Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from countries around the world. If you enjoy and gain value from my work, feel free to share and subscribe!

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L’histoire

France was definitely late to the global start-up race that we are currently seeing unfold before our eyes, with record levels of VC money flooding the globe, from Lagos, to São Paulo, to Jakarta. France’s late entry wasn’t due to the weakness of its talent pool or a complete disinterest in start-ups; indeed, some of the ecosystem’s most renown names such as Meetic, Price Minister and Veepee were founded in the early 2000’s.

What has changed over the past decade however has been clear governmental support towards the national start-up ecosystem. Owing to French tradition, the state is very present in the ecosystem and while it may have stymied it early-on, it is one of the indisputable protagonists of its current success.

Although President Macron and his stated zeal for the “start-up nation” have recently passed key legislations, the seeds for the “modern” French start-up ecosystem were laid in the early 2010’s, under Francois Hollande’s presidency. Relatively anti-business at the start of its presidency, the Hollande administration was pressured by the “Mouvements des Pigeons” instigated by founder and VC Jean-David Chamboredon, which frontally criticized the government’s heavy fiscal policy towards entrepreneurs and investors.

Two initiatives launched in 2012 and 2013 respectively have left a clear mark on the ecosystem. The first was the creation of BPI France, a public investment bank which was paramount in kickstarting the French funding scene. As a public investment bank, BPI can offer a variety of different financial tools while also positioning itself on riskier or more “domestic-focused” innovations that aren’t necessarily appealing to traditional VC’s.

“BPI’s subsidies, co-financing and public guarantees have helped to encourage commercial banks to become more involved in the financing of innovative start-ups, in particular by developing centers of expertise as well as accelerators.” - Institut Montaigne

The second was the launch of the French Tech label, piloted by Fleur Pellerin, the former Minister Delegate for SME’s, Innovation and the Digital Economy. The ambition behind la French Tech was to regroup all ecosystem actors under one umbrella, while also providing an opportunity for French start-ups to brand themselves on the international scene using the now famous red rooster. Today, la French Tech’s brand is omnipresent in the ecosystem, and still leads many of the main initiatives to date. The creation of two groups, the French Tech Next 40 and French Tech 120 serve to consolidate France’s most promising start-ups under one roof.

Early successes

The French start-up ecosystem has achieved a certain level of maturity whereby so-called “mafia” patterns are starting to emerge. Some of the most potent mafias include the Criteo (NASDAQ IPO) mafia, the Exalead (acquired by Dassault) mafia and the BlaBlaCar (became unicorn in 2015). Founders and former employees of these companies have gone on to create/fund some of the ecosystem’s current champions, kickstarting the feedback loop necessary to sustaining start-up ecosystems in the long run.

In line with a global increase in VC funding levels, the past three years have been stellar for French start-ups. Indeed, Macron’s goal of reaching 25 unicorns by 2025 has been achieved three years early, a testament to the global ambition of its founders and a revitalized funding scene.

“In 2019, France set itself to reach 25 unicorns by 2025. This goal has been met in less than three years. 15 new French unicorns have joined the kingdom of the French Tech – including only 3 in 2020 and 12 in 2021. Since the beginning of 2022 alone – in less than 18 days – France counts 5 new unicorns! An excellent start for 2022 after a record year in 2021, where La French Tech collectively raised €11.6 billion, an increase of 115% from 2020 (€5.4 billion).” - World Business France

Ecosystem Actors

The ecosystem today benefits from a solid array of incubators, accelerators and start-up support programs, many of them spearheaded by former entrepreneurs. A clear exemplification of this trend is Xavier Niel, a French telecom magnate, who is an undeniable driving force behind the ecosystem through Station F (largest start-up campus in the world), École 42 (tuition-free coding school) and Kima Ventures (an extremely active early-stage fund).

Other renown incubators include Agoranov, la Ruche, and eFounders to name a few. On the investor side, BPI France is the largest player and has invested in some of the current big names such as Doctolib and Payfit. Other funds include the likes of Partech, Eurazeo, ISAI, NewFund … (I can’t name all of them!). A new wave of funds, including 2050, New Wave and Singular, are also on the come-up. Until recently, France has lacked local VC’s with the capacity to lead Series D and above, a topic we will cover later.

