France, The New Startup Factory

Four French IPOs on the NASDAQ in just 24 months (Criteo, LDR, Cellectis, DBVTechnologies), American VCs investing in France (BlaBlaCar, La Ruche, Believe Digital, Scality, ShowRoomPrive), three new Unicorns (BlaBlaCar, Sigfox, Teads), US market M&As (by Microsoft, Zendesk, Salesforce, Facebook, Adobe), French venture capital industry ranking second in Europe, the forthcoming creation of the world’s largest incubator La Halle Freyssinet in Paris, success stories by French entrepreneurs in the US (Lending Club, Symphony, Tango, PeopleDoc, SmartRecruiter), an American CEO — Cisco’s John Chambers, — declaring that “France is the next big thing.” …

Sacrebleu! What is happening in France?

The talent pool, France’s best asset

France has a strong scientific tradition: 13 Nobel prizes in physics, 8 in chemistry, 13 in medicine. French mathematicians have won a quarter of Fields Medals awarded since 1923. The higher education system is efficient and free. Oui! You heard it, free! The system now produces around 80,000 engineers and 70,000 PhDs — half of them foreign born — per year. Such educational efforts have created a 1,000,000+ strong engineering workforce, the largest in Europe alongside Germany. No wonder so many French engineers work at some of the best of America’s high-tech companies, including Apple, Tesla, Facebook, Salesforce and Google.

This powerful education system continues to be enriched with the emergence of new players such as School42 in Paris, founded by the French tech Tycoon, Xavier Niel. This two-year-old coding school trains 900 developers a year. And that’s just the beginning. School42 is disrupting education in many ways. For example:

  • Anyone can be admitted regardless of previous educational background (high-school diploma not required)
  • 75,000 applicants go through a month long selection process involving a grueling 15 hours a day, 7 days a week routine — and you thought the French don’t work?
  • The 900 admitted candidates (this year, the youngest student is 14 year-old, the oldest is 55) go through a curriculum built exclusively on team-based projects, are assessed through peer review (no teachers), and will graduate, not in 3 or 4 years, but as soon as they reach a pre-fixed (high) coding level (so far, only one student — obviously pretty skilled –, has graduated since the birth of the school in 2013).
  • Oh, and, by the way, School42 charges no tuition at all.
“School 42”, a new and disruptive coding school in Paris

Besides, let’s not forget prestigious design schools such as Les Gobelins (whose alumni can be found by dozens at Pixar) and business schools (according to The Economist, French HEC and INSEAD schools rank respectively #1 and #2 in Europe).

The country also has a network of fundamental research centers including CEA, INRIA, LETI, and CNRS which focus on computer science, electronics, medicine, physics, aerospace, chemistry, electrical engineering, and robotics. Specialized scientific clusters on semi-conductors, life-science, optics, telecommunications, energy, robotics, IoT, drones, etc have developed throughout France.

The talent pool has four major characteristics:

  • High-quality engineers, working an average of 60 hours per week. They are highly-skilled and creative, especially in Big Data (Criteo, Talend, Scality, Qunb, and PRICEMATCH), Artificial Intelligence (Wit-ai, Snips, Cardiologs, JulieDesk, SearchXPR), IoT (Sigfox, Parrot, Withings, Netatmo, Sense and Aldebaran), Telecommunications (TextMe) and Biotech/Medtech (Cellectis, DBV, LDR),
  • Easy access to a vast pool of talent,
  • Reduced cost compared to the USA: approximately $60,000 for a junior developer. The government offers a powerful tax credit mechanism for unprofitable startups, and 30% of R&D expenses are supported up to $110M, in the form of a Treasury check — an overall government’s investment of $7B per year,
  • There is low workforce turnover due to a cultural mindset of greater loyalty to a company and lower competition.
Renaud Laplanche, a HEC Alumni, founder and CEO of Lending Club, a San Francisco-based peer-to-peer lending platform, valued at $5B

A new entrepreneurial culture

France has started importing the American pay-it-forward culture, a key component of Silicon Valley. The first generation of web entrepreneurs, made in the early 2000s, have reinvested heavily in the country. Xavier Niel, founder of Iliad (a $17B ISP) is investing seed money in 3 startups every week; Jacques-Antoine Granjon founded a billion-dollar business called Vente-Privee.com; Marc Simoncini founded Meetic, which was acquired by IAC/Match.com; Pierre Kosciusko-Morizet founded PriceMinister, which was acquired by Rakuten; and many others.

Above all, the entrepreneurial culture grasps the whole French society. Recent polls are quite enlightening: over 50% of the 18–24 year-old French people now want to start their own business. In other words, the times of “I dream of a corporate career” are over.

This trend is even more pronounced in the Millennial generation with 75% of the HEC classes of 2013, 2014 and 2015 wishing to create a startup right out of school. Same underlying trend in the numerous engineering schools: 15% of the 2015 class from the number one engineering school in Europe, Polytechnique, spent six months of their curriculum in the Center for Entrepreneurship at UC Berkeley to create their startup.

La Halle Freyssinet, the world’s largest incubator, will open its doors to 1,000 startups in Paris in 2016

Why such an excitement?

