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Time to think differently about France

Quite unexpectedly, the debate around a new wealth tax project in California actually ended up with some US investors dunking on the French ecosystem:

This may well be the worst take possible on the French ecosystem, but perception is reality — if such a popular investor as Jason holds this kind of ideas about the ecosystem, then many others probably still do too.

To be fair, the French ecosystem is still in its infancy, so if you just look at the surface and focus on lagging metrics like “number of unicorns” or “large exits” you can easily conclude that nothing has happened since 2001, that the French ecosystem is still a ghost town, and move on.

The reality is in stark contrast with this perception, and has been for several years now.

A bit of history

👻The ghost town

Were Jason to time-travel to 2010 France, he would land in an ecosystem made toxic by several factors:

  • generally low appetite for entrepreneurship and startups among young people
  • limited to no local expertise in terms of entrepreneurship and large-scale, international company-building
  • medium-risk/medium-reward oriented local investors, mostly in response to wrong financial incentives induced by the main liquidity sources (notably money linked to tax-optimization schemes and corporates)
  • a largely broken “country platform” (from employee equity schemes to labor laws to innovation subsidies to capital gains taxation)

This resulted in a vicious self-fulfilling prophecy of companies rarely getting off the ground, and led many Founders to go launch their companies abroad (e.g. Datadog or Snowflake), while the others felt like they were running with both feet tied together.

🌼2013–2018 — The Renaissance

The financial crisis of 2008–2010 triggered a deep cultural renewal in favor of business, entrepreneurship and innovation, across the society and in particular within top business and engineering schools.

In parallel, a few small and large exits/IPOs (Exalead, PriceMinister, Fotolia, Criteo, Talend…) released talent and money, that were both quickly invested back into the ecosystem, with a renewed, increased ambition.

2013 is roughly the turning point of this French Renaissance, that saw the rise of a new generation of startups whose founders, unashamed about their French roots, were genuinely thinking in terms of “go big or go home”, and were putting their energy and ingenuity behind this goal.

To name but a few: Algolia and Contentsquare were founded in 2012; Front, Doctolib, Dataiku, Voodoo, Ledger and ManoMano in 2013; Backmarket in 2014; Payfit and Sqreen in 2015; Alan and Qonto in 2016; Swile in 2018.

As is often the case, this new breed of entrepreneurs required a new kind of investors, more geared towards maximizing a startup’s chances of success than towards minimizing the financial loss in case of failure.

This opened a window of opportunity for new players to enter the fray (not mentioning also the growing class of French Business Angels):

  • The Family launched in 2013 with an education program filled with Silicon Valley-style bullishness
  • eFounders scaled its startup studio activity over 2013–2014
  • Xavier Niel and Jean de la Rochebrochard launched an agressive pre-series A strategy in 2015
  • 2015 is also the year we launched, applying the US VC playbook to France, with the very clear goal of being the go-to seed fund for the most ambitious French entrepreneurs

🚀2018-Now — The flywheel kicks in

Of course, we have yet to see a first raft of large exits to free up experienced entrepreneurs and operators that will further grow the tide.

But anyone curious enough to come meet entrepreneurs in the here and now can’t help but notice that the flywheel effect has kicked in:

  • everywhere you look, entrepreneurs display an incredible level of energy and ambition, combined with a much higher degree of maturity and readiness
  • smart, ambitious, risk-loving money is available across the entire startup lifecycle
  • several companies have outgrown their home base and are successfully operating across several geographies in Europe & the US
  • there is an ever-growing network of experienced operators eager to solve big problems (including French nationals coming back from the US)
  • And you could add to the mix the presence of world-class engineering schools, a significantly cheaper cost of living compared to SF or London, and a fairly big (and protected) local market to build the initial traction

On many accounts, France definitely offers as good a playing field as many other ecosystems when it comes to launching a company in 2020, and arguably to scale your team too — in particular as regards engineering/product/data science teams (case in point: even Datadog has a large portion of its engineering team in France).

The French narrative violation

It is general knowledge that you need a few 10-years cycles for an ecosystem to reach maturity and see frequent Bn€+ exits. This is why asking “where are the breakout companies” or “where are the big exits” is a fallacy and, frankly, particularly disappointing coming from investors that pride themselves in spotting narrative violations.

We are still in the first inning of this new cycle, so it will take 5–7 years more before this first batch of companies reaches maturity.

This is not lost on all international investors though. From the early-movers Accel, Index and Firstmark, to European upstarts like Balderton, Atomico, and Blossom Capital, to leading US brands like Valar, Bessemer Venture Partners, Battery Ventures, General Atlantic, Insight, Benchmark and Sequoia, many have clearly noticed that something was up and have ramped-up their presence and investments in France.

These investors are not required to invest in France, so when they do this is a positive sign that the companies are at least on par with other investment opportunities elsewhere in Europe or in the world. Here is how the number of Series A+ rounds led by international investors has evolved since 2008:

# of Series A+ investments in French companies led by International VCs (2008–2020 YTD) [1]

So far in 2020 (end August), we already stand close to the 2019 level, with 24 rounds led by international VCs; among which a few €1bn+ transactions (e.g. Dataiku and Voodoo). Long gone are the days when French companies were doomed to sell for less than €100m!

Conclusion

In many ways, the French ecosystem is similar to a seed-stage startup. You do not yet know for a fact that it will become a world-class entrepreneurial ecosystem; you have to assess early signs, make up your mind, place your bet and wait out to see whether you were right.

What is happening right now beneath the surface is invisible to investors that want to witness multiple billion-dollar exits before joining the party, which is an awesome opportunity for those who just bother to look under the hood.

We, for one, can’t be more excited to see what’s next :)

Frst is a seed-stage VC firm focused on supporting a new generation of French entrepreneurs with global ambitions.

[1] Graph methodology: the rounds retained for this analysis are rounds above €5m (€3m before 2016), led by a Tier 1/Tier 2 international investor. In the equity story of any company included in the analysis, the first such round is labelled “First graduation”, while any subsequent round is included in the “Follow-on” bucket.

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We are the first believers.

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Bruno Raillard

Bruno Raillard

Partner & Cofounder at Frst

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