The French tech rocket-ship is ready for take-off, now let’s fuel it with ambition 🇫🇷
There were two big news at the end of last month regarding the French tech ecosystem. Firstly, French VCs have raised more than any other country in Europe in H1 2017 according to Dealroom (and confirmed by Yannick Roux’ spreadsheet) and on the receiving end of the VC marketplace, French startups raised a record-breaking €420m+ in September (+45.8% YoY).
What’s the explanation for this momentum in the French tech scene?
The basic building blocks of the rocket-ship are finally complete
As I already mentioned at the end of last year, the different elements of building a startup ecosystem had come together and the results of this are now starting to emerge.
Early stage funding is at an all time high
- So, French VCs raised €2.7bn in H1 2017. To put this into perspective, €2.7bn is the same amount that French startups raised in the entirety of 2016, indicating that the trend is here to stay. Most of the big French VC players announced a new fund in 2016 or 2017, and some new players raised their first one. The late Seed / Series A spot is now armed with a huge amount of capital
- In addition to their French counterparts, VCs outside of France also increasingly focused on the country. US-based FirstMark, Battery Ventures, Khosla Ventures, Valar Ventures and Benchmark all announced an investment in French companies in 2016 or 2017, mostly at the Series B stage. Many European VCs did their first investment in France in this period, including the team at EQT Ventures, as well as Mosaic Ventures, Creandum, Global Founders Capital and Project A Ventures. They will probably join the group of European VCs that already have a strong footprint in France, such as Index Ventures (11 investments), Accel (9), Point Nine Capital (7) or Balderton, Felix Capital, Runa Capital and DN Capital (4). Consider June 2017, 10 out of the 12 €2m+ VC-led French funding rounds had at least one foreign VC involved
- Later stage investors are also looking for increased risk/return profiles and hunting in the early-stage category. The most visible round was the €60m investment from General Atlantic in ManoMano, but later stage specialists LBO France and Eurazeo all recently started to invest in startups
- Corporate investors are also an important player in the funding of French startups. For example, close to 30% of all June 2017 rounds consisted of at least one strategic investor. One noticeable initiative is OpenCNP, which was launched by CNP Assurances to invest €100m over the next 5 years
All in all, whatever the source, early stage money is now far from scarce for French startups. As a result, France was #1 in Europe in terms of volume and #2 in value of VC funding in 2016.
A large, motivated and skilled talent pool
- As described, France produces a new wave of talented and ambitious coders, engineers and business guys every year. In addition to traditional and selective engineering and business schools, new type of schools such as Xavier Niel’s Ecole 42, HETIC or the even more socially inclusive Simplon.co are taking care of ‘producing’ developers in a more hands-on way. This talent pool comes at a fraction of Silicon Valley’s cost, and with loyalty as a bonus. This is one of the reasons why France boasts good results in “deep tech”, most notably machine-learning companies like CallDesk, Shift Technology, or tinyclues
- This talent pool is increasingly willing to found or work for startups, which is a radical change of mindset compared to the traditionally prestigious corporate jobs for graduates. For example, a quarter of the HEC Paris alumni say they want to start their own business
Institutions are turning into accelerators for the ecosystem
A third pillar of the ecosystem is the quality, number and entrepreneur-friendliness of the institutions that surround startups. Here again, France has recently made impressive progress
- Although often depicted as an obstacle to innovation, French political institutions are actually quite helpful and definitely going in the right direction when it comes to supporting startups. Firstly, as Romain Serman highlights, the French public bank BPI France has backed 3600 French startups with soft loans in 2016, up 125% compared to 2013. Secondly, tax schemes like the Credit Impôt Recherche (CIR, which basically pays for 30% of the R&D expenditure for research-heavy startups) or the Jeune Entreprise Innovante label (essentially a big cut on employer’s social security contributions for R&D employees) are helping. Finally, I can’t not mention the increase in confidence spurred by the election of President Macron, who wants France to be a “startup nation. A nation that thinks and moves like a start-up”. Macron acted on his words with “French Tech Visa” (4-year residence permit for entrepreneurs and their families) and announcing some tax breaks fostering investment in startups
- In a more general way, private initiatives around startups are also a clear sign that the ecosystem is maturing. Coworking spaces are blooming in Paris (WeWork and Remix Coworking as well as the long-awaited and largest startup campus StationF). The big international accelerators have also increased their coverage of France. Some, like Techstars and Plug and Play Tech Center, by opening local branches and others by having people on the ground more often. This push means that global organisations are joining forces with local champions, like 50 Partners and The Family, to reinforce the startup education of French entrepreneurs
