The French Dispatch: Welcoming investors with open arms: the French Tech in 2023
3 Questions to Cédric O
Former Junior Minister for the Digital Economy
What are French Tech's leading success factors? Can we speak about a French Tech model?
“For historical reasons, France has some of the best entrepreneurs, researchers, and engineers in the world. For some time though, they’ve been forced to go abroad to find opportunities matching their talent and ambitions.
Indeed: until recently in our country, there was no proper funding nor technology companies which enabled them to fulfil their potential. The current situation is still very much influenced by this exodus: of the 14 signatories of the LLAMA model paper (the competitor of ChatGPT produced by Meta, published on 27 February), 11 are French...
The economic reforms engaged at the start of President Macrons’ first five-year mandate as well as his pro-entrepreneurship speech marked a turning point. Tax reforms, labour market reform, and some industry-specific moves in favour of venture capital have started a virtuous circle with companies growing, attracting more and more talent and therefore capital, etc.
All European countries have experienced a strong growth in their innovation ecosystems in recent years, but none on the scale of France. We can speak of a French Tech model in the sense that the government has probably been one of the main drivers of this development.”
Do the positive externalities of French Tech extend beyond the economic and financial sphere (impact on education, ecological transition, well-being...) ?
“Digital revolution is not an incremental change in the economic world. Technologies such as artificial intelligence and cloud computing represent a revolution in terms of productivity gains. The potential impact of start-ups is thus far from being limited to the economic sector.
Two examples: first, the advent of Large Language Models such as chatGPT could revolutionize the approach to education (through teaching individualization they enable); the environmental transition is very much a productivity gains issue, since it’s about addressing the needs of the world population whose numbers and average standards of living keep increasing while resources are finite. Because they are the quasi-exclusive actors of this technological revolution, start-ups (and more broadly "Tech" companies) are key stakeholders in many societal and environmental issues.”
What does France need to enable its start-ups to scale up and become leading world players?
The European technological ambition must encompass time and stability. Momentum is good, but let's not forget that the Silicon Valley adventure began in 1957.
Setting the stage
After a year that defies description, French start-ups raised a record high €13.5Bn, 16% more than in 2019. Making France the only country among Europe’s three largest markets that managed to grow in 2022. France now counts in its ranks 29 unicorns — 8 of which sprang up last year — and has strengthened its IPO pipeline.
Since the “French Tech initiative” was launched in 2013, France has turned into a breeding ground for innovation. As of January 2022, France was:
12th country in the 2022 Global innovation index (16th in 2019), and 2nd at European level*
2nd European country in terms of patents issued and 4th at the global scale, with 6,2% of the patents requested to the European patent office..
2nd European country in venture capital funds raised.**
The French Tech was initiated by Fleur Pellerin, then junior Minister for small and medium-sized companies, innovation and digital economy, during President Francois Hollande’s administration (2012-2017). Prompted by the need to promote the growth and influence of French digital start-ups, the French government launched “the French Tech initiative” at the end of 2013 with the objective to make the country a “start-up nation” and consolidate its start-up ecosystem. First measures included the creation of a label that “gather metropolitan communities which together will become the ‘French Team’ of digital ecosystems”, a government-backed €200M investment in private initiatives to accelerate the growth of French digital companies and a €15M investment to help boost France's attractiveness as a major digital nation.***
How does the French tech ecosystem work?
The government has set up the “Mission French Tech”, a taskforce working alongside the French Economy and Finance Ministry and the Foreign Affairs Ministry and which primary mission is to ensure public actions in favor of the tech scene are consistent.**** This taskforce also coordinates with national operators (in particular, as per funding rounds) such as the Caisse des Dépôts, Bpifrance and Business France..
