Xavier Niel

Europe’s second-largest economy is struggling to rebound from 12 straight quarters of stagnation. Tech billionaire Xavier Niel is defying the malaise by nur-turing a startup culture.

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The man who launched France’s first Internet service provider two decades ago continues to make waves.

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on a spring afternoon, Xavier Niel en-ters the boardroom of Iliad SA, the Paris-based telecommunications firm he founded two decades ago. He’s wearing a white dress shirt and jeans, the same outfit he’s sported with Steve Jobs–like regularity for years. With his longish hair and rumpled attire, he looks more like a hacker who’s blun-dered into the wrong office than a man who’s worth $10.5 billion.

Niel takes a seat at the head of a white conference table. The glass-enclosed suite feels like an aerie suspended above the city, with a panoramic view of the Ei-ffel Tower on one side and the rooftops of Montmartre on the other. The only objet d’art in the room is a black brick-shaped box mounted like a conversa-tion piece on top of a coffee table. It’s the Freebox Revolution router, which deliv-ers a triple play of broadband, TV and landline telephone calls to Iliad’s 6 mil-lion subscribers. The router’s popularity is a big reason Iliad’s stock returned 166 percent in the three years ended on May 30. That’s 40 times better than market

leader Orange SA, formerly state-owned France Telecom SA.

As France struggles to rebound from 12 straight quarters of economic stag-nation, Niel has emerged as something rare in Gallic business life—an entre-preneur who’s defied his country’s mal-aise. “You can say it’s worse in France than it is in other countries,” says Niel, 46, scrunching up his face in a squinty

smile. “We have too much debt, of course, and we had very bad manage-ment of the country. But we created a company with a market valuation of $19 billion. That’s not so bad, right? It is possible here.”

It’s highly unlikely. French business has long favored corporate conformity over taking risks, says Marie Ekeland, a partner at Elaia Partners, a private-eq-uity boutique in Paris. The CAC 40 Index is loaded with conglomerates, banks and manufacturers—and not one young In-ternet technology powerhouse. “We’ve lacked an entrepreneurial culture throughout our whole society,” Ekeland says. “That’s why we have such a prob-lem with economic growth.”

France’s current travails have plunged the country into a deep funk. Its industrial giants are struggling; Al-stom SA, the ailing rail transport and power equipment manufacturer based in Paris, is negotiating the sale of its en-ergy assets to Fairfield, Connecticut–based General Electric Co. Francois Hollande, the nation’s Socialist presi-dent, is foundering; his approval rat-ing of 18 percent in recent polls was the poorest showing of any head of state in the postwar era.

On May Day, the streets of central Paris weren’t filled with proud trade unionists celebrating their progress.

Instead, thousands of supporters of the National Front, the right-wing, anti-euro, anti-immigration party that’s excoriated Hollande as the Eu-ropean Union’s puppet, marched down the Rue de Rivoli past the Louvre, wav-ing tricolor flags and shooting off red, white and blue smoke bombs. “Oui a la France!” they shouted. “Marine pres-ident!” The object of their affection,

party leader Marine Le Pen, beamed as she led them past a statue of Joan of Arc. Later that month, the party mar-shaled a potent protest against the sta-tus quo: In European Parliamentary elections, it drew 26 percent of the vote, scoring an unprecedented first-place finish in a national poll.

Undeterred by such angst, a new gen-eration of French tech players is plow-ing ahead with the rollout of innovative technologies and companies. Criteo SA, a Paris-based maker of online ad-vertising software, raised $250 mil-lion in an initial public offering on the Nasdaq Stock Market in October. And Accel Partners, the Palo Alto, Califor-nia–based firm that backed Facebook Inc., is investing in French startups.

In Niel—a man who owns the rights to the music in “My Way”—aspiring French entrepreneurs have found their ringleader. The son of a pharmaceutical patents consultant and an accountant, Niel grew up in a Paris suburb, skipped college and started his career writing software code for online sex chat rooms. Today, he heads France’s No. 2 broad-band provider, co-owns the prestigious newspaper Le Monde and is the sixth-richest person in the country, accord-ing to the Bloomberg Billionaires Index.