  • The social values of success are about to be disrupted. Ten years ago, founding a startup was considered “suicidal,” while joining a 100-year old corporation was the promise of a successful career. Today, those values are reversed,
  • New French success stories serve as models for young students, such as Criteo. Founded by three French engineers in 2005, the company opened in San Francisco in 2009, was listed on the NASDAQ in 2013 and is now valued at $3B,
Criteo’ s IPO, NASDAQ, Oct. 2013
  • Silicon Valley has become a cultural model, often referenced in the French debate,
  • The fear of failure, a traditional Achilles heel for France, is seriously losing ground, under the pressure of star-entrepreneurs but also Emmanuel Macron, the 37-year-old Minister of Economy who repeatedly encourages young entrepreneurs to take risks and even to “become billionaires”! Additionally the media follows suit with new shows discussing entrepreneurship being broadcast on national TV and radio stations,
  • Bpifrance, the “French Silicon Valley Bank,” also contributes greatly to promoting such a cultural change, with massive advertising campaigns and giant-events. For example this $25B-fund gathered 16,000 entrepreneurs in Paris last June to deliver a simple but straightforward message: “Yes you can! Jump off the cliff!”,
  • Dozens of universities have created entrepreneurial programs and on-site incubators, and tech accelerators are flourishing in the country,
  • Dense networks have been established between the entrepreneurs of France and the large French diaspora abroad, particularly in the US, with 70,000 in San Francisco, 100,000 in New York, and 60,000 in Los Angeles where strong French-led businesses are emerging. Some of these businesses include Lending Club, Tango, Symphony, Scality, Docker, Placemeter, Datadog, Teads, Algolia, Ivalua, SmartRecruiters, SketchFab, and SongPop, to name just a few. Such networks facilitate transatlantic flows of knowledge, create business opportunities and ease cultural pollinization,
  • A reformed regulatory environment since 2013 with more flexible labor laws that help ease lay-offs and give a clear framework for litigation and a lower taxation of capital gains (subject to income tax with a rebate of 50% to 85%, depending on the holding period of the securities).

The result? Today, Paris alone has 5,000 startups (compared to 1,000 in 2011) and is adding 1,000+ startups every year as well as hosting more than 40 accelerators. Other cities are emerging with bubbling entrepreneurial activities, such as Toulouse, Lille, Nantes, Lyon, Grenoble, Bordeaux, Nice or Montpellier.

Frederic Mazella, Nicolas Brusson and Francis Coat with BlaBlaCar, world leader in ride-sharing, valued at $ 1,4B

The second venture capital industry in Europe

The French VC industry, having appeared in the mid 1990s, has reached a new maturity. Since 2013, it has become the 2nd largest in Europe, behind the UK and ahead of Germany.

Buoyed by a favorable environment, the industry even experienced strong and promising growth in S1 2015 (source: EY): + 30% in number of deals (244 vs. 188 in S1 ‘14), + 115% in dollars ($1,1B vs. $511M in S1 ‘14). This trend is expected to continue in the second half of 2015.

Another indicator of the sharp rise of the French venture: in Q3 2015, two French VC funds rank among the five most active funds in Europe according to Dow Jones. Bpifrance ranked # 1, with 13 deals in Q3 of 2015 and Alven ranked # 5 with 6 deals.

Source : Dow Jones

The Israeli Model

The French domestic market is large enough to build strong businesses. Let’s recall that France is the first market for Airbnb and the second for Uber, after the US. However, it is not large enough to build global companies. French entrepreneurs are now part of a new frenzy that includes having offices in New York or San Francisco to launch their products in the US market. These days, three French startups arrive daily at SFO or JFK. Another fact of the increasing globalization of the French tech scene is that on average, French startups make 43% of their revenue abroad.

The image of “chilly” and “unambitious” entrepreneurs is over. Such movement is strongly encouraged by the government as it promotes “French Tech” in the US, a label created in 2013 to boost the high-tech ecosystem in France. “French Tech in New York” was launched last June with San Francisco next on the list, followed by Boston and Los Angeles.

Scality, a Software Defined Storage company, present in France, USA and 5 other countries

French VC firms like Partech, Bpifrance, ISAI, Sofinnova Ventures and Iris Capital are also pushing their portfolio companies to embark on the global market. Each have since opened offices in the Silicon Valley and New York to build stronger bridges over the Atlantic.

France is thus oriented towards an “Israeli model”: in France, R&D and EMEA functions; in the US, (part of the) top-management and sales / marketing / customer support teams.

No wonder, in these conditions, first success-stories appear in the US: more and more French startups enter YCombinator, 500 Startups, Techstars or BoostVC; high-growth global companies emerge like Scality. This young talent appeals to the best US investors such as Algolia, Wit-ai, UniqueSound, Front, Placemeter, PeopleDoc. Additionally big M&A’s occur more regularly like Neolane, Sunrise, BIME Analytics. It appears a revolution is underway where the French are beginning to dream big.

France is at a turning point of its digital revolution. No doubt about it. Even French bashing, a popular sport among French people themselves, is fading. The country that invented the word “entrepreneur,” is moving forward, again. But, perhaps, the most surprising remains the attitude of French public authorities: “In high-tech, France is an emerging country” they said. An “emerging country”. Has France lost its legendary arrogance too?

Sacrebleu!