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France plans to use the startup downturn to come out on top in Europe

Only one major startup ecosystem in Europe saw startups increase Following silver in 2022 than in 2021 — France. And the French government wants things to stay that way.

For the past few months, the government and its startup agency La French Tech Mission have launched programs to promote agritech, healthtech and climate tech startups. The state bank Bpifrance is injecting an additional 500 million euros into deeptech startups. The government is also considering new financial reforms that would boost entrepreneurship and investment.

While the number of darling unicorns (ranging from 28 to 36 depending on how many you believe) is likely to slow down, the government has set new reform-backed targets to see 10 unicorns go public by 2025 on the London Stock Exchange. Paris. It is still rolling out €1 billion to create 37,000 cybersecurity jobs and three security unicorns by 2025. And underlying it all is a sprawling €54 billion plan dubbed France 2030 to accelerate technologies that contribute to environmental transitions while supporting emerging technologies such as hydrogen. and space technology.

Phew.

It’s a frenzy of government activity unmatched in any other European startup ecosystem, designed to kick the country’s startup machine into an even higher gear. While other regions are playing defense, France is betting on innovation and entrepreneurship to be the cornerstone of its future economy and job creation rather than worrying about bailing out its current generation of startups.

“I am convinced of the solidity of our ecosystem”, declares Jean-Noël Barrot, French Minister of Digital. “Our entrepreneurs have shown resilience in previous crises… They have the experience to be able to iterate quickly and adapt.”

The Boom City

Over the past decade, since the creation of the La French Tech initiative, the French government has been one of the most interventionist in Europe in terms of injecting capital into startups and developing a wide range strategies to catalyze its innovation economy.

It paid big dividends. The amount of funding and the number of startups created in France have exploded and placed the nation at the forefront of European ecosystems.

According to Dealroom, French startups raised $14.6 billion in 2022, up from $13.5 billion in 2021. This made France the only major European ecosystem to see an increase in funding last year, the UK and Germany saw steep declines of over 20% while US fundraising fell over 30%.

President Emmanuel Macron once set a hugely ambitious goal of creating 25 unicorns in France by 2025, but the nation surpassed that number last year – three years ahead of schedule.

And yet, the top five are muted somewhat as those 2022 numbers were boosted by a series of megarounds announced in January 2022 – for companies like Exotec, PayFit, Ankorstore, Qonto and Back Market – most of which were likely closed. in 2021 before global economies began to collapse.

In the second half of 2022, French startups raised just $4.5 billion, compared to $7.1 billion during the same period in 2021. As was the case around the world, non-traditional investors such as the private equity firms that had flooded startups with huge amounts of funds – the cash scene in recent years has suddenly dried up.

And yet, there are many reasons to believe that the economic blow will not hit French startups as hard as elsewhere.

“In the medium term, there is no reason not to be enthusiastic about the French ecosystem”

In a recent report on the state of the French Tech ecosystem, Eurazeo investor Alexandre Dewez noted that only a handful of leading French scale-ups have announced mass layoffs in recent months. French venture capital firms raised €4.3 billion in 2022, just a hair short of the €4.4 billion that closed in 2021, meaning they still have plenty of dry powder to go. invest. And investments at the seed and Series A stages remain very competitive, according to Dewez.

“In the medium term, there is no reason not to be enthusiastic about the French ecosystem,” he writes.

Roxanne Varza, director of the Parisian campus startup Station F, echoes this optimism. Campus-connected companies raised nearly €1 billion in 2022, roughly double the previous year.

“Many expect the economy to rebound in the second half,” Varza said. “The early stage was pretty well protected (F station numbers were pretty consistent) throughout the year. Anyway, I think the ecosystem has been pretty resilient and if H2 is strong, I think the negative impact will be quite limited.

Bpifrance cushions the blow

Perhaps most critical of this soft landing, according to Dewez, is the massive role that state-owned bank Bpifrance continues to play in the French startup economy.

Bpifrance oversees €44.5 billion in investment assets which it invests directly in startups through a range of its own funds, while also investing in venture capital firms through a 13 fund of funds, 5 billion euros. According to research by Dewez, Bpifrance directly participated in 107 financing rounds, or around 16% of total transactions in France and representing around 25% of all funds raised in 2022.

