In a prior post – Sometimes it pays to be lucky – I was expressing my gratitude when I learned that MilleMercis, one of the companies I got involved with after my Aucland days, had gone public.

Since then, the other two companies I was involved with were both successfully sold. 2xmoinscher was acquired in July 2006 and Cityvox was acquired last Tuesday (Mach 4, 2008).

This brings an end to my 1999-2000 bubble era angel investments. I had made three significant investments (relative to my net worth at the time) and two small investments. Of the five, there were three successful exits, 1 IPO and 1 bankruptcy.

Large investments:

• MilleMercis: European online marketing company – went public on the French stock market
• 2xmoinscher: ”Half.com of France” – successfully acquired
• Cityvox: “Citysearch of France” – successfully acquired

Small investments:

• Webhelp.fr: Call center operations – successfully acquired
• Alidoo: “Pets.com of France” – went bankrupt

When I look at the three larger investments I was involved with, they only have one thing in common: really smart, passionate and tenacious teams. In none of the three did things end up working the way we expected them to back in 1999-2000!

MilleMercis
MilleMercis started out as a wish list site which allowed to sell ads at high CPMs under the assumption that something you want is something you are interested in. The website never took off, but MilleMercis built deep CRM, viral marketing and online marketing knowledge that it used to start managing email databases for third parties and become a full blown ad agency with a viral marketing specialty. Combined with the growth in online marketing in the past 8 years, it became hugely successful.

2xmoinscher
2xmoinsher has a great business model and is a great product, but constantly faced an extremely competitive environment. Not only did Amazon launch its Marketplace and eBay largely move to fixed prices, but a local French company called PriceMinister launched on the same model, raised significantly more money and constantly outspent 2xmoinscher in marketing, BD deals, acquisitions and hires.

2xmoinscher only survived by the tenacity of Aymeric Chotard its Founder and CEO who made every penny count and obtained much greater ROI on his cash spent than his competitor. He worked his team as hard as he could for 10 years straight! 2xmoinscher did relatively well, but Priceminister is the runaway success: its last round of funding was on a valuation of several hundred million Euros and an IPO is being discussed.

Cityvox
Cityvox also had a circuitous path to success. I invested in the company in 1999 because I loved the intelligence and passion of its founders Bertrand Bigay and Michel Athenour, I liked Citysearch in the US and I believed in the value of local search. The vision was correct but it took forever to get there. In 1999, none of the local small businesses advertised online though we believed they soon would. It only started to happen 9 years later!

The original business model was to have sales teams contact local businesses to build personalized page for them on Cityvox for an annual fee. The business failed as small businesses in France were not ready to go online and there was no way we could compete with the yellow pages sales force.

Cityvox barely survived the bubble bursting. The team’s passion and commitment convinced its angels to reinvest before it ran out of cash while the company aggressively cut costs. They reduced headcount, moved from Paris to Marseilles, got the city to subsidize the move and did everything in their power to preserve cash. On the revenue side, the company was largely saved when it successfully sold its syndicated content to third parties who wanted local information and reviews. Again this business proved transitory as most companies eventually decreased their content budgets.

Cityvox again survived by successfully moving to mobile and getting paid to build local mobile sites for the major operators in France. Finally in the last few years while Yelp started coming to the forefront in the US and the promise of local advertising started to become fulfilled, online advertising revenues finally started to take off for Cityvox and the company was on much stronger footing.

Orange, France’s largest ISP, mobile operator and Internet company came a calling and a deal was made. You can read more about the deal (in French) at:
http://www.journaldunet.com/ebusiness/publicite/actualite/orange-rachete-cityvox-pour-se-lancer-dans-les-liens-sponsorises-locaux.shtml

Conclusion
Things rarely happen as you expect they will it in startups. This was also true of the startups I created. Zingy was originally a copy of Kiwee in France and Jamba in Germany – a B2C provider of mobile content. We transitioned to becoming a B2B provider to the carriers because Premium SMS did not appear in the US market until 3 years after we launched!

