French venture capital targets niche strategies

Greg Gille
09 April 2014

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Recent closes have seen managers focus on niche investment strategies in an effort to stand out in an otherwise well-served local market. Greg Gille reports

The past few weeks have been eerily quiet on the fundraising side in France, at least as far as the usual mid-market suspects are concerned. But the months ahead should bring clarity as to whether the renewed enthusiasm for European private equity opportunities will eventually benefit French GPs currently on the road, such as PAI, Activa or Azulis.

Smaller players have made headway with their own fundraising efforts regardless: Innovation Capital, Orkos Capital and Emertec Gestion all held first closes in recent weeks. And although the amounts raised are modest, all three vehicles have seen their managers focus on niche investment strategies in an effort to stand out in an otherwise well-served local market.

Innovation Capital kicked things off at the end of February with a €40m first close for the Services Innovants Santé et Autonomie (SISA) fund. The vehicle has a target of €100m and is believed to be aiming for a final close within the next 12 months. SISA is not focused on a very narrow sector, instead concentrating on an overarching and yet unusual angle: in the wider context of an aging European population, Innovation will target businesses operating within Europe's "silver economy," namely SMEs that cater to the healthcare and welfare of the elderly. SISA will invest in companies that operate within the technological side of the industry - including robotics, connected objects and technology for the home - and the organisational aspect from home surveillance and maintenance to health and social care.

Orkos, meanwhile, has picked up on another trend likely to generate significant investment opportunities in the near future: the GP has teamed up with Entrepreneur Bruno Bonnell to manage a robotics-focused venture fund, Robolution Capital, which reached an €80m first close in early March. Having originally had a €60m target, Orkos now has its sights on €100m and hopes to close by year-end. The vehicle will target European companies that operate within the sector of service robotics - namely integrated products, hardware, software, components, services and smart products for the robotics industry.

By this standard, the focus of Emertec's latest vehicle is rather more mainstream: Emertec 5, which held a €50m first close in March, targets companies operating in the environmental technology sector. The fund's first investment still stands out compared with the usual French venture staples such as mobile advertising start-ups or drug developers: Emertec provided half of a €1.8m round for Ynsect, a French biotech focusing on sustainable, large-scale insect farming for research purposes.

Public support
Niche strategies aside, the three new funds also share striking similarities when it comes to their LP bases. French state-backed investor BPI France is a major investor in all three vehicles, having notably contributed to a quarter of Innovation Capital's first close and nearly half of Emertec's. The European Investment Fund (EIF) also contributed significantly to two of the first closes, namely to Emertec and Orkos. In fact, BPI and EIF provided 50% of the €80m raised for Robolution Capital between them.

The significant initial push granted by BPI France and EIF to all three vehicles highlights the growing dependence of French VCs on public funding. Research from local trade body AFIC has shown that public sector entities' contribution to French funds in general has grown significantly in the post-crisis years, overtaking pension funds, funds-of-funds, banks and insurers in 2012.

But focusing on niche segments of the economy has enabled the three managers to entice another category of LPs increasingly invested in the French VC space: corporates, attracted by the potential impact of the investments on their chosen markets. Not surprisingly, Innovation Capital's "silver economy" fund caught the eye of players such as life insurer Malakoff Médéric and social welfare specialists Réunica and Humanis. Robolution Capital attracted the likes of Orange, EDF and Thales, while Emertec V received commitments from energy firms GDF Suez, Areva, Siclaé and Unigrains.

Time - and subsequent closes - will now tell whether the three managers' niche investment strategies will have a similar appeal for institutional investors on the lookout for more adventurous venture opportunities.