“The traditional trajectory in France is to attend one of the top schools and then go work for a CAC 40 company for the rest of your life,” says Martin Mignot, 29, a French venture capitalist in the London office of Index Ventures. “But Niel is the exception that con-firms the rule: He’s a self-made man, a geek, a programmer. Niel is a paradox of France, and to us he’s a hero.”

Ever since Niel launched France’s first Internet service provider in 1993, he’s rocked the country’s tele-com oligopoly. In 2012, he introduced a mobile-phone service for 19.99 eu-ros ($27.24) a month, less than half the price charged by competitors. More than 8 million consumers flocked to Free Mobile as Orange and France’s two other wireless operators, Vivendi SA’s SFR division and Bouygues SA,

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suffered steep declines in sales. In April, Vivendi vacated the market al-together by selling SFR to Luxem-bourg-based Altice SA in a deal valued at €17 billion. “Iliad’s pressure pro-duced really big consequences,” says Sam McHugh, a London-based equity

launch more ventures. France doesn’t have an institution steeped in entrepre-neurship, such as Stanford University, to act as the hub for such a network.

So last September, Niel invested €200 million in a three-year proj-ect to convert La Halle Freyssinet, an 87-year-old former railroad depot on the Left Bank, into a center for 1,000 startups. And he spent €70 million in November to open a school that’s

Criteo’s Jean-Baptiste Rudelle favors a global corporate mindset over a purely French one.

analyst with Sanford C. Bernstein & Co.Niel has now set out to disrupt the

French corporate system as a whole by using his wealth to build a Silicon Val-ley–inspired ecosystem that will fos-ter tech startups. What France needs, he says, is a community in which com-puter scientists, business leaders and investors can come together and form new companies that create jobs, wealth and serial entrepreneurs who go on to


teaching 900 students from the ages of 18 to 30 how to write software code. Tu-ition is gratis, and there are no prereq-uisites for acceptance except passing a logic exam. “Mark Zuckerberg did his own software for Facebook, and Larry Page and Sergey Brin made their own for Google,” Niel says. “If you know how to make software, then you can create big things. We want to build an ecosys-tem for startups so young people don’t have to leave for the U.S. or Asia.”

Yet conditions in Europe’s No. 2 economy have worsened in the past year even as the fortunes of Germany (No. 1) and the U.K. (No. 3) have im-proved. What’s more, France’s high la-bor costs are stifling a recovery, says Richard Batley, an economist at Lom-bard Street Research Ltd. in London. (See chart below.) “It’s very expensive to hire people in France, and you can’t be that nimble,” says Marc Tommasi, head of global investment strategy at

Sources: Bloomberg, Eurostat, Organization for Economic Cooperation and Development

B U S I N E S S B A R R I E R SFrance, Europe’s No. 2 economy, has a reputation for erecting obstacles to investment and growth.

Manning & Napier Advisors Inc., a Fairport, New York–based money man-agement firm with $52 billion in assets that invests in French stocks.

In the latest Bloomberg Markets Global Investor Poll (see “Where the Smart Money Is Going,” June 2014), only 11 percent of the participants were optimistic that Hollande’s poli-cies would improve the investment cli-mate, a poorer showing than Russian President Vladimir Putin’s 15 percent score. Hollande is trying to turn things around by cutting €50 billion in public spending over the next three years and reducing payroll taxes. And yet the out-come of the May election will sow only more economic uncertainty, Batley says. “Ultimately,” he says, “this could produce a lower level of investment.”

The French government has a knack for meddling in deals, which is anath-ema to VCs seeking profitable exits from their investments. In April 2013, then–Minister of Industrial Renewal Arnaud Montebourg blocked Yahoo! Inc.’s $300 million purchase of French online video firm Dailymotion SA after concluding the deal wasn’t in the national interest.

Tax policy is another brake on growth, Elaia’s Ekeland says. In 2012, the Hollande government raised cap-ital gains taxes to as much as 62.5 percent from 38.5 percent. France Dig-itale, a trade association Ekeland heads as president, persuaded policy makers to provide lower rates for startup in-vestors who stick with their bets for at least one year. “Our politicians do not understand the Silicon Valley model,” Ekeland says.

