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eFounders Letter #3 — Rise of a startup studio

Thibaud Elziere
Thibaud is the founder of Hexa. An entrepreneur at heart, Thibaud has co-founded over 30 companies through Hexa, many of which have become huge successes. He knows what makes a good idea and how to kickstart it. Previous to Hexa, Thibaud exited his first company Fotolia to Adobe.

4th year as a startup builder

This year was the year eFounders focused on structuring itself. For the past 12 months, we haven’t officially launched any new project. We rather placed efforts on raising funds: 4 different rounds of funding happened this year in eFounders’ galaxy, including ourselves. Aircall raised a seed round of $800K in June. The same month, eFounders raised $6 million with Oleg Tscheltzoff, followed by Textmaster, which raised $5 million from Serena Capital. Mailjet finally raised $11 million one month later with Seventure and Iris Capital. We haven’t launched any new companies, but we moved to new offices both in Brussels and Paris. We didn’t launch any new companies, but we have 5 projects in the pipe right now; they are launching in the coming months. This year was the calm before the storm!

The coming months are going to be pretty busy. We want to launch Illustrio (former project name designX) before the end of 2015 — it is still in private beta. Hivy (formerly Tipi) is currently in beta mode with its 3 first apps: Leave Management, Office Needs and Room Booking. Three other projects, AdminX, ContactX and PayX are being built and will open their beta in the coming months. We are actually in line with our ambition to create 3 to 4 startups each year. We have learned so much this year; here is the quintessence.

True Entrepreneurs

When we are looking for founders for our new projects, the first thing we ask ourselves is: is the founder an entrepreneur? As the definition of an entrepreneur is sometimes very fuzzy, I always try to sum it up to two aspects: being stupidly optimistic and enduringly enthusiastic. When you’re building a new startup, you’re always confronted to big issues or structural problems. It’s easier to tackle these obstacles if you are deeply convinced that there is a solution for every issue and certain that things always end up well. Shit systematically happens when creating startups. It is also the case at eFounders’ startups: the only difference is that in real life, big problems are very likely to kill the project. eFounders overcomes them, as we’ve seen this year.

Illustrio faced the greatest of challenges: we had to find a new CEO. It has been an incredibly hard decision to make because we had built an emotional relationship with him, and because he is a truly skilled person. But there was a mismatch with the team and we did what we had to do to keep the project alive. Much less important but still critical, we had to change the name of our OfficeX project from Tipi to Hivy. We had decided to name it Tipi (with domain name jointipi.com). The day the brand was registered — 3 months after submitting the brand registration form — we were contacted by TipiMail, one of Mailjet’s competitor. TipiMail had been registered months ago and the founders were convinced that we registered the brand Tipi on purpose to parasite its brand identity. Of course, it was absolutely not the case, but there was no reasoning him and we decided to change our brand. It’s been a challenge, for the brand, for the team and for the tech, but we are now very happy with our new name, Hivy.

We also had to abandon a project for the first time, Solved. The idea behind Solved was to create a 24/7 support service for software related issues. If you had a problem with any software (like Excel or Google Analytics) you could contact one of Solved’s experts directly by clicking on an icon on your computer. Experts would answer live with video and screen sharing. We were able to quickly build a community of experts but we couldn’t find clients willing to pay for the service, although Solved’s founders went to the Silicon Valley and met tens executives in charge of training in several companies. Without traction, we realized that we had built a product people like, but didn’t really want. Although killing a project is extremely hard, because of all the time, energy and resources invested, we decided it was the right decision. In retrospect, I’m glad we did it soon enough — before incorporating the company, which would have entailed complicated legal issues.

It has been a truly humbling experience for us. We keep repeating Paul Graham’s famous quote which eventually became YC’s baseline: “Make something people want”.

Something went wrong in our process for two reasons: 1. we overestimated the perceived value created by our product and 2. we misunderstood the go-to-market strategy. A “bottom-up strategy” was not possible because we build something employees don’t need (or don’t know they need) and a “top-down selling” was impossible because we didn’t find who was the right manager to sell the product to. In the future, we promised ourselves to be more attentive and more analytical to calculate the perceived value and more attentive at planning the go to market strategy early on.

American Dream

Our two latest companies Aircall and Front have been incorporated in the US. We have spent a lot of time in San Francisco this year in order to get a better idea of the startup ecosystem over there. Let’s make it clear, here in Europe, nothing is even close to what is happening in San Francisco and the Valley in terms of quality and quantity of excellent projects and people.

