French Tech has made big strides but wants to go faster and further

AI photography startup Meero may be the perfect example of how far the French Tech ecosystem has come in recent years.

Founded in 2016, the company has already raised $63.4 million in venture capital, including a $45 million round last summer. It has almost 600 employees after the 400 it hired in just the past six months, with a target of 1,200 by the end of this year. And Meero was one of the few startups to stand out at the recent Viva Technology conference in Paris, an event largely organized around the digital transformation efforts of France’s largest corporations.

Meero’s velocity and trajectory is the stuff that makes the hearts of French Tech boosters beat a little faster. Speaking on stage at VivaTech, cofounder and CEO Thomas Rebaud said he always dreamed about turning Meero into an international company and urged his employees to be ambitious.

“If you want to go fast, the first thing you have to do is put a ‘think big’ mindset in the team,” he said. “You need to make people understand that 10 is a small target, so let’s go for 100.”

Five years ago, Meero’s story would have been a rarity in a country whose most promising entrepreneurs often decamped for greener pastures. But now Meero finds itself just one of many such success stories. Fundraising in France has increased, including a flurry this year of the larger, later-stage funding rounds that have long been missing. The country is heavily promoting its strength in artificial intelligence while also embracing emerging technologies like blockchain. Investors have taken notice of France, which is now typically ranked number two for venture capital fundraising in Europe, behind the U.K.

But while the country can be rightfully proud of this transformation, it is now facing even more intense competition on the international stage, thanks to a booming Chinese ecosystem. Meanwhile, startups in Silicon Valley can still raise massive rounds that allow them to scale much more rapidly. And while France has instituted a number of reforms to make starting a company and attracting international talent easier, it is still seen as an administrative nightmare compared to many other regions.

Yet that hasn’t dampened enthusiasm. If anything, there seems to be a growing confidence that the country is ready to tackle the challenges ahead. At VivaTech, President Emmanuel Macron, who doubles as the country’s Head Startup Cheerleader enthused about the potential of France’s entrepreneurial class.

“Four years ago, we were already the best in Western Europe in creating startups, but we had trouble scaling,” Macron proclaimed during his appearance on the first day of VivaTech. “Today, the tickets are getting bigger and bigger, there is an acceleration of the ecosystem.”

VC funding surges

For the past five years, France has been working to catalyze its startup ecosystem. While the French like to debate how much credit the government can claim, the resulting investment numbers speak for themselves. Since 2014, French startups have raised $12.84 billion across 2,734 deals, according to CB Insights.

This includes $1.16 billion raised during the first quarter of 2019, putting the country on pace to top last year’s total of $3.4 billion by a resounding $1 billion. That’s also enough to put France in second place for fundraising among European countries, just ahead of Germany, though still far behind the U.K.

But those numbers come with some important asterisks. State bank Bpifrance remains the biggest source of startup funding in the country. And the number of actual deals dipped just slightly.

Overall, those funding rounds tend to reflect the notion that France is sprinkling a lot of small rounds over a wide range of startups still in the embryonic phase. Almost 62% of the funds went to companies in the seed or series A round, while another 24% fell into an Other category that includes “business plan competitions, corporate minority deals, and grants.”

That leaves about 14% of startup funding going to series B rounds or later, about the same percentage it’s been for a while. To address this, last year the French government announced a series of programs to boost “scale-ups,” identifying more than 100 companies it believes have potential and pushing to help them find funding.

The French government’s goal is to have 20 unicorns by 2025, compared to the four that exist today. For context, the U.K. has 16, China has 90, and the U.S. has 165. But there are signs France is finally breaking into the club with a series of surprisingly large funding rounds so far this year:

Such large rounds were incredibly rare in France just a few years ago. And buzz at VivaTech suggested other startups are close to making big funding announcements.

Meanwhile, the government has adopted a wide-ranging reform called PACTE (“Plan d’Action pour la Croissance et la Transformation des Entreprises” or “Action Plan for Business Growth and Transformation.”) This includes measures to simplify setting up a business online, tax reform, easing the hiring process, and the ability to access funding through new methods, like ICOs.

The government also continues to push hard on initiatives like promoting the use of blockchain. And it’s trying to find other ways to boost homegrown startups. For instance, French digital minister Cedric O revealed that the government would begin using the Paris-based privacy-focused Qwant search engine.

Officially launched last year, France is AI is another effort to encourage the local ecosystem while also promoting a more ethical approach to designing and using technology. As Silicon Valley has long plundered France’s AI talent pool, the program is designed to bring France greater recognization and encourage those working in AI to start their own company in the country.

Facebook chief scientist Yann LeCun, perhaps the most famous face to emerge from the French AI community, said on stage at VivaTech that he’s optimistic about the role the country can play. “France in particular, and Europe in general, have very good educational systems and so they have some very good talent,” he said. “And that’s the most difficult thing to build if you don’t have it.”

President Startup

At VivaTech 2017, the year Macron was elected, he vowed to turn France into a Startup Nation, and he has continued to champion entrepreneurship. Despite a rocky tenure in which the countrywide “Yellow Vest” protests have threatened his presidency, Macron remains immensely popular in the tech sector.

For the past two years, he has leveraged VivaTech to draw the tech world’s attention to France through a Tech For Good Summit that has attracted a who’s-who of tech CEOS and policy makers from the world, prompting announcements about tech policy, as well as commitments to invest in France. This year, the event made international headlines by producing the “Christchurch Call,” framework to help companies and governments fight online terrorism.

