When a key figure in venture capital says that now is a fantastic time for fast-growth companies, it’s worth listening.

It’s often the fate of young males to try and surpass the achievements of their fathers. Eric Archambeau, who grew up in Paris and now heads up venture capital firm Wellington Partners, well remembers his own father back in the 1960s running a plastic moulding business.

‘He had a series of small plants,’ observes Archambeau. ‘He was always complaining about the bureaucracy in France, saying it would be so much easier to start your own company in the US.’

It left an imprint on Archambeau, who wasn’t going to allow his ambition to be restricted. ‘I went to the US to escape the difficulties of doing business in France.’

And he hasn’t looked back. Training as an engineer at Stanford University, he gained an MBA from Santa Clara University and a PhD in computer science from Grenoble – all described as the ‘usual thing that European immigrants did in the 1980s’. He went to work as an engineer in Silicon Valley before deciding it was time to strike out on his own as an entrepreneur.

Where’s the money?

Set up in 1993, RightPoint was a VC-backed data mining company that would be sold five years later for approximately $400 million. He says that the first four years were a period of incremental steps: ‘I had to figure out whether I really had a product or whether it was just a technology.’

This is a recurring theme for Archambeau. ‘The most common mistake in venture capital is to fall in love with technology,’ he notes. ‘A faster, better way to do something doesn’t mean people are going to buy it. In the past, in Europe especially, investment decisions were made on the technology as opposed to mainstream appeal.’

At RightPoint, a tough commercial choice had to be made in 1997. ‘We had several products and we made the decision that we had to focus on just one to make it a full application. The one we opted for only had one customer, while the others made up the bulk of the revenue.’

It took about 18 months for the decision to pay off. He then went and had another success as founding board member of eGroups, a precursor of social networks, which Yahoo! snapped up for $460 million in 2000.

Such heady exits saw Archambeau join Atlas Venture before helping George Coelho at Benchmark to start up the firm’s European operation in 2000. Although he worked with the likes of Betfair and Orchestria, he decided to ‘call it quits’ in 2002.

‘I left when it was the nuclear winter for venture capital,’ he says, noting that he decided to establish a not-for-profit foundation called Social Impact, which assists international agencies and governments.

‘We act like early-stage social investors,’ he says. ‘It’s not just about me feeling good, as it’s hard work and it would be easier to give a cheque.

‘I felt there was a gap in the market and that the issues were important enough for mankind. I thought my children and grandchildren would benefit more from me putting my excess energy toward such things rather than simply playing golf.’

Wealth of opportunities

In 2005 he was lured back into the venture capital fold by Wellington Partners, taking on the role of general partner. For a man who lived in Silicon Valley for over 20 years, it’s significant when he says: ‘I have never seen so many opportunities in the venture capital world as there are today, be it in cleantech, the internet space or digital media.’

The hot sectors for Archambeau include casual gaming – ‘more so if you have a recession, as people may seek more comfort in such entertainment’ – the music industry, ticketing, buying and selling real estate, cars and clothes, and slightly more obscure areas like an e-commerce platform for shipping cargo.

He acknowledges that the wider economic downturn is a concern: ‘It is true that in the next 24 months the capital markets will suffer and there won’t be many small companies going public.

‘But it’s not the same as in 1999 and 2000, when companies used the public markets as a means to increase capital.

The companies we have in our portfolio today have reached profitability quite quickly. What we see now is that it takes a lot less money to build a business.’

Value-ad

That said, when a company appears to be on the right track, investment comes at a pace. This is demonstrated by online advertising specialist Adconion, which started in 2005 and received investment from Wellington in 2006 and 2007.

‘The company is a pioneer,’ says Archambeau. ‘It’s becoming the largest independent ad network, using targeted behavioural technology to basically identify [and match] ads to users. It’s the next generation of ad networks.’

In February, Index Ventures came on board to lead a £40.9 million series C round of venture funding into Adconion. It’s no accident that the company has offices in London, Germany, France, the US, Canada and Australia. When scaling a business, international reach is everything.

‘Success in a single country in Europe doesn’t really make up for the risk and
initial losses you have made on other companies,’ comments Archambeau. ‘One big rule that we have learnt is that Europe is not enough. If you have global ambition, you must go either to Asia or to the US for market dominance, otherwise the US champion will take over. If you dominate the US market, you are still de facto the largest company in the world today.’

The overriding reason for investing in a company has to be its mass appeal, says Archambeau. When seeking to buy a stake (generally around 25 per cent), he seeks to understand who the big players are and what the gap is in the market. ‘When we looked at Adconion, there were probably 20 other companies with similar ambitions, and then we decided to capitalise on the largest opportunity.’

As for what a VC brings to the table, he says it’s primarily contacts, helping to form partnerships, and advice based on experience of development strategies.

‘Entrepreneurs who have global ambition are not looking for passive cheque-writers,’ he says. ‘Companies have to move fast…Emails are being fired off every day…Decisions have to be made.’

Archambeau is evidently excited by the possibilities presented by online ventures and digital media, but he knows how easy it is for companies to get it horribly wrong. In particular, he refers to copycat businesses, those that try to be the next YouTube or Facebook.

‘With the technology out there, I am sure you can do a better job [than some of these websites]. The question is whether it is going to make you a leader in casual social networking. I would say: probably not.

‘That may seem obvious, but you still see quite a bit of investment made in companies that – though they may not be exact copycats – are not far off.’

Wellington, which has $1.2 billion under management and 40 portfolio companies, has recently opened an office in Silicon Valley and the aim continues to be to stay close to the best entrepreneurs. ‘They know better than we do what’s important. They always keep a bit ahead of the curve, that’s why they’re great entrepreneurs.’

It would be easy enough for Archambeau to rest on his laurels, but he sees it as a privilege to ‘work with people in their twenties and thirties who are amazingly bright – coming up with ideas that I would never think of myself. It keeps me totally on the edge. The thrill of victory when you build a global leader is really amazing.’