The Highest Valuations in the Tech Sector: USA VS. France

SeriesB-investments

In our last blog post Insight: Costs to Start Your Business in the US, we looked at the costs of expanding your business from France to the US, as well as the pros and the cons of different locations in the US.

This time we look at the most valuable sectors in the US which drive the biggest investments and valuations.

We conducted a study on both sides of the Atlantic, surveying more than 12,000 companies with the research platform Crunchbase. Among all the data we collected, 5 popular verticals clearly stood out. At the moment these 5 verticals offer tremendous potential in the US. 3 are rather traditional sectors: B2B SaaS, E-Commerce, and AdTech. The other 2 are verticals that have been building a lot of momentum recently: AR/VR and AI. In each of these verticals we sampled the top companies that have already conducted successful venture rounds since 2014.

Our research focused on Series A and Series B rounds, we have not taken seed rounds into consideration as valuations in that venture round are rather similar. Through an in-depth analysis of all the data, we built a model which provides a good indicator of today’s post-money valuation of both French and American tech startups.

There are a few things that stand out immediately when you look through the data.

SeriesA-valuations

  1. AI - Trendiest sector

In 2016 AI (Artificial Intelligence) deals worldwide reached an all time high. According to venture capital market research firm CB Insight, more than $5 billion was invested in that sector, a 60% increase over the previous years. Nearly 62% of the deals conducted were for American startups, only 3% of them for French startups. AI startups do not only entail AI technology but also startups applying AI to multiple industries such as education, healthcare, security, advertising, tourism or finance. In Series A, American company valuations in this sector are 2.4x higher than in France. The difference is even bigger in Series B where the multiple is 3.8. One of the most famous AI rounds of 2016 is the $200 million Series A funding of the unicorn Zoox.

  1. AR/VR - Greatest investment multiple

AR-VR-investments

The AR/VR (Augmented Reality / Virtual Reality) sector first saw a dramatic uptake in funding in 2015 when VC investments in that space exploded. The total amount of funding in 2016 rose to almost $2 billion, an increase of 1.4x over the previous years. In the consumer mind AR/VR only means devices like Oculus Rift or Samsung Gear but that sector gathers a broad range of business applications for the technology such as retail or healthcare. The most valuable deal of 2016 goes to MindMaze, the 5 year old Swiss startup headquartered in San Francisco, with $100 million in its last venture round. This is yet another example of American Series A investments being 3.9x higher than French ones. The total amount of equity funding in this sector’s companies is a spectacular 80x higher in the US.

  1. AdTech - Best turnaround

Even though 2016 was predicted to be the year in which the AdTech (Advertising Technology) sector would decrease, the reality was different and many companies actually had a successful year. AppNexus maintained its unicorn status with its $394.17 million round investment and TubeMogul was acquired by Adobe for $540 million. Overall AdTech investments in the US are still 4x more profitable than French ones. On the same note, American startups valuations in Series A are 1.4x and 3.1x higher in Series B.

  1. B2B SaaS - Highest valuation multiples

SaaS is the best-known and the most developed of the cloud technology sector. Salesforce.com founded in 1999 was the first emblem for SaaS and is today a $5 billion company leader of the market. After reaching its tipping point in 2015 the B2B SaaS sector has been steady in term of deals and investments return recently. However the most staggering leap difference in company valuations occurs in this mature market. American startups in this sector are still twice as valuable than their French pairs. The multiple for Series A companies valuations is 2.5 and 4.3 for Series B.

  1. E-Commerce - Largest share of the world’s unicorns

Last but not least, E-Commerce. This sector gathers the largest share of the world’s unicorns according to CB Insight. The most famous one is the $29 billion juggernaut: Airbnb, who raised $555.46 million in its last venture round. An other one is the Los Angeles based Dollar Shave Club, acquired by Unilever in June 2016 for $1 billion cash. The transaction is one of the largest in this sector. In this sector, company valuations are almost twice as high in Series B in the US. Across all venture rounds, US investments are 11.5x higher than French ones.

As a French startup thinking about building a relationship with a well-matched VC, you might want to look at the US side. Unless you have a relationship with a significant investor already, you will have difficulty raising a comparable round of investment anywhere in Europe. Our study shows that VC investment has a much higher potential in the US than anywhere else.

However, that massive potential market comes with hidden road bumps. The entry price to that exponentially larger market can be very expensive for a French startup. To be successful, the imported product or service has to meet some requirements. These requirements come with a price; the cost of adaptability, commercialization, marketing, product fit and so on. In the same vein, American VC funds only consider investing in foreign startups with specific criteria. VCs will look at a mature business model, key US client references, a highly scalable strategy and most importantly, a strong leading executive team. These steps are essential and should not be overlooked when aiming for a US valuation.

Sources : Crunchbase, CB Insight, French Accelerator

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