To make the French Tech blossom, the government heavily relies on state-owned investment bank Bpifrance. It poured €1.6Bn into French tech start-ups and venture funds in 2022 alone, up from €1.51Bn in 2021. The bank has become an “economic beast whose tentacles reach into every corner of rise [France]’s innovation ecosystem”.*****
Key factors for its success
Ten years after the launch of the French Tech initiative, the French government’s pro-tech crusade is paying off, with 29 unicorns (up from 4 in 2015) and increasing international investment. In 2022, France has been the only major European start-up ecosystem to see tech funding increase — 8% (vs. drops -20% in the UK and Germany).******
This success is predicated on several complementary factors, including:
A gradual new breed of founders that contributed to the emergence of the ecosystem. For instance, the Telecoms billionaire Xavier Niel has arguably done the most to boost the ecosystem through the “Station F” start-up campus, which has nurtured over 1,000 of France’s up-and- coming businesses.
A gradual change in mindset: over the years, successive governments began to promote entrepreneurship by pumping investment into start-ups through a variety of structures.
This changing mindset has translated into concrete success. The average start-up size at acquisition has been growing each year, expanded internationally, and pandered to investors for sizeable sums.
French start-ups have momentum, and are positioned in all the right areas, but the community still faces its share of challenges. It needs to further deepen its financing pool, and to catch up much bigger markets for start-up capital such as the UK and, farther ahead still, the US. Financing for later-stage growth is a dominant worry.
The election of Emmanuel Macron to the French Presidency in 2017 has come at a crucial time for France’s technology start-ups. Straight after his first election, President Macron unveiled a raft of measures aimed at luring foreign talents to France and fostering tech innovation to cement the country’s position as a “start-up nation.” He nominated entrepreneur Mounir Majhoubi as Junior Minister for Digital Affairs, introduced a €10bn fund to give visibility to innovation in France and announced the launch of a “French tech visa” (a fast-track procedure for international tech talents to obtain a four-year residence permit).******
The sheer number of government-backed programs are seen as advantages that can help seed a company even without the need for venture capital, such as Crédit d’Impôt Recherche (known as “le CIR”), which provides a tax credit for research and development. In 2019, the government implemented a program called Bourse French Tech, which offers up to €90K in equity-free funding to help pay for initial start-up costs. In addition, state-run plans like France Relance or France 2030 are likely to provide a boost to start-ups by unlocking capital for areas such as agriculture or Deeptech.
What does French Tech Represent today?
All these undertaken measures have encouraged a dynamic start-up scene. As a result, the class of 2023 of the French Tech Next40/120 – state support program dedicated to the most successful French start-ups capable of becoming world-class technological leaders – is the most selective since its creation. This follows a record year 2022 in terms of fundraising, start-up revenue growth and the emergence of 8 new unicorns, bringing their total to 29. French Tech 2023 class represents €11.3Bn in cumulative revenues, a €1.8Bn growth in comparison to 2022 and 47,800 direct jobs worldwide (31,400 in France).
The selection has been increasingly driven by disruptive innovations, climate leadership and industrial sovereignty to strengthen France’s technological excellence, its reindustrialisation and achieve the objectives of France 2030 investment plan set by Emmanuel Macron in late 2021. The French Tech DeepNum20 program, which supports French start-ups in the digital, electronics and robotics industries, is also in line with the France 2030 investment plan, which provides €10.5Bn in support for the entire innovation ecosystem in these areas.
The French Tech shaked-up some segments of the French economy
Several French start-ups led to a complete revolution of their market. Not only are they adopted by the French, but their services are also used by many other users in Europe and around the world. In total, three out of five French people (62%) use a service offered by a French Tech Next40/120 start-up at least once a month.******* This can contribute to regulatory changes.
Healthcare tech platform Doctolib is one of the most striking examples. With a $6.4Bn valuation and adopted by 60 million people in France, Germany and Italy, the company’s main product is a software-as-a-service platform for doctors and medical workers. It acts as a booking platform that connects doctors with patients. The introduction of telemedicine, accelerated by the Covid-19 pandemic, also contributed to the digital disruption of the healthcare sector: while only around 6% the French people experienced remoted care in 2019, they were almost 24% in 2022.******** These advanced technologies combined with a growing consumers’ acceptance of eHealth have led the French regulator to take first measures to faster adoption of telemedicine services with the reimbursement implemented by the French public authorities in 2018. Today, Doctolib is the first targeted start-up to invest in for the individual shareholders.*********
What is at stake ?