Hollande is making overtures to the tech community. In March, he invited Niel and 20 other startup entrepre-neurs to lunch at the Elysee Palace to learn more about their ventures. And there’s been an unprecedented blos-soming of tech startups in Sentier, Paris’s old garment district, and Saint-Georges, home to the Moulin Rouge burlesque palace. “We have a mindset to think globally and to be an Internet-driven company, not a French-driven

Preferring coq au vin to pizza, a clubhouse connects entrepreneurs and investors

ON A DAMP spring evening, more than 200 men and women crowd into one of the hubs of the Paris startup scene, a four-story club-house located not far from where the Bastille once stood. Furnished with red-velvet chairs, oriental rugs and potted palms, the glass-ceil-inged atrium resembles a parlor from the belle epoque. The word revolu-tion glows in green neon on the wall. A manifesto, written in English, is tacked up in the foyer. “Employment as we know it is dead,” it reads. “The new generation is not looking for a job, but strives to find purpose.”

This is the headquarters of a self-styled accelerator called TheFamily. Backed by Index Ventures, a global venture capital firm, and angel in-vestors in Europe and North Amer-ica, TheFamily takes a 3 percent equity stake in more than 150 ven-tures, many so new that they’re little more than a couple of code writers with a PowerPoint presentation. In return, as its very name is meant to suggest, TheFamily and not the gov-ernment provides members with of-fice space, workshops and access to its network of venture capitalists.

On this night, TheFamily is host-ing a pair of Silicon Valley entrepre-neurs, John Ramey and Tyler Willis. As the two Americans lecture in English on ways to build fast- growing online marketplaces, the attendees munch on cookies and tap notes into their laptops. “Our mis-sion is to help a new generation of

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entrepreneurs take power and really disrupt France by creating billion-dollar companies,” says co-founder Alice Zagury, a cheerful woman with electric auburn hair who’s sporting shiny, gold shoes.

Zagury, a 29-year-old graduate of the Indian Institute of Manage-ment Indore in Madhya Pradesh, and her two partners, entrepreneur Ous-sama Ammar, 27, and former gov-ernment finance inspector Nicolas Colin, 37, were inspired by Y Com-binator, the Mountain View, Califor-nia–based accelerator. It’s midwifed thousands of startups, including Airbnb Inc., the online lodging-rental marketplace that was recently val-ued at $10 billion.

Just like their ally Xavier Niel, the trio want to cultivate a tech eco-system that will demonstrate that France isn’t just a land of high taxes and aging industrial giants. “If we build companies that matter, in-vestors will see the result and not this toxic environment that’s in the news,” says Ammar, who’s dressed entirely in black.

While the partners admire the ethos of Silicon Valley, they say they’re developing their venture in a “French context.” They found Y Combinator’s demo days—contests in which entrepreneurs pitch their products to hundreds of investors—to be too public and too hurried for French sensibilities. In France, inves-tors like to unearth promising com-panies more discreetly and build relationships over time.

In a further sign of Frenchness, at TheFamily you won’t find piles of empty pizza boxes that typically mark the habitats of programmers elsewhere. Instead, the group brings in a chef to prepare fricassee of rab-bit, coq au vin and other delicacies for meetings. “It’s a cliche, but it’s true: We love food, so we organize a lot of our events around the table with good wine,” Zagury says with a sheepish grin. “We are French!” —EDWARD ROBINSON

Nicolas Colin, Alice Zagury and

Oussama Ammar, left to right, are the

team behind TheFamily and its

clubhouse.


boards on the Minitel, a proto-Web net-work that enabled French consumers to shop and chat online. (In 2004, Niel’s racy past caught up with him when the French authorities jailed him for one month on charges connected to his own-ership of peep shows. He pleaded guilty, received a two-year suspended sentence and paid a fine of €250,000 for not de-claring income from the enterprises.)

