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Tropical Green, like Missile, is a start-up company that has found a niche where none seemed to exist. Ornamental horticulture is an industry as huge as it is homogeneous. Worldwide sales are $20 billion a year. And yet, in France, just 11 common varieties of flowering plants make up 80% of the market. (In the United States, only 8 varieties account for that 80%.) Enter three men with an idea, botanist Jean-Marc Chaintron and his two partners, RÉmi Gaston-Dreyfus and Alain Dubos. What if they developed a specialty plant, patented the development process, trademarked the name, and promoted the plant as something much more distinctive than your average, garden-variety azalea? Couldn't they perhaps garner a tiny slice of that big and boring market?
The result was the Tamaya, five years in the breeding on a farm in the Ivory Coast. The Tamaya looks like a small tree and flowers year-round. Its shape, based on feedback from focus groups, is the most subliminally pleasing possible. The name has pre-Columbian roots: it is one of 50,000 words created by a computer from three- and four-syllable combinations derived from South American Indian languages. The 10 most pronounceable were read to a focus group, which chose Tamaya.
Tropical Green sits in the countryside west of Paris, in the village of GaranciÈres, in a simple, one-story building with a greenhouse out back. "We are selling life. We thought it was crazy not to sell life when you sell a plant," says RÉmi Gaston-Dreyfus, launching into a lecture on the wholesale market in Amsterdam, where a million plants are sold daily with dispatch. That market, he argues, ignores the warm feelings people have for plants. Why couldn't that positive notion be used to market the Tamaya?
Tropical Green, with 1990 sales of $3 million, has thus far raised $10 million in venture capital and hopes to raise another $6 million. This year it expects to sell around 1.2 million plants in five European countries, achieving sales of $10 million. That is break-even. In 1992 Tropical Green expects to sell 3.5 million plants. The company has just started growing seedlings in Costa Rica, for export to the United States and Canada by 1994. For a quirky company like this one, capital did not come easily. "It was so strange," says Alain Dubos, Tropical Green's president. "Three times I went to banks and they said no, but the individual bankers said, 'I'll come along with you.' They believed in what we were doing."
Tropical Green didn't warp its strategy to attract money. "We planned no quantitative market studies. A lot of venture capitalists couldn't accept that," says Dubos. "We just had the concept. No price, no shape." The idea was simple -- create a plant with brand-name identity. Eventually, Tropical Green landed 12 private investors. Institutional investors then followed. France's largest insurance company has invested $4 million, for a 10% stake. Equally remarkable is the willingness of men like Gaston-Dreyfus and Dubos even to start a company. Dubos had been an executive at a large brewery, where he oversaw 2,000 employees. Gaston-Dreyfus, now 35, had started a law firm in 1979 and built it up to 20 lawyers in five years. (The largest law firm in France has only 80 lawyers.) His elegant apartment overlooks a park in the Parisian equivalent of New York City's upper East Side. The modern art on the walls and the Oriental rugs underfoot affirm his comfortable station in life. "People thought I was crazy to go from being a lawyer to a grower," he recalls. "But this is an opportunity to create something."
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The French phrase for venture capital is literally translated as "risk capital," but that is a bit of a stretch. It would be more accurate for the French to call it "development capital," since investment flows more to developing companies than to start-ups. In 1990 members of the Association FranÇaise des Investisseurs en Capital Risque (AFIC), an organization comprising France's 80 leading venture firms, invested some $500 million in 618 small French companies. But of 1,019 deals, only 26% involved start-ups, and they accounted for just 10% of the total amount invested. French investors are shunning start-ups, says Gilles Copin, a professor of finance at Lyon Graduate School of Business.
That mirrors trends in the United States, where in the past eight years many venture capitalists, beset by failures and low returns, have shied away from funding innovative and risky start-ups. A few investors, armed with insufficient capital and offering a patchwork of help, have ventured into that void in France. Banks remain cautious, and government support for research, though ample, often doesn't create successful companies. Some entrepreneurs have become business angels, but they usually do small regional deals. Says Copin: "We have not solved the problem of the start-ups. There is still a big hole there."
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The most daring feature of the offices at the venture-capital firm of Alpha AssociÉs, in Paris, are the Andy Warhol Campbell's soup-can prints hanging in the company's elegant lobby. At the top of a broad spiral staircase in a high-ceiling office sits a youthful-looking, self-assured man, Dominique Peninon, a partner at Alpha, who explains the firm's mission this way: "We are not looking for start-ups. Our philosophy is to take less risk and get a satisfactory return on each company in the portfolio." Peninon says the name of the game in European finance these days is acquisition. "If you don't acquire, you will be acquired in the next five years."
Since 1985 Alpha has launched five funds totaling $100 million, for the purpose of acquiring existing European companies, mainly in France. Alpha targets small companies that dominate niche markets. Often those companies are less than 10 years old. Many are first-generation companies with an aging founder. Alpha's strategy is to buy in, hold, and exit by selling to other investors. Since January 1990 Alpha has exited 11 such investments in that way. "Right now the valuation these developing companies can get from corporations is much higher than what they can get from the stock market," says Peninon. He notes that the initial-public-offering market in France has plummeted from 150 new issues in 1987 to fewer than 20 in 1990, and has yet to recover. Dynamic companies are hot because of the coming market unification. Buyers believe companies that thrived in one country, or even one region, can now prosper beyond national borders. All they need is more capital and marketing muscle.