New Zealand Prime Minister Jacinda Ardern joined Macron at a press conference to announce the plan, named after the New Zealand city where a mass shooting claimed the lives of 51 people. As the shooter broadcast the attack live and people repeatedly uploaded copies of the video, Facebook, Google, and Twitter seemed nearly powerless to stop its global spread.

“What happened in Christchurch was not just another terrorist attack,” Macron said. “It was someone taking the power of the internet and transforming it into this machine for spreading crazy propaganda.”

The event is also evidence of the country’s desire to be seen as a central player in technology development and policy. Here Macron walks a tricky line, because he also tries to hold the line on divisive issues like corporate taxes and work rules. As one example, France continues to advocate higher taxes that would impact U.S. tech giants like Google, Apple, Facebook, and Amazon, also referred to as “GAFA.”

Appearing at VivaTech, he again explained that France isn’t looking to punish anyone, but is rather seeking fairness in taxation. And he took the opportunity to pitch France as the place for both startups and the big tech companies he seeks to tax.

“If you’re a successful entrepreneur, or very promising engineer, you want to be and work where your talent can be used at its full potential,” Macron said. “You want to be challenged.”

La French Tech

Another sign of the ongoing evolution of France’s tech scene, and the country itself, was the selection last year of Kat Borlongan as director of La French Tech. Launched by the previous French government about five years ago, the program was intended to be the centerpiece of France’s tech revival efforts.

Borlongan was a well-known face in the Paris tech community, thanks to her previous work with Techstars and a stint at Google, as well as her own consulting firm Five by Five. But in a country that can often be closed to outsiders, the selection of someone who was born in the Philippines and only moved to France 15 years ago is somewhat remarkable and a symbol of efforts to be more open.

The French Tech Mission has an office at the Paris startup campus Station F, and a large part of its role is to help entrepreneurs cut through the country’s infamous red tape. Borlongan has built a network across various French ministries to coordinate assistance and speed responsiveness to tech-related issues.

Above: Kat Borlongan is director of La French Tech.

In taking on this role, Borlongan also has a lengthy to-do list.

Among her priorities is helping startups attract more growth capital, continuing to streamline government response time, and ensuring French Tech is diverse and accessible. The latter effort included the recent launch of a program called “French Tech Tremplin”, a program with a budget of €15 million ($16.7 million) that targets entrepreneurs with diverse backgrounds.

The French government also recently unveiled a plan to boost development of deep tech startups, including a €550 million ($613.3 million) investment in research at the lab stage, another €800 million ($894 million) over five years to accelerate the startup phase, and eventually a fund of funds worth €1.3 billion ($1.45 billion) to boost growth.

But perhaps the most urgent goal is attracting more talent to France. When Borlongan talks to people about coming to France, she said during an interview, too often they fear it would be too complicated or expensive or difficult to adapt. In response, she helped lead an overhaul of the country’s French Tech Visa program.

Under a program called Pass French Tech, the country identified 240 fast-growing startups that are eligible for extra assistance. Those companies can now offer the new French Tech Visa to employees they hire from abroad. The visa comes with almost no preconditions — companies don’t have to prove they tried to find someone in France for the job, for instance. And approval can come in as little as 48 hours.

More than a lack of money or ideas, Borlongan said the biggest barrier facing many of the most promising French startups is the inability to fill jobs.

“Talent is the big thing,” she said. “If you have the talent, it attracts everything else. If you have the talent, the investment will follow.”

The long road ahead

Plenty of other pieces need to fall into place before France can realize its startup ambitions, one of which has to do with the country’s largest companies.

The VivaTech conference can seem like a strange beast to people coming from outside of France. Walking into this giant tech conference hall, the floor is dominated by names like L’Oreal, LVHM, La Poste, French utilities and public transportation agencies, and other non-tech companies. But the French government desperately hopes these established players will seek to future-proof themselves by both investing in and acquiring promising startups.

The conference is a chance to show off the fruits of these efforts, with booths featuring startups that were selected through VivaTech’s Open Innovation Lab program. But while some of these startups clearly address the needs of big brands, others appear to have been chosen at random. In either case, the government’s push to motivate these big incumbents have unleashed a tidal wave of corporate-backed hackathons, pitch contests, and incubators as many of these legacy companies seek to shake off their digital lethargy.

Yet, according to CB Insights, venture investments by French corporations dropped 8% in the first quarter of 2019 from the same period a year ago. And at VivaTech, Facebook’s LeCun warned that France’s biggest companies are simply not making big enough investments in long-term R&D compared to competitors in the U.S. and China. “There is no long-term research in IT in France,” he said.

Finally, while France’s image has improved dramatically in terms of startups and innovation, there is still plenty of work to be done if it wants to be seen as a good place from which to launch an international company.

Take Ivalua, for instance.

Founded in Paris almost 20 years ago by CEO David Khuat-Duy, the company that develops enterprise spend management tools announced last week that it had raised a $60 million round of venture capital. That fundraising put its valuation north of $1 billion.

But this potentially big moment for French Tech was somewhat muted because it was hard to know the company was French in origin. In 2017, when the company was gathering momentum and raised $70 million, a press release then trumpeted it as “one of France’s largest ever growth equity capital rounds.”

But the press release last week made no mention of the company’s French connections. And Ivalua’s website makes almost no reference to its French history. As far as the outside world knows, it’s just one more company based in Redwood City, California.

Of course, its success and perseverance are a testament to the fact that France has the ability to produce international startup powerhouses. But its gradual migration overseas and downplaying of its roots is a reminder that France’s startup reputation still has plenty of convincing left to do.

Source : VentureBeat