During the second part of the 20th century, France for a long time was a frontrunner in terms of digital technological advancement, with robust research capacities and key industrial leaders (Alcatel, Bull,...). The booming of the digitalization in the late 1990s left the French ecosystem far behind.
The “French Tech” program established in 2013 can be seen as an attempt to revive such assets to build new forms of digital leadership in a world tied in a ferocious competition, dominated by the U.S. and China. This is now one of the key priorities of the Government as it is now reflected in the official title of Bruno Le Maire, Economy and Finance Minister who is now as well devoted to digital sovereignty. But are such targets only achievable?
How could the French Tech compete the world?
A broad consensus has emerged among French decision makers in the late 2000s about digitalization as an indispensable factor of economic success in the decades to come. Yet, between a late awareness and the lack of a concrete implementation of efficient economic and industrial strategies, a lot of time has been lost. Against such a background, the French Tech initiative is one piece among the multifaceted action plan put in motion during the last decade to reflect the will to create, attract and scale-up the economic operators that will form soon the group of key leaders of growth.
A set of conditions and corresponding policies to meet them were identified, as many challenges lying ahead to elevate France back among the great digital nations.
The French Tech initiative is above all a forum where experts, researchers, entrepreneurs, and investors can meet and cooperate. This is a breaking point from the traditional state-centric approach to conduct economic and technologic policies. The idea is to attract capital investments to leverage the technological ecosystem to encourage the emergence of French Unicorns. Indeed, one of the weakest points of the French digital ecosystem was always about its ability to turn vivid technological innovation, thanks to a top-class research field, into concrete implementation and business development. In a world in a constant fight for talents and competences, education is key to feed the ecosystem from the bottom to build the next generation of workers and engineers of the French tech. This constitutes a growing challenge for France as the country underperforms all international education rankings, in comparison with other developed countries.
In a world in a constant fight for talents and competences, education is key to feed the ecosystem from the bottom to build the next generation of workers and engineers of the French tech. This constitutes a growing challenge for France as the country underperforms all international education rankings, in comparison with other developed countries.
Eventually, established industries must as well undergo their transformation towards digitalization, as their choice is in fact now quite little, with the risk to be relegated by emerging competitors. The French Government issued a plan (“Industrie du futur”) in the context of the post-Covid Recovery to encourage and support the digitalisation of companies producing in France. The major part of the effort lies however in fact on companies themselves.
Europe: leading by regulating
For the last decade, Europe has engaged a multi-faceted approach to the digital economy to increase European autonomy in the industry.
Taking stock of the prominence of foreign operators on the European market, decision makers have decided to engage a race to catch up international competition in very specific fields of developments such as AI, chips, cloud and data storage, ...
In parallel, there is a continuous effort to discipline the operators by enforcing competition requirements and setting new regulatory standards. The first milestone of this framework is the famous General Data Protection Regulation (GDPR) adopted in 2016 but more recently, the Digital Market Act (DMA) and the Digital Services Act (DSA) are expected to deeply modify the playground for the digital economy in Europe in the months to come. Such an approach extends as well to emerging technologies, such as artificial intelligence, with the AI Act currently under negotiation. This is the result of a political strategy to leverage the so-called “Brussels effect”, with the view to extend European regulatory environment across the globe, leaving additional space for a native ecosystem to thrive.
The French Government is at the forefront of this fight and try to add every industrial and technological “brick” that would increase its digital sovereignty. In this context, any investor targeting key technological areas in the French digital economy that would serve this overall purpose would receive direct and concrete attention from decision makers.
“In this France of entrepreneurship and innovation, start-ups have a special place. Alongside our small, mid-sized and very large companies, startups are proof that France has been, is and will always be a country of entrepreneurs. Of course, it is a good idea to start a business in France – because of the affluence of talents across the country, because of the access to a large national market and an even larger market at the heart of the European Union, and because France is attractive! For the past three years, France has been the number one country in Europe in terms of attracting international investments.”
Bruno Le Maire – Minister for the Economy, Finance, and Industrial and Digital Sovereignty – 20 February 2023