Building World Champions: Funding lessons from Alan, Ornikar, Shift Technology and BackMarket
Even for the increasingly hot French Tech ecosystem, the latest series of 9-figure funding announcements felt remarkable. First, Alan raised $220 million for its healthcare super app. Then online driving education startup Ornikar closed a $120 million round. Followed by Shift Technology who announced a $220 million round for its AI that fights insurance fraud. Finally, just two days ago, Backmarket announced a mega €276m million funding.
These numbers were unthinkable as recently as 2018 when there were no 9-figure French Tech funding rounds. Even last year, there were only 9 companies that raised $100 million or more in a single round. Now we have 4 mega-rounds in just 2.5 weeks.
Yes, French startups are crushing it. But the ability of these companies to attract such large rounds is not simply a case of them riding some French Tech momentum or buzz or hype. Instead, these rounds represent a new maturity and sophistication among French startups. Rather than playing a French game or European game, these companies are playing a global game which has allowed them to attract the interest of the world’s biggest investment funds.
At a time when there is a worldwide surge in investment capital and liquidity competing for better returns, raising such massive rounds may appear to be effortless. But it’s not. So, I want to explore the reasons for their success because they hold some important lessons for other French founders.
The Big Leagues
The first thing to understand about these rounds is the types of investors who participated. The media often use “venture capital” as shorthand to describe such funding rounds. But in each of these cases, the rounds were led by either hedge funds or private equity funds.
For instance, PE firm KKR led the Ornikar funding. Advent International, another PE firm, led Shift’s round. And hedge fund Coatue led Alan’s funding round. Coatue may not be a household name but consider some other tech companies it has backed: Airtable, Ant Financial, Databricks, DoorDash, Instacart, Snap, and Spotify.
There are some important nuances when it comes to the differences between how a VC fund invests compared to PE money, but I’ll save most of that discussion for another time. For now, what’s crucial to note is that that private equity or hedge funds are typically many times larger than VC funds. They are investing in a far greater number of assets while looking for solid, steady returns rather than the targeted number of investments made by VCs who are hoping that at least a couple will produce massive returns.
When investing at such scale, a PE manager doesn’t have the luxury to spend months getting to know an individual founder and immersing themselves in esoteric technologies or risky business models. They are looking for startups whose mission and models are easy to grasp and compare to other players so they can have a high degree of confidence in their returns.
That’s not to say that these three companies aren’t innovative. They certainly are. But they’ve also managed to align their goal of disrupting various markets with larger technical trends that made them appealing to these global investors with deep pockets.
Take Ornikar, for instance. The company has made a lot of noise in France thanks to the competition it has brought to the tradition-bound driving school model that is time-consuming, expensive, and often frustrating. After battling regulators and incumbent players, Ornikar built a strong business and raised a $40 million round in 2019 from respected VCs such as Bpifrance and Idinvest.
But as Ornikar’s CEO and co-founder Benjamin Gaignault explained to TechCrunch, even as the driver education business grew, the company noticed that its new driving insurance product that it launched last year was really taking off. Suddenly, the size of its addressable market was many times larger. While the global market for driver education is around €2 billion, driving insurance in France alone is €22 billion. He wasn’t afraid to shift Ornikar’s focus in a way that broadens its opportunity while still also staying true to the purpose of the company.
While the insurance product is young, it offers some compelling metrics for an investor such as the size of the existing global insurance market and the potential if Ornikar can capture a percentage. In addition, SaaS business models in general are so widely accepted across so many verticals that the economics in terms of operating costs and margins make for more straightforward benchmarking.
It’s no accident that Shift and Alan are also thriving in the insurtech space. But like Ornikar, they are attractive not just because they have found a trendy vertical. More importantly, as Ornikar is doing, these two companies are also stepping out of their original, more narrow verticals. They are pursuing strategies that will allow them to have much greater impact.
In the case of Alan, the company began with a focus on health insurance. But more recently the company has begun to grow into a healthcare super app that allows companies to do things like get medical advice, make telehealth appointments, and talk to your doctor. As for Shift, it started by tackling fraud in casualty and then property insurance but now is moving into other verticals such as health insurance.
As I noted in my look at the Modern Private Investor, impact is an increasingly important pillar for investors. These companies are poised to have much greater impact on bigger markets in a positive way. The founders have identified important opportunities at the intersections of technology and impact. In this case, they are doing that by blending insurtech and SaaS.
While it’s exciting that these are French companies, that doesn’t matter to these investors. These investors didn’t back these companies because they are great French companies or because they are fans of French Tech. They invested because they believe Alan, Ornikar, Shift and BackMarket can be global winners.
It’s great to see that international ambition. It’s even better to see entrepreneurs who have the savvy to build these companies and align their mission with the motivations of global investors. These investors are capable of writing the large checks that can help these companies become world champions.