How Sketchfab Survived The VR Winter To Become Profitable
With its HQ in NYC but most of its team in Paris, the company had the financial flexibility it needed to pivot.
Alban Denoyel founded Sketchfab almost 8 years ago, just as the hype cycle around virtual reality was starting to rise. Even though most projections for VR growth were spectacularly wrong and the so-called “VR Winter” set in, Sketchfab endured and pivoted until announcing last November that it turned its first profit.
Denoyel, who attended the ESSEC Business School, made some savvy moves by shifting early from the consumer to the enterprise market. But he also gives a lot of credit to decisions he made early that have paid big dividends over time.
It’s worth noting that Denoyel was working for a photo magazine rather than in a technical field when he started the company. But his passion to be an entrepreneur and his sculpting hobby led him to discover the emerging world of digital 3D art and VR. And became the inspiration for Sketchfab which provides a platform, viewer, marketplace, and project management tools for 3D renderings.
Not long after launching the company in 2012, Denoyel established the headquarters in New York City.
“We moved there when we were first movers in our space worldwide,” Denoyel said. “And so we knew that we had to have at least a foot in the U.S. if we wanted to become and stay a leader in this.”
He had applied to Y Combinator and TechStars and was accepted into the latter, which initially brought him to NYC. But after the company began to grow, he decided to locate most of his team in Paris, particularly the technical talent. Today, Sketchfab has 37 employees, with the majority in Paris.
Since 2015, Sketchfab has raised more than $13 million in venture capital. Investors include such firms as Balderton Capital and FirstMark.
But things looked pretty bleak in 2017 when Denoyel tried to raise a Series B and got over 100 rejections. The hype over VR had subsided, and Sketchfab seemed in line to be a likely casualty.
Instead, Sketchfab switched on its monetization efforts. And it was able to stay lean throughout thanks to the lower costs that came with being in France rather than the U.S.
“I think that's where being a French and American company helped out,” Denoyel said. “Because the risk of going the American way and the risk of raising VC money on a consumer vision is that it requires you to focus just on growth. And when you do that, your burn rate explodes. Then it's too late when you realize you need to shift the business model and you hit a wall. But we were able to raise VC money in the U.S. while keeping a reasonable French-level burn.”
Beyond just costs, he said that’s also due to a certain frugality.
“A lot of tech teams in France have a lean mindset that says, ‘We are able to make our VC money last twice as long than if we had been all in the U.S.,’” Denoyel said. “I think that allowed us to make the shift because we had enough time.”
Cost of talent is an argument frequently made in favor of France, where average salaries are lower across most industries due in part to generous social programs. It can also be a hindrance to attracting international talent who are shocked by the smaller paychecks and don’t understand the French social benefits system.
For those companies coming from France, these dynamics are clear. Sketchfab is therefore far from alone among French startups in creating a structure divided between the U.S. and France.
But it’s still a good reminder than when asked whether to move a company abroad or keep in France, sometimes the best answer is both.
In other news…
Not Optional is an association of venture capitalists and entrepreneurs that have been lobbying for governments to reform rules around stock options and for startups to use them more generously. Today, Not Optional released its latest rankings of the most startup-friendly countries.
The top of the list was a three-way time: Lithuania, Latvia, and Estonia.
But what about France?
Well, France came in a respectable 6th place, behind Canada and Israel, but just ahead of the U.K. and the U.S. And well ahead of European rivals such as Germany and Sweden.
The Big Picture: It would seem that France’s high ranking is tied at least in part to reforms introduced last year by President Emmanuel Macron. The new rules made it easier for foreign companies to offer stock options to employees in France and made valuation rules more favorable to employees, among other changes.
What the report doesn’t say — and it may be too early to measure — is whether these reforms have led to an increase in stock options used by companies in France. Beyond annual rankings, that will be the true measure of success for these reforms.