👉 The news. Bpifrance has just put several million euros into Ledger and Cathay Innovation's Web3 fund.
👉 The background. Benjamin Paternot, who heads up the public investment bank's funds, plans to continue investing in the sector.
👉 Why it matters. Bpifrance and its fund activity have a considerable financial strike force (€13 billion in assets under management).
The Big Whale: We tend to see the public sphere as a rather sceptical universe on cryptos and the Web3, even hostile. Is this the case at Bpifrance?
Benjamin Paternot: Absolutely not. We've been supporting the ecosystem for years. We started very early on with loan financing, and in recent years we've stepped up our equity investment, either directly or via private equity funds. In total, between loans and investments, we have already supported more than 150 start-ups in the crypto and Web3 universe, including our two French unicorns Ledger and Sorare right from their launch.
What prompted you to move from lending to investment?
The evolution of the market. When we started in 2014, the ecosystem was still young, there were few players and it made sense to intervene with loans to support a fledgling sector. Today, we're at another stage where there are dozens of companies and several behemoths like Ledger and Sorare. We need to help these companies grow and conquer new markets, which is why we have moved on to another phase with direct investment. We also gradually ramped up by investing in crypto funds like White Star Digital Assets to test the market. We were the only institutional investor in the market. We put €7 million into this €50 million fund, and so far we're very satisfied with our investment.
Why did you start with funds like White Star Digital, which tend to have a North American footprint?
Because at the time, the market was more mature in the US than in France. Nevertheless, it was an international team with a lot of French speakers, very active in France in seizing opportunities and providing seed funding for Web3 start-ups. But things have changed a lot since then...
Is that why you decided to invest in the Ledger-Cathay Innovation fund?
Yes, and they're not the only ones looking to launch a fund dedicated to Web3. In France, we are now seeing funds like Alven or XAnge that have identified the theme as essential to their strategy. This is a very good thing, because companies need equity capital. We are pushing funds to move in this direction. By the end of the year, we should have seven or eight specialist Web3 funds in our portfolio, half of them based in France! With this kind of strike force, France will position itself as the bridgehead of Europe.
How are the other European countries doing?
Things are happening in Germany, Switzerland and the UK too. In Eastern Europe too. But what is happening in the French ecosystem is unprecedented. Having several funds like Ledger Cathay's to finance seed and series A is essential. It's going to change the dynamic in France, and it's crucial fuel for the ecosystem.
The Cathay and Ledger fund will not only take equity, but also tokens issued by the selected companies. Are you aligned with this strategy?
Of course, it's one of the key points. In fact, we want the other Web3 funds we invest in to do the same, because part of the value creation is also based on tokens. The specialist funds that we choose have the capacity to invest in tokens, with highly specialised operational profiles and a fully adapted infrastructure.
How do you manage the tokens internally?
The advantage of the Ledger and Cathay Innovation system is that we go through an intermediary. We are invested in the fund, so we are exposed to the tokens, but we don't hold them directly. What's fundamental is that with this approach, we're sending a signal to investors: you have to go for both, capital and tokens.
How important are tokens to you?
Because in this new paradigm of decentralisation, a significant part of the value is going to be created on tokens. There's no point in denying it. We are convinced that this is a revolution. If you want to become a major player in Web3, you have to get out there, expose yourself and get in touch with the subject matter, which isn't necessarily always very easy.
What's complicated about that?
The crypto sector is still in its infancy, so everything isn't very fluid yet, particularly in terms of banks and custodians, i.e. those who hold the assets. For the fund with Ledger and Cathay Innovation, we had to create an entity dedicated to holding the tokens separate from the one managed by equity. Other managers are making similar or substantially different choices, which in all cases lead to schemes that are still too complex. Eventually, however, it should be easy to bring all the instruments together in a single fund.
The first crypto fund is worth 100 million. Will the next ones be on the same scale?
It's hard to know as things are moving so fast. Between now and the end of the year, there will probably be one or two generalist funds in the 'late stage', i.e. participating in larger rounds of financing. A few big players like Eurazeo have the resources to do this. A player of this type can take part in series B, C and D rounds of over €100 million without having a Web3 fund to do so. With dedicated funds, you have to go from strength to strength. It's complicated to raise 400, 500 million euros when you launch a first-generation fund on a new theme. It's really exceptional. So if we're lucid and reasonable, we'd like to see at least 3 funds of €100 million each by the end of the year.
Could major groups like Carrefour or LVMH take part in these new initiatives?
It's likely. Anything is possible. Strategic investors are interested and this could take the form of partnerships with funds, as they are already doing on other themes.
Doesn't the current context of falling markets pose a problem?
I've been investing for a few years now and if there's one thing I know, it's that periods of crisis and post-crisis are always a source of opportunities. Over the last 20 years, these periods have always generated attractive returns. You can see this in the United States and in Europe. In crypto, as in other strategies, when there are corrections, it's usually a good idea to invest. So I'm not worried, on the contrary, it's a good time to invest in Web3.
You mentioned five funds of French origin, where would the others come from?
Mostly from the United States, but still with a strong French footprint. We're simply reproducing what we've done with other Tech themes. It's essential to have good French funds for the ecosystem, but it's also essential to have foreign investors, particularly American investors, who can open up the American market to French players. That's what we've done with funds like Cygni. On the other hand, we won't put money into a 100% American structure that has no links with the French ecosystem. When we invest in a fund, we make sure that it has strong links with France and that it finances local projects.
Don't you fear that funds of American origin will cause French nuggets to migrate to the United States?
The crypto and Web3 market is global. It would make no sense to focus on France. All the players who succeed project themselves abroad very early on, and that's what makes them successful, so we need to support this movement and enable French champions to become European and global champions.
How do you see the French crypto ecosystem?
What strikes me most is its growth. One very interesting indicator is the interest shown by institutional investors. Until recently, there were only a small number of institutional investors and funds really interested in this theme, but now it's more widespread. We've gone from a market driven by individuals and family offices to an ecosystem financed by larger and more diverse players, including strategic players.
What do you think of the debates around legislation in Europe? Is it a hindrance?
I tend to think that regulation is a good thing because in a sense it brings comfort and clarity to the players. So the forthcoming European MiCA regulation is a good thing. The sector needs to be better regulated, which is also what will enable it to develop. The fact that a player like Binance has chosen to be regulated in France in order to build its position in terms of regulation reflects the expectations of a number of players for an appropriate framework, such as the one we are proposing in France.
How do you view what is happening on the markets with several players like Celsius in difficulty?
This is a healthy rationalisation for projects or fragile business models that have come under attack. The sector is still young, so we're going to have to adopt the best practices of other more mature sectors and inject more clarity.
Are there any themes that you've identified in Web3?
Not especially, blockchain is a technology that has the potential to disrupt a huge number of sectors and many business models. Nevertheless, certain segments such as gaming or finance are more naturally rooted in Web3.
What could make the French ecosystem develop even faster?
We need a few emblematic releases. We have some notable investments, such as those in Ledger, Sorare and Kaiko, but we are still lacking major deals such as IPOs or deals that structure the market. That will come.