France Digitale is also notable as one of the premier networks of French/European start-ups to date and actively lobbies for regulatory changes. On the media side, Maddyness have contributed to creating a France-focused media focused on the start-up world in particular. Personal shout-out to FrenchDoers, a very new French start-up media which I particularly enjoy.

The ecosystem is unsurprisingly largely focused in Paris. Its decentralization will likely be one of the priorities of Macron’s second term; indeed, despite a stated ambition to do so, the recent election scores show that the benefits of the “start-up nation” have clearly not reached the rural and disenfranchised French population.

If you want to get a more in-depth view of the ecosystem, la French Tech teamed up with Dealroom to offer an extensive and interactive ecosystem mapping that you can check out here.

Government action

The openly pro-business Macron government has instated a variety of policies aimed at facilitating start-ups’ legislative life, while also reducing their fiscal burden. Most of them have been consolidated under the Loi PACTE.

“Mr. Macron cut France’s corporate tax rate to 25 percent from 33 percent and introduced a 30 percent flat tax on capital gains. He simplified the labyrinthine labor code , making hiring and firing easier. His government channeled billions of dollars into retraining programs and made it tougher to keep receiving unemployment benefits.” - New York Times

One of these policies, the suppression of the ISF (Solidarity tax on wealth), was one of the main complaints voiced by the massive “Gilets Jaunes” protests. Other laws such as the business-angel friendly Loi Madelin present the same conondrum; one can view it as a “gift to the rich”. Another can view it as a fundamental incentive for wealthy people to invest back into the French economy.

Furthermore, the fact that the lower socio-economic segment of the French population recently voted for far-right and far-left candidates in droves shows that the effects of pro-tech policies haven’t been felt by a significant slice of the population.

Two of the current government’s key members, Bruno le Maire (Minister of the Economy) and Cédric O ( State Secretary of Digital Transition) have also been leading pan-European initiatives aimed at strengthening the Old Continent’s start-ups. The first of these initiatives comes in the form of Scaleup Europe, a massive fund of funds aimed at giving European VC’s the ability to compete with foreign investors in large financing rounds. This aims to solve a pan-European problem of not having a local version of a Tencent or a SoftBank capable of funding mega-rounds.

The second, very recent, initiative is the passing of the DMA (Digital Markets Acts) and the DSA (Digital Service Act), a sort of “constitution for the internet” implemented at the European level.

“The regulation is wide ranging — setting out to harmonize content moderation and other governance rules to speed up the removal of illegal content and products. It addresses a grab-bag of consumer protection and privacy concerns, as well as introducing algorithmic accountability requirements for large platforms to dial up societal accountability around their services. While ‘KYC’ requirements are intended to do the same for online marketplaces.” - TechCrunch

French strengths

France has a history of high-quality technical talent, powered by elite business and engineering schools such as HEC, ESSEC, Polytechnique and CentraleSupélec. However, those schools aren’t sufficiently plugged into the start-up ecosystem. In comparison, top universities in the US play a fundamental role in incubating some of their country’s most promising start-ups.

However, France also has a history of losing its best talent to overseas companies, especially Silicon Valley. The plethora of new local start-up opportunities, alongside advantageous start-up employee benefits such as the stock option reform should help alleviate that trend.

France’s considerable technical talent has led the government to double down on its so-called “deeptech” start-ups, operating in areas such as AI, ML, and quantum computing. The stated goal is to transfer the vibrant innovations coming out of French labs into viable businesses, further reinforcing the link between academia and start-ups which has been so crucial to Silicon Valley’s success. French investment in R&D, proportional to GDP, still lags behind giant such Israel and the US.

France also enjoys a very good quality of life, with great food, a large panel of cultural offerings, and a wide range of different climates to explore. A resolutely international capital, Paris is well connected to its neighbors and to the world. The French Tech Visa attempts to capitalize on the country’s living amenities in order to attract foreign talent. Attracting the best foreign talent, arguably Silicon Valley’s most potent strength, remains a bottleneck for the French ecosystem.