The percentage of direct and indirect financing of French startups coming from Bpifrance has, however, continued to decline, with French startups attracting more international investors; one of the main objectives of the organization.

As such, Bpifrance has turned its attention to programs such as its €2 billion deeptech initiative to encourage science and research-based startups that create products based on breakthrough discoveries. The bank has also worked to reform technology transfer rules while encouraging more universities to support faculty members who want to become entrepreneurs.

According to statistics from Bpifrance, France produced 250 deeptech startups in 2021, compared to 150 in 2019. Last October, a new program called French Tech DeepNum20 debuted; a select group of 20 deeptech startups will benefit from tailor-made support from La French Tech to help them navigate French bureaucracy, attract talent and grow in international markets.

The 20 companies were selected based on their potential in areas such as space technology, AI, robotics, security and semiconductors. One of the winners, the quantum computing startup PASQAL, has just raised a funding round of 100 million euros, including funds from Bpifrance.

“Despite the crisis, or perhaps even because of the crisis, we must prepare for the future and continue to invest”

Earlier this year, Bpifrance announced additional funding of 500 million euros with the aim of creating 500 deeptech startups per year. Paul-François Fournier, deputy managing director of Bpifrance Innovation, says such state investments remain essential for research-based startups that will need a longer horizon to develop products, find a market and become financially viable.

“This is a long-term effort to encourage a new, even more technology-driven startup ecosystem,” he said. “Despite the crisis, or perhaps even because of the crisis, we must prepare for the future and continue to invest.”

Big bets for the future on French tech

This desire to seize the future, rather than retreat in the face of economic headwinds, seems to be the dominant spirit in France.

With the fundraising gap for startups in 2022 closer than ever between France and the UK – the long-time European leader – the French government wants to capitalize on its momentum to establish a leading position in the markets. tomorrow’s critical emerging technologies.

The French Tech DeepNum20 is just one of the dizzying programs supported by the generous France 2030 framework. The French Tech Green20 started in 2021. Last July, the first French Tech AGRI20 of agritech startups took place. In November, the nomination process for the new French Tech Health20 began.

And two weeks ago, Barrot reiterated the government’s support for a five-year plan to accelerate the French esports industry with bigger tournaments, including an Olympic esports week in 2024.

“This is a long-term effort to encourage a new ecosystem of startups that is even more tech-driven”

The director of La French Tech, Clara Chappaz, also stressed that this wave of actions was part of a long-term strategy rather than a reaction to the drop in funding. French entrepreneurs still have a lot of money in the bank thanks to these big rounds, she says; they have enough track to find a path to profitability.

His team hosts forums where entrepreneurs and investors can share lessons and advice and find mutual support. One of these discussions focused on how to finance factories and industrial processes, while another focused on mergers and acquisitions. Chappaz says startups with funding think they can use this moment and falling valuations to their advantage by consolidating their markets to grow.

“We are staying very close with entrepreneurs to understand first-hand how the situation is evolving,” she says. “How can we help them through this situation? We support them in a way that allows them to learn from each other.

Yet Macron remains relentless in his quest to make France a Startup Nation. To that end, its prime minister recently appointed Paul Midy, an entrepreneur elected to the National Assembly last year, to identify new reforms that could boost startup funding in France.

Midy says he has just begun the process of interviewing founders, investors and other economic experts to identify roadblocks and generate insights. This task will also include an online public consultation as well as the study of the strategies adopted by other governments.

For example, Midy and others cited the UK’s Seed Enterprise Investment Scheme (SEIS) as a model they would like to see France emulate to encourage more people to participate in investing in startups.

The aim is to present these plans in time for the next budget, which is usually submitted in September, including ways to offset incentives that could reduce taxes. Midy says that while French startups have made huge strides over the past decade, more can and should be done to support a sector that remains a key job-creation engine for the economy.

“The fundraising dynamic is changing,” says Midy. “This is an additional reason to find the tools to support investment in startups and maintain momentum. Because the most effective way to create jobs, real jobs, is to help create and develop young innovative companies.

Chris O’Brien is a Sifted correspondent based in France. He tweets from @obrien