It should also be said that in almost all of us who have been successful were very lucky in many ways! However, as you can’t count on being lucky, if there is one lesson to be had from the above experiences, it is that the most important traits of a startup team are adaptability, open mindedness, grit and tenacity. It would have been easy for Aymeric, Bertrand and Michel to get great jobs in large stable companies. After 5 or 6 years of fighting day and night, the lure of stability and a few good nights’ sleep must have been appealing. However, they stayed the path, kept believing that they would figure it out no matter what and ended up succeeding while others simply gave up or failed to adapt!

Congrats guys! You truly deserve all your success!

On Tuesday evening, I had the pleasure of attending a seminar sponsored by McKinsey on China’s Business and Policy Evolution at the Asia Society (http://www.asiasociety.org/) in New York.

The panelists were Howard Chao, Partner and Head of the Asia Practice of O’Melveny & Myers, Nicholas Lardy, a Senior Fellow at the Peterson Institute for International Economics, and Jimmy Hexter and Jonathan Woetzel, Directors at McKinsey & Company who co-authored Operation China: From Strategy to Execution.

I learned a few interesting things:

• While China is not becoming a democracy in the traditional sense of the word, it is becoming much more open. For instance, they took the rather unprecedented step of posting their new energy policy law proposals online and inviting experts, including foreign experts and McKinsey to review it and suggest changes. The project will probably not be put into law at this NPC but it probably will be at some point in the next 6 months.
• Urbanization is continuing apace and by 2025 there should be 1 billion urban dwellers. This suggests that 40-50% of the population of many cities and workers at most companies will be migrant workers. As such the government and companies are going to have to be much more supportive of migrant workers than they are today.
• Despite rising labor costs, most multinationals are not going to move out of China given the complexities of changing their supply chain, the economies of scale that China offers and the lure of the domestic market. Last year Vietnam had $40 billion in exports, China $1 trillion. As such, countries like Vietnam do not have the infrastructure to accept a large scale move of companies from China there. Not to mention a large inflow of capital and companies in Vietnam would probably lead to higher costs there. In other words, while countries like Indonesia and Vietnam are going to grow and offer cheaper labor costs than China, China will remain a major manufacturing hub for most multinationals.
• Most companies in China were built on cheap labor with little effort made on organizational efficiency which provides great opportunities for productivity improvement going forward as companies bring their global management best practices to China.
• Interestingly a large portion of China’s exports are coming from foreign companies established in China.
• Inflation is becoming a problem and might be creating bubbles in real estate and stocks because the negative real rate of return offered on bank deposits is leading individuals to invest in any alternative they can find.
• China will let the Yuan appreciate against the dollar faster than it has in the past (it appreciated at twice the annual rate of 2007 in the first two months of 2008) to fight inflation and decrease its oil import prices.
• Economic growth is expected to slowdown to below 10% per year as a result of the global slowdown but will remain high (8-9% per year).

My dogs turned 3 respectively on March 2 and 4. I am happy to report that Harvard is as spastic, crazy and happy as ever while Bagheera remains incredibly sweet, smart and nice.

I read great things about this trip in National Geographic Adventure (http://www.nationalgeographic.com/adventure/) and decided to check it out. I enlisted William, a childhood friend and fellow car enthusiast who is also VP of Marketing at OLX, and we signed up for Ensenada Tour organized by Wide Open Baja (http://www.wideopenbaja.com/ensenada.html).

We drove the same buggies that race the Baja 1000 every November on some of that race’s trails. There were 10 of us in 5 cars plus the guide. We took turns to drive and co-pilot. We had never driven off road before and we rapidly understood the importance of the co-pilot. The co-pilot constantly communicates with the other cars and gives the driver detailed instructions on both were to go and how fast to take a turn. We still managed to get lost once 🙂

It’s absolutely amazing what these cars can do – we went on terrain I would have not imagined any car could handle! We did manage to get stuck once and blow a tire once. Two of the other cars also flipped, though no one was injured.

The best way to get a sense for what it was like is to watch some of the videos below:

All in all it was a phenomenal experience I recommend to everyone! Now I just need to get a dune buggy and find a suitable terrain near New York 🙂