By the time Niel was 33, in 2000, he’d become a multimillionaire through his programming and by selling an Inter-net service provider he co-founded in 1993. Backed by an investment of €15 million from Goldman Sachs Group Inc., the young entrepreneur formed Iliad to challenge France Telecom. His weapon: a router that would use broad-band to deliver the Web, TV and tele-phone service to French homes.

The problem was that such a de-vice didn’t exist yet. So Niel formed a 10-member research team in Paris to build one. In 2002, he launched Free-box two years before Cablevision Sys-tems Corp., based in Bethpage, New York, brought out the first triple-play offering in the U.S. Niel was adept at ex-ploiting his monopolistic rival’s weak-ness—high prices. He offered Freebox

one,” says Jean-Baptiste Rudelle, 45, chief executive officer and co-founder of Criteo, which operates in the U.S., Europe and Japan. Incubators such as TheFamily (see “‘We Are French!’” page 90) are hosting scores of entre-preneurs in clubhouses where they write code and network with VCs and peers. Ventures that are further along in their development are rapidly ex-panding. Paris-based BlaBlaCar SA, an online marketplace where drivers and passengers across Europe connect to share automobile rides, is adding 500,000 new users a month.

So that the state doesn’t suffocate this fledgling startup scene, Niel says, it’s imperative for young companies to rely on private funding. He’s wary even when the government offers support, as it did in December with the rollout of La French Tech, a plan to spend €200 mil-lion on promoting and supporting start-ups. “Does the U.S. need a ministry for startups?” Niel says. “So we ask for noth-ing from the government. It blocks inno-vation. You have to find your own way.”

Niel’s been an outsider ever since he formed his own company at the age of 14. Smitten with writing code, he created programs to manage X-rated message

Iliad’s shares have climbed more than 10-fold since they debuted. Type IPO <Go> on the Bloomberg Professional service to find similar listings. Click on the Advanced Search button on the red tool bar. Click on Date Range under Offer Criteria. In the pop-up box, click on the arrow to the right of Date Range and select Year-to-Date. Click on the box to the left of Announced Date and then on Update. In the same way, click on Offer Type and select Initial Public Offering, click on Region/Country and select France, and click on Industry and select Telecommunications. Click on Result. ROCKY SWIFT

Finding theNext Iliad

for €29.99 per month. France Telecom was selling broadband alone for €49.99. And with download speeds of 1 giga-byte per second, Niel didn’t skimp on the technology. “Free is perceived as the best network—and the cheapest net-work,” Bernstein’s McHugh says.

Now that France’s mobile war has climaxed with Vivendi’s sale of SFR, Niel is morphing from enfant terri-ble into startup guru. Every month, he visits the software-writing school he bankrolled to talk with students. It’s called 42, after the non sequitur an-swer to the “ultimate question of life” posed by Douglas Adams’s The Hitch-hiker’s Guide to the Galaxy . When Niel opened 42 in northwest Paris in No-vember, more than 70,000 candidates applied for 900 places.

Encased in gray mesh, the three-story school resembles a giant server cage. Inside, students, many in hood-ies, sit at rows of long tables topped with iMacs. There are no classes or teachers. Instead, students are respon-sible for designing and writing their own software programs, which are re-viewed and graded by their peers. Au-drey Bosdeveix, a 28-year-old former waitress, says she’d forsworn a tech ca-reer because of her weak math skills. She passed 42’s logic test and today is correcting a fellow student’s work. “I’d like to design apps for mobile,” she says.

For Niel, 42 may ultimately prove the most radical move in his unorthodox career. Legions of unhappy profession-als are leaving France; about 300,000 French nationals reside in and around London, according to the French Con-sulate there. For more than two decades, the unemployment rate among French citizens under 25 hasn’t dropped be-low 16 percent. It stood at 23.2 percent in April. “We have to help young people, because at the end of the day, we won’t have an economy if we don’t have them,” Niel says. “We need startups; we need entrepreneurs; we need young people who will create global companies.”

Edward Robinson is a senior writer at Bloomberg Markets in London. [email protected]

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F R E E D O M R I D E RThe popularity of Iliad’s Freebox Revolution router has been a major driver in the company’s success.

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Xavier Niel