's secret master plan that no one will read because it's so long - Oussama Ammar & Nicolas Colin
What Makes an Entrepreneurial Ecosystem? - Nicolas Colin
A Brief History of the World (of Venture Capital) - Nicolas Colin
Think You Understand Capitalism? Think Again. - Nicolas Colin
Why the Canadian Tech Scene doesn’t work by Alex Danco
How Investors Can Learn From Jeff Bezos's Long-Term Thinking - Nicholas McCullum