It doesn’t mean that we want to start all our companies there. Every startup is considered separately and the decision depends on the target market and initial traction. Two of our companies are incorporated in Belgium, 2 in France and 2 in the US. We usually create the company 9 months after starting a new project. Before the incorporation, the company is incubated at eFounders. It gives us time to understand our product and market, and to find the most appropriate place to set up the company.

In terms of financing, the fight is totally unequal between the US and the rest of the world. Typical seed financing is around €1M in Europe for a €3M valuation. You can at least double those figures for successful startups in the U.S. The difference is so big that it is almost stupid for a company with a global product (with no regional bias) and traction in the U.S not to incorporate as a Delaware company.

Don’t get me wrong, it is not that easy to raise funds in the US. The competition is very strong and being visible above the crowd is not an easy task when you come from the far far East. Front, our first “U.S” company at eFounders attended YCombinator’s Summer 2014 batch. In addition to offering a strong visibility and access to a large network, one of the biggest upside of YC is to make the company come and stay in the US for 3 months. Just by going here and by having to become a US entity gives the company more chance to raise money. Building a trusted network takes a long time and we recommend our founders to stay at least 2 months. It is the time you need to start meeting the right people and earning their confidence. It is so important to have a steady local presence that we are thinking about having a foot anchored there.

It’s also complicated for a startup coming from a startup studio to get financed by VCs, especially in the Valley. It is actually much harder than in Europe where Rocket Internet paved the way to this new model. Although there is a proliferation of famous startups studios like Expa, Betaworks and again more recently Pioneer Square Labs, American VCs are still very skeptical about the model. Startup Studios do not meet their idea of what Entrepreneurship should be, regarding their standards. I always wonder whether they are badly influenced by copy-cat models like Rocket internet’s, which seem to contradict their idea of “innovation”, or if they think entrepreneurship can only have one color. What I know for sure is that if they are too reluctant to invest in studios’ startups, they take the chance to be bypassed. Getting VC financing is really healthy for our startups. In addition to fixing a fair valuation to the company, it makes it more independent from the studio and it increases chances for making an exit. More and more funds are interested in investing in tech and especially in Europe, LPs are looking for alternative models. If Startup Studios directly get money by LPs then there won’t be any reason for Studios to go through venture capitalists anymore. And it is just happening right now.

Circle of competence

You may know the “Circle Of competence” theory from Warren Buffett. You can sum it up in one sentence: “You only have to be able to evaluate companies within your circle of competence”. For startup studios, the circle of competence is also a key element. A studio takes its strength from pooling resources and creating a network effect. These virtuous components are harder to build the larger your spectrum is, that’s why the greatest startup studios are very focused. For example, Rocket Internet creates mostly e-commerce companies. They are very good at doing that because e-commerce (Lamoda, Lazada, Home24) and on-demand (Zipjet, Eat first) businesses are very similar and require the same kind of resources and skills. They are not as successful at creating other kinds of business: Wimdu, a marketplace, is still not a global success, and neither is Paymill for example. Startup Studios should keep building startups in their circle of competence.

“The size of that circle is not very important; knowing its boundaries, however, is vital.” says Warren Buffett. It is important to understand what your strengths are as a studio. I wrote an article about eFounders’ building thesis (in reference to VC’s investment thesis) in which I define what kind of companies we are keen on building. Here’s a summary: “We like targeting millions of businesses, offering a service rather than a software, at a minimum and recurring cost. We are eager to disrupt outdated industries by cutting out the middlemen or using new technologies in order to create scalable and global business models”. We basically know how to build SaaS businesses, it means developing good products and being able to sell it to the masses. Solved (the project we decided to stop) was addressing bigger companies, more “Fortune 500”, and it turned out that we were not very comfortable at selling to this type of clients.

However, it is important not to miss opportunities. If we are good at creating pieces of software for millions of businesses, we might be good at selling it to consumers, as well. We didn’t make the move so far, but we are very interested in something that some people call Mass SaaS, which is basically software developed for consumers. Creating such software applications should be in our grasp. We are not looking to enlarge our circle of competence because of a lack of ideas in the B2B industries, but rather because we like taking up challenges and discovering new horizons. Besides, a change of scenery from times to times also benefits our core team.

