The French Government’s Exquisite Bullying

The French government is saddled with enough problems; in theory, it no longer needs to create new ones. But now it wrote another excellent chapter in its tome on how to interfere with private-sector businesses, hamper entrepreneurs, and encourage them to start up their operations elsewhere instead of creating jobs in France.

Yet, President François Hollande had declared on May 1, after the rolls at the unemployment office had swollen 11.5% in 12 months to an all-time record of over 3.2 million people, that the policies the government was implementing had “only one goal: to win the battle of employment.”

Powerful words. And just that. Beneath the surface, his government continues to kick at businesses. The latest was directed at two major companies trying to make a deal – but it hit all startups in France.

Yahoo wanted to acquire Dailymotion, a French video-sharing site, the 12th largest in the world, and one of the most successful French startups, though still a dwarf compared to YouTube. It was founded in 2005. In 2006, it raised €7 million in venture capital. In 2009, the state-owned Strategic Investment Fund (FSI) plowed €7.5 million into it as part of a €17 million round. “We are one of the rare French players that can participate in the future consolidation,” said Dailymotion CEO Cedric Tournay at the time.

In 2011, France Télécom – the former state-owned telecom monopoly in which the government still holds a 27% stake – acquired 49% of Dailymotion. In January 2013, it acquired the remaining 51%. Then it tried to find an American partner for Dailymotion that would develop the platform and expand its reach internationally, particularly in the US. It made sense. It might never be the next YouTube, but it would need to get bigger to thrive.

Hush-hush negotiations had been going on for months with Yahoo. But four weeks ago, alarmed by leaks that Yahoo wanted to acquire 75% of the company, the Ministry of Finance and the Ministry of Culture expressed their strong doubts about the appropriateness of the deal. And on April 12, the deal blew up. Industrial Renewal Minister Arnaud Montebourg was meeting at his office in Paris with Yahoo COO Henrique de Castro and France Télécom CFO Gervais Pellissier. “I won’t let you sell one of France’s best startups,” Montebourg told Pelissier. “You don’t know what you’re doing.”

On April 23, an unnamed source “close to the Ministry of Finance” told le Monde, that Dailymotion was one of the few successful content platforms France has managed to put on the Internet in recent years. “This is a real gem,” the source said. “And it doesn’t even lose money. It would be a shame to let it go.”

The verdict of the government. France Télécom CEO Stéphane Richard was angling for a second term. He didn’t want to get into a fight with the largest and omnipotent shareholder, the government. He had to toe the line. So he decided to scuttle the discussions.

And selling less than a controlling share? Yahoo asked for “at least three-quarters,” an unnamed source at France Télécom told le Monde; it wanted “to be able to integrate the platform into its content; it’s not interested in a minority participation.”

On Wednesday, Montebourg confirmed that he’d intervened to block the acquisition of this “gem” to preserve its identity. “We want a balanced development. We are for a 50-50 solution,” he said, referring to the alliance between Renault and Nissan that preserved the identity of both companies. “It is the interest of France and in the interest of Dailymotion.”

“Montebourg is sending a bad and wrong signal to international investors,” said Jean-David Chamboredon, president of ISAI, an internet startup fund. He’d become famous last September when he published an explosive essay about the government’s anti-startup policies – “La France du business stopped breathing,” he wrote. It hit a nerve with entrepreneurs, artisans, and mom-and-pop business owners whose ire spread across the social media.

Keeping this “gem” out of foreign hands was “in the interest of France and in the interest of Dailymotion,” Montebourg claimed. If it had a technology that intelligence services relied on for their communications, OK. But Dailymotion is an also-ran video-sharing site that needs the right partner to survive and thrive.

So, Montebourg and his ilk have once again confirmed to private-sector businesses, from giants like France Télécom to startups struggling to make a dent, that the government would bully them into complying with a convoluted industrial policy that has already caused so much damage to the economy. This sort of short-term thinking geared towards “saving” a few jobs on TV or making a patriotic gesture for political purposes is alarming entrepreneurs whose dream it is to build companies, create jobs, and sell their dreams after years of blood, sweat, and tears – without being bullied by the government. And this event was one more reason for French entrepreneurs to set up shop elsewhere – a trend that has been picking up momentum.

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