“Startups in Paris enjoy unrivaled access to one of the largest domestic markets in Europe, and easy access to a European market of more than 500 million consumers. The city is also a convenient gateway to African and Asian markets. A high-speed rail network offers fast and frequent connections to all major European cities. The area’s three international airports, all connected to the city center via the underground, offer direct connections to 260 destinations in 191 countries.” - Startup Genome

On a more personal note, I also believe France has the opportunity to create a start-up ecosystem which takes the best from Silicon Valley (lean start-up method, university involvement, acceptance of failure) while combining it with the social welfare values that define France, in concert with its European partners. Recommended reading on this topic includes this report (in French) written by La Boussole and BCG, which explores a new holistic method to measure a start-up’s success.

Weaknesses

The French start-up ecosystems suffers from a lack of diversity, both on the gender and socio-economic background side. This explains, in part, why large swaths of the French population haven’t felt the benefit start-ups bring. They simply haven’t been included yet. This is also a European problem; in 2020, 85% of European startup founding teams were all-male. Projects such as “Sista”, which has led to 60 VC’s pledging to diversify their teams and fund 25% females by 2025, aim to curb the gender gap in the ecosystem. The word “race” has a very negative connotation in France, with a person’s Frenchness theoretically super-seeding all of their “backgrounds” (contrary to the US). For that reason, an initiative like a “black founders fund” would not go down well. Other alternatives, with a focus on socio-economic background rather than so-called “ethnic” background, are preferred.

On the talent side, France is still lacking “start-up specific” skills, encompassing roles such as product manager for example. While the technical talent is undoubtedly there, more has to be done to develop start-up specific acumen as well as encourage entrepreneurship in universities. To that end, the “PEPITE” program which enables students to obtain a “student-entrepreneur” status with the benefits that go with it, is laudable.

Due to the relative youth of the ecosystem, France has also struggled to follow up on its most promising start-ups, with most $200M+ rounds and acquisitions being snatched by American funds and mega-companies. That trend has been exaggerated both in its scope (big French companies also acquire foreign start-ups) and in its gravity (acquisitions, overall, help the ecosystem renew itself). However, it does remain frustrating and it does feel that France should at least be able to compete. To that end, the government has launched the Tibi initiative, which got large French institutional investors to pledge $6B in investment in late-stage equity fund. The “mother” of la French Tech, Fleur Pellerin, even founded and runs her own late-stage fund, Korelya Capital. The internationalization of French start-ups is the ecosystem’s next challenge, and competition should now be measured in relation to the UK and Israel rather than our other European partners.

For all of its demographic and economic potential, the European market is still fragmented. Analysts often say European start-ups have a 450 million people market compared to the US’s 320 million, but Europe is still bound by outdated bureaucratic and linguistic barriers that are irrelevant in the digital age. More needs to be done to enable European start-ups to use Europe, not their home country, as their test market before going global.

Lastly, ecosystem leaders really have to think hard about how to better spread the benefits of the French start-up ecosystem to the entirety of the French population. French start-ups will inevitably render factories, truck drivers, and cashiers obsolete. The challenge is to give people in these professions a spot in the ecosystem now, in order to avoid widening the gap between “la France qui va bien” and “la France qui va mal”. To that effect, the “paquet” should be put on both demystifying access to the ecosystem while simultaneously democratizing the upskilling necessary to match start-ups’ real demands.

Conclusion

Long considered a difficult place to do business, an image worsened by the state’s block of Dailymotion’s acquisition by Yahoo in the early 2010’s, France has truly re-invented itself and its national image in the process.

I don’t think start-ups are a panacea to a country’s woes; however, I am convinced they are an essential component of any competitive economy. The French ecosystem is particular due to the extremely strong involvement of the state. This gives it a substantial advantage in making the efforts necessary to spread the ecosystem’s benefits to all segments of the population.

Nonetheless, there still remains a cultural problem in France. The “start-up nation” is often mocked as a cosmopolitan utopia, filled with underpaid gig workers and executives taking yoga classes. This altered view is both sides’ fault: on one hand, “anti-startup” people clearly haven’t made the intellectual effort to discover the vast array of opportunities and different sectors startups innovate in. On the other hand, “pro-startup” people can easily lock themselves in language, gimmicks and a sort of superiority complex which reinforces negative stereotypes about the startup world.

The fact of the matter is, the French start-up ecosystem is the future of France’s industry. Better start acting like it.

Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from countries around the world. If you enjoy and gain value from my work, feel free to share and subscribe!