France: Positioning itself as a major player on the global tech landscape

By Elie Denfert-Rochereau

Six months after his inauguration as President, Emmanuel Macron already appears to be orchestrating a positive trajectory for the French tech ecosystem. Coupled with Macron’s entrepreneurship-friendly policies, growing enthusiasm from international investors will squarely position France as a core hub for innovation and entrepreneurship in the years to come.

This optimism is justified: To begin with, besides having a long mathematical tradition, France boasts a top-notch technical education system that sets a solid foundation for growth in the tech space. According to the French Tech France has more than 1.3 million engineers, 100,000 researchers, and 400,000 Research & Development personnel. Esteemed engineering schools, including Polytechnique, Centrale, Les Mines, Ponts et Chaussées, or schools of computer science, such as Epitech or Ecole 42, produce an abundance of brilliant minds. France also holds the second largest amount of Fields Medals after the US, the highest honor a mathematician can receive. Impressive for a country only 1/15th the size of the US.

The momentum for innovation is picking up. In 2016, HEC Paris and Polytechnique announced plans to launch a Data Science for Business program, while 20 French universities, with over 65,000 students, 350 labs, 10 incubators, and several research centers are all working under the École Normale Supérieure Paris-Saclay “label” to position France as Europe’s top R&D hub, with as many as 155,000 researchers. Paris-Saclay boasts its own Seed Fund, raising as much as €50m to invest in students, professors, and research projects. France is now on its way to become Europe’s biggest hub for machine learning and artificial intelligence startups, validated by Facebook opening up its first AI Research Center outside of the US in Paris in 2016.

Marching to the beat of Macron’s innovation drum

Startups and incubators are mushrooming at an impressive speed. There are almost 10,000 startups in France, of which 64% are Paris-based. Other centers of innovation are emerging all over the country, from Rennes — headquarters of our portfolio company, Klaxoon — to Grenoble, Lille, Lyon, Marseille, Bordeaux, Toulouse and Aix-en-Provence. The number of applications to enter French incubators have reached an all-time high — thousands of students have already completed incubator programs like Ecole 42, Le Wagon (which has scaled to 26 cities), and TheFamily, with its brilliant Lion program. Most impressive of all was the much-anticipated 2017 summer launch of Station F, which was fully endorsed by Macron, and has become the world’s largest incubator with a capacity to host more than 1000 startups. A plethora of actors (VCs, startups, corporates) have either been moving in or stopping by, turning La Halle Freyssinet into a vital innovation powerhouse.

Emmanuel Macron at the opening of Station F in Paris on June 30th, 2017

Meanwhile, seed-specialist funds like Kima Ventures, Jaina Capital, Kerala Capital, Otium Capital and others have been working in the background to shape a powerful early-stage ecosystem, together with La French Tech, an accreditation awarded to French cities recognized for their startup ecosystem.

Larger funds are now betting on the trend and are expected to invest up to €3.5B in France this year. French VC funds have expanded in size (with Partech raising €1B, Ventech, €800m, Alven, €250m, Idinvest, €250m, Newfund, €200m, Isai, €150m, among others), and we are also seeing a huge growth in foreign capital investment to France, including Balderton, Accel, USV, Benchmark, First Mark Capital, Insight Venture Partners, and more recently General Catalyst. Japanese group Fujitsu has even embarked on a €50m investment in startups of the French Artificial Intelligence, setting its headquarters at École Polytechnique.

From braindrain to braingain

Given the current dynamic, French entrepreneurs who left following the 2008 financial crisis are returning home. Tech companies, like Once, and Allure Systems have relocated their businesses to Paris, from London and Shanghai respectively — a decision that could soon become the norm for French startups abroad. Emmanuel Macron’s administration is sparing no effort to be in the good books of entrepreneurs, launching a €10B fund for the startup community. He has not made a secret of his pre-electoral promises to turn France into a “startup nation,” but has instead pushed obstinately for labor reform, and the relaxing of regulations that have thus far stifled innovation. Endorsing the French Tech Visa — a visa that allows foreign startup founders, employees, and investors to obtain a French residence permit — is an exceptionally bold move, which will have a huge impact for the future of innovation in France. His labor reforms and pro-business budget for 2018 will also provide more flexibility for the employers when hiring new talents, while cutting taxes on capital gains in order to attract international investors and reinvigorate the French economy.

Our Outlook

Since its inception in 2014, White Star Capital has been focused on deeply technical but underserved funding markets and France has always been one of our key targets. We are now deciding to double down on the French ecosystem, and I am proud to be asked to take a leadership role on this effort. At the core of its transatlantic strategy, setting foot in France with physical offices ended up being a prescient. While French startups have access to early stage funding, they have a harder time raising larger rounds, and crossing over to the larger North American market. White Star Capital has a vision that is sharper than ever for France. Our target is to write $1 to $5 million initial checks into startups in France, with entrepreneurs we know and whose language we speak. We believe we have the opportunity to bring them to these international markets and let them benefit from our network and experience; with the underlying goal of giving them access to Series B, Series C and more funding along with VCs we have worked with and know well. In other words, we aim to kill two birds with one stone: helping the entrepreneurs scale into larger and more competitive markets, while closing the funding gap. Paris is the obvious next step for White Star Capital’s expansion and I look forward to meeting more of you ambitious entrepreneurs!