French government takes ownership stake in homegrown start-up

A fund run by the French government has invested 10 million euros in Paris-based online network Viadeo, taking an undisclosed stake in the company, in a bid to nurture homegrown technology start-ups.

Viadeo, which describes itself as the world’s second-largest social network for professionals after LinkedIn, announced on Thursday it has secured 24 million euros in new financing.

The funding, which equates to $US31.6 million, has been described by analysts as the biggest investment to date in a European network.

One of the investors is a fund set up by the government of French President Nicolas Sarkozy, which buys strategic stakes in French companies and supports their development.

The fund has already invested 2.5 billion euros in French tech companies including tech giant Groupe Bull, video-sharing service Dailymotion and blogging platform Skyrock.

The 24 million euro investment in Viadeo also includes new money from German insurer Allianz and American investment bank Jefferies.

Compared to the deals done in Silicon Valley – where Facebook recently acquired photo-sharing app Instagram for $US1 billion – 24 million euros doesn’t sound like much.

However, it is a sizable sum for a French start-up; Viadeo has raised less than 50 million euros to date since it was founded in 2004.

According to Viadeo, the money will be used to finance its expansion in international markets. Already established in France and China, Viadeo has been expanding in India and Africa.

“These markets are now exploding for us. The market is there, but you need this kind of cash when you want to expand, ” Viadeo chief executive Dan Serfaty told The New York Times.

Viadeo employs about 400 people worldwide, half of whom are in France.

According to Serfaty, the new round of financing will allow the company to double its workforce, with a “proportionate” number of those jobs being created in France.

“Companies that are based in France, with employees in France, with job offers in France – that’s something they looked at,” Serfaty said.

The sovereign fund’s stake was not disclosed, but Serfaty said institutional investors – including the fund – will own less than a third of the company.

The fund will, however, get a seat on Viadeo’s board, raising questions as to whether Viadeo’s innovative start-up culture will continue to thrive under the influence of the government.

While it’s unlikely the Australian government would consider taking direct ownership stakes in local start-ups, Telsyte research director Foad Fadaghi has issued a warning to businesses that undertake work for government agencies, namely app developers.

Fadaghi says developers that create apps for government agencies should seek legal advice to avoid the possibility of their work being blocked.

The NSW Government has shut down several transport-based apps in the last few years.

“It is vital for developers to work within the framework of the government regulations in place, so seeking good legal advice is really paramount,” Fadaghi told StartupSmart.

“There are also issues around intellectual property infringement, copyright, etc. All those things should be considered, especially if there are a lot of upfront costs.”