We fully adhere to Marc Andreessen’s words “Software is eating the world”. Finding an area where software can bring value is not a big deal — what we want, is to find some areas where introducing a piece of software can completely disrupt and reinvent an experience. Most of the time, it is not about replacing a paper or Excel sheets by an iso-functional software, it is about rethinking the business regarding the state of the art (in term of usage and technology). You don’t invent electrical cars only by replacing the gas engine by an electrical one but by imagining how the entire experience is affected. Likewise, you don’t reinvent insurance by putting the broker online.

Ever since eFounders’ genesis, and even more in the future, we will try to get off the beaten track in order to create unique applications that revamp entire experiences.

Lean Startups

I have seen more and more entrepreneurs who are jumping into the startup world without having a deep conviction of the problem they want to solve. The “lean philosophy” can give the illusion that you don’t need to know where you head to, that your path will build as you walk. These entrepreneurs usually identify a small problem. They build the product to face this problem and if this turns out to be a solution, they iterate based on clients’ feedback. This approach could lead to solving an important problem and open a big opportunity for a business — or not. Lean Entrepreneurs know how to walk, but they don’t know where they go to. Great entrepreneurs have a vision of the big picture and restrict the application of the lean philosophy for what it was created for: product management. They know where to go and they define their path along the way. They are eager to iterate at every step and they confront the market very early on with a Minimum Viable Product (MVP). I really think that lean philosophy has much more sense when applied to product management that to the startup world itself.

At eFounders, we spend a lot of time trying to teach and implement this philosophy. We want our founders to know where they want to go, the problem they want to solve, from day one. We take small steps to reach the goal as long as things are not clear. We only take much bigger steps when we realize we are on the right path. In any case we expose our solution to future clients very early on. We usually divide our go-to-market strategy into 2 steps. The first step is the creation of the MVP on which we on-board very early on few pilot users. This phase last between 4 and 6 months depending on the project’s complexity. It is the BUILD phase. Just after this phase comes the SCALE phase. During that stage we activate communication, marketing and PR levers in order to make the service visible and increase the size of the customer database.

Having a multi-disciplinary team executing these steps can be tricky, considering some tasks require more maturity and a better knowledge of the product. We have had a tendency to allow resources on design, marketing or communications too early. Now we try to limit ourselves to only two tasks only during the BUILD phase. We focus all our efforts on thinking and developing the product and finding its first testers. The main strategy is then to continuously increase the number of pilot users. As soon as we have a good understanding of our product and our customer’s behavior, it is time to define our communication and go-to-market strategy. At this stage, if the first step was done properly, everything comes naturally.

Startup Studio

Each and every startup studio out there has its own type and its specificities. Since the beginning of eFounders’ adventure, we‘ve not only been interested in building our own startup studio, but also very curious about the studio model in itself. Startups studios are creating a brand new approach to entrepreneurship. One century ago, you would have launched your startup on your own or with a member of your family. 10 years ago, you would have found yourself one cofounder or two to cover the large set of skills required to launch a tech startup. With today’s technology and access to knowledge, it’s easier to launch a startup; yet it is more and more difficult to stand out from the crowd. Even though it is always possible to start a successful company on your own from your garage, the biggest recent successes have been boosted by incubators and accelerators. The logical next step is the rise of startup studios. They are inventing collaborative entrepreneurship. Starting a company is not the result of one or two individuals anymore, but the work of an entire team.

Our interest in the concept of startup studios has grown to the point where we decided to share it more widely and evangelize it in the startup world. We built a database containing more than 100 startups studios worldwide. We also created a newsletter called BuildTogether that curates news about startups studios and their offsprings.

To understand them better we developed a strict definition of a startup studio, based on 3 criteria. First, startups studios are not early-stage or hands-on VCs, they are company builders: they must find ideas internally. Secondly, the same way that you are not an entrepreneur if you haven’t created your first company, you are not a startup studio before starting your second company. Thirdly, a startup studio must build a platform upon all the knowledge and experience you have gathered, the network of people you have built including the core team, and the tools you have created. The very value of a startup studio relies on its platform rather than the aggregated value of its startup portfolio. It enables the studio to keep on building better and better companies.

Internal Idea, Repetition, and Platform are the 3 criteria that define startup studios. This strict definition reduces the number of established startup studios to a dozen. Among these “true” studios, two approaches are coexisting, the “integrated” and the “independent” model. The goal of eFounders is to build companies that will become completely independent within the next 18 months. Rocket creates companies that are very bound to the studio. Even years after their creation, Rocket’s companies share financial, operational, human, and technical links with their underlying companies. Although we are very proud of creating stand-alone companies, we are not completely against the idea of either having less share in a startup but being less involved (“lightstack model”) or on the contrary, taking much more shares but being much longer and deeper dedicated (“full stack model”). Today we will continue to do as we have done since the beginning, but that could change depending on the opportunities.