The positive feedback and experience loop is starting
All of these foundations are assembling around startups, but are they resulting in positive outcomes on the French ecosystem? It’s still early, but some elements of the “ecosystem flywheel” are starting to work:
- As I’ve mentioned here, the missing element that was preventing the French ecosystem from really thriving until now was meaningful exits. The table below shows that the number of exits with a €100m+ value has accelerated over the past few years
- Exits are often a taboo in France, especially when selling this tiny “pépite” to a big US incumbent. It’s true that we need more big independent tech champions growing out of Europe, but exits are also a sign of the value of the startups that France is producing and an important indicator of the ecosystem’s health. It’s worth noting that big US tech companies are now open to acquiring young French tech-heavy startups, like Wit.ai (Facebook), Moodstocks (Google) or recently Regaind (Apple)
- Indeed, from successful companies, “Mafias” are emerging with their founders becoming repeat entrepreneurs and business angels. Most of Criteo’s founders and executives are already involved in a new venture. Fotolia’s Thibaud and Oleg are building or investing in companies. Zenly’s Antoine and Alexis are already reinvesting part of the proceeds of their exit to Snap, just like Eduardo Ronzano or Marc Simoncini. This money often comes with sound advice, extensive network and experience
Clearly, the French tech rocketship is now fully assembled and ready for take-off. But is there still some fuel missing?
The final countdown to lift off — what else is needed?
As I’ve mentioned above, there’s so much good news around the French ecosystem lately. Yet, when you look at the data in Europe, France is not there yet in terms of actual tech champions.
Building champions: we’re not there yet
- When looking at GP Bullhound’s recent report on “European Titans of Tech” you quickly notice that, well, France doesn’t have any titan of tech yet (see below)
- And it gets worse when looking at it on a per capita basis, where France ranks #8, far behind the Nordic champions
We have great engineers, a lot of money available to invest, benevolent institutions and the beginning of a positive feedback loop. Why then are we still waiting for French €10bn+ tech companies, and what does it take to build one and get the rocket ship off the ground?
The final countdown to lift off — what else is needed?
- First of all, we need time. Silicon Valley’s history started back in the 1940s with extensive military spending in technology and the creation of Venture powerhouses like Sequoia and Kleiner Perkins as early as 1972.
- Another thing French startups might need is support when it comes to being more product- and customer-centric. French entrepreneurs are often very techy, able to build complex algorithms and best-in-class tech, but may want to turn this into a better product. Spotify’s time capsule is a wonderful application of customer-centric algo in a beautiful product. This is one of the reasons EQT Ventures was founded. The fund doesn’t just provide access to the capital needed to grow, but also the expertise and knowledge required. The team has members focused on UX, technology, analytics, scaling and marketing. This kind of support and advice from an ecosystem of second and third generation of entrepreneurs is key to the success of the new wave of founders. The ecosystem in Silicon Valley is already well-established and now Europe’s support ecosystem is starting to flourish
- Building a company is something French founders have now mastered. But scaling is another story. We need real champions to come out of France and champions are companies that scale. This requires a well-structured customer acquisition machine and a team that can help to nitro charge it.Once this is in place and your startup is ripe for international growth, you need to have the guidance of people who have achieved it before. Don’t be shy about asking for advice. In terms of internationalisation, it’s good to see French startups like Privateaser starting to use English as their default working language
- Finally, as stated above early stage funding is abundant, but through-the-cycle funding is harder to find. It takes time, advice, support, iterations and money to build European and global champions. EQT Ventures’ strategy has been to support companies throughout their journey. This is why EQT Ventures has a multistage €566m fund and the expertise required to help entrepreneurs fulfil their ambitions to become global winners
France is a tremendously promising land for startups and hopefully soon for scaleups, building on the ecosystem’s key assets like technical talent, helpful institutions and abundant early-stage funding. EQT Ventures strongly believes in future French tech champions, as shown with our recent investment in CallDesk, and more soon.