Financial Engineering

Since the beginning of eFounders, my co-founder Quentin and I financed everything ourselves. Building a startup studio is very expensive and that’s one of the reasons they are usually created by founders who previously sold a company. The Samwers brothers created Rocked Internet after selling Alando to eBay and Jamba! to Verisign; likewise, Garrett Camp created Expa after the acquisition of Stumble Upon by eBay and the creation of Uber.

SaaS startups exit after 7 years in average. It means that there is a gap of 7 years between the moment you create the first startup and the time you get your first coin back. It means that 7 years have to be financed, years during which you have to pay for every company you create. For the first 3 years, we were a team of 3 plus some freelancers. In addition to financing our companies, we also decided to invest money in the following rounds. It is very frustrating to be diluted when you really believe in the company you have been building. All in all, we have personally invested $5 million to both start and finance the 5 companies we have created.

We thought about getting money from external investors for a long time. At the very beginning of eFounders, we even naively met VC funds and ask them to invest in eFounders. We basically got a “No” as an answer and multiple reasons. They couldn’t invest in a “Funds of Funds” or they didn’t get the sense of the model. In retrospect, we are very lucky that they said no. We prefer to have VCs investing in our companies rather than in our Studio.

However, it was becoming personally very risky to continue to finance it on our own. We then decided, before finding a scalable and durable way to finance the studio, to welcome someone we could trust and who could bring hard money and strong skills. Oleg, my previous partner at Fotolia, joined the adventure in June by injecting $6 million. Oleg invested very early on in Fotolia and instantly brought his experience and intelligence to make the company meet its potential. He led Fotolia as its CEO for the last 6 years and made its acquisition by Adobe happen. He is very honest, extremely kind, creative and an excellent business man. He was exactly the kind of person we wanted to have with us.

Now, we have to find a way to give eFounders the financial infrastructure for a sustainable balance. We came to the idea of a financial vehicle that will invest in our companies and will work as a studio itself. It means that the money will not only be used to invest but also to build the companies. The fund will finance early-stage phases from pre-seed to big seed/small series A. We are thinking about raising $15–20M to invest in companies that we build in the next two years. The money will finance the studio and the companies themselves. The capital of the startup will be shared between the studio eFounders, the financial vehicle, the partnership and the co-Founders. We might later raise a second vehicle that will be set up as a traditional fund and will be dedicated to follow-on using eFounders’ pro-rata. Privileged access to this fund will be granted to investors of the first fund.

Partnership is key for a long term venture. From day one we have understood that it was important to welcome great talent in eFounders’s capital. This way, we make sure that high-skilled and entrepreneurial-minded people get involved in the long run. Four years ago, Didier Forest, aged 23, joined us as a creative partner. We expect partners to be as involved as we are in the present and future of the studio.

eFounders is a startup. As a startup, it is very important to share its capital with key people in order to get and retain the best talents. Most startups are structuring employee’s participation through a stock options pool with a 4 years vesting. eFounders should last a long time and a partnership structure would then seem more appropriate. The Partnership program will incentivize special employees for the time they stay in the structure. Active partners will own shares directly in created companies and through eFounders. It is more complicated to setup than a traditional stock option pool but it is the only solution we found to incentivize partners for the long run. The famous accelerator YCombinator, VC firms like a16z or Sequoia or most of lawyer corps work with a partnership structure.


The previous year was all about structuring eFounders in order to build solid roots for a sustainable startup studio. Now that we have good foundations, it is high time we erected the pyramid. We expect to launch at least 4 businesses in the next 12 months and start 4/5 new ones. We have new offices both in Paris and Brussels, we have a very talented team and a large inbound flow of amazing founders. We have all the ingredients to keep on creating successful and independent companies. We hold all the cards, now let’s play them. What I certainly am the proudest of is that we have created companies that have their own culture. Startup studios are often criticized for the lack of uniqueness of their startups, and it is something we fight against since day one. Today we have built 5 different startups and I am very glad to say that they each have their own DNAs. That has been achieved because formidable founders always deeply make their mark and empower their companies. That’s is the material from which unicorns are made of.

Read more:

Letter #2: Birth of a startup studio

Letter #1: DNA of a startup studio