AnalysisStartup scene

How France has strengthened its startup scene with the French Tech initiative

Despite declining funding, France's startup scene is regarded as resilient. This is also thanks to the French government, which actively supports it through the targeted promotion of the French Tech initiative.

How France has strengthened its startup scene with the French Tech initiative

The funding volumes for French startups plummeted in 2023, just like in Germany and the UK. However, compared to other European countries, the French startup scene is far more resilient. "Resilient, but not resigned", characterizes the situation, according to the French online portal "Finyear," which is specialized on Fintechs.

Based on the annual State of European Tech Report published by "Atomico", the French startup scene is growing faster than any other in Europe. Its market share increased from 18% to 22% between 2019 and 2023.

Systematic state support

The founders owe the boom, in part, to the French government, which has actively supported them in recent years to encourage young people to embrace entrepreneurship. For decades, young French people had dreamt more of pursuing careers as civil servants in the public sector.

"I want France to be a startup nation – a nation that thinks and acts like a startup," said President Emmanuel Macron shortly after his first election in 2017.

Paris is the hub of the startup scene

At that time, he had just inaugurated "Station F" in the 12th arrondissement of Paris, which was founded by Xavier Niel, the founder of Iliad. As the world's largest startup campus, covering 34,000 square meters and hosting over 1,000 young companies, it plays a key role in France's startup scene.

The cornerstone of France's startup strategy is "French Tech," an initiative that celebrated its tenth anniversary in the fall. Initially conceived as a label for cities with ideal environments for business startups, the brand has not only increased the visibility of young, innovative companies abroad.

New criteria for the Next 40

French Tech has also significantly contributed to improving France's reputation among foreign investors. While the country's image suffered ten years ago due to the 35-hour workweek, a series of highly publicized strikes, and tax uncertainties, the startup initiative has helped France become the top destination for foreign investments in Europe.

Since its inception, the French Tech initiative has been complemented by various funding programs. Last year, it launched the French Tech 2030 program in collaboration with the state investment bank Bpifrance and the General Secretariat for Investment to support deep tech companies from key sectors as part of Macron's 30 billion euros investment program, France 2030, that was presented in 2021. French Tech's funding programs also include the two indices Next 40 and French Tech 120, which were launched in 2019.

Billions in funding programs

Next 40 selects the 40 most promising startups to support them in becoming leading companies of the future. In 2023, well-known names such as Blablacar, Doctolib, and Qonto, as well as newcomers like Flying Whales and Verkor, were part of the index. French Tech 120, on the other hand, serves as a precursor to the Next 40.

But the selection criteria for both have been controversial from the start. The height of funds raised in financing rounds and hyper-growth were considered the most important criteria for the Next 40, which is why it exclusively includes unicorns and other startups with high valuations. So far.

Only 9% of founders were women

Because the criteria for the new composition, that are to be announced in the summer, have changed. In addition to funding rounds, revenue, diversity, and environmental issues will now also be taken into account. Especially in terms of equality, French Tech has catching up to do. In the first ten years of its existence, only 9% of founders were women. At the same time, 71% of its entrepreneurs graduated from a Grande Ecole, one of the elite universities.

Nevertheless, the assessment of the first ten years of the French Tech startup scene is positive. "We count 25,000 startups, including 31 unicorns, creating more than one million direct and indirect jobs," states Clara Chappaz. The director of the French Tech initiative is particularly proud that more than two out of three French people use solutions developed by French Tech companies in their daily lives, such as the carpooling platform Blablacar, the appointment scheduling tool Doctolib, or the payment app Lydia.

Tech giants desperately sought

"Unicorns are all well and good," says Maya Noël, Chair of the startup lobbying group France Digitale. Since it's not about publicly listed companies, the figure always refers to the valuation of the last financing round. "That's far from being precise," Noël points out. "It's good to be valued at 1 billion euros, but what we expect are companies that are operational, have customers, and create jobs."

Despite raising less money in 2023, the startups of French Tech managed to create new jobs, as per the French Digital Economy Association Numeum, which calculated a total of 36,000 jobs based on a sample of 10,000 young companies. That's 9.4% more than the previous year.

Between Germany and the UK

In contrast, funding in 2023 fell significantly compared to the record year 2022. But with a total of 8.7 billion euros, France is better off than Germany, where funding rounds for startups brought in just around 6 billion euros last year. Nevertheless, things are even better for British startups, which, according to EY, received almost twice as much as the French, with 16.8 billion euros.

"The year 2023 was characterized by a significant decline in capital raised in France and Europe," explains Patricia Braun from the consulting firm In Extenso Innovation Croissance. However, compared to 2019, the level of funding is quite impressive. At the same time, the French Tech ecosystem proves to be more resilient in comparison to the rest of Europe and is now launching several measures to strengthen it.

Minister of Economy engages in fundraising

These include the "Tibi II" initiative and the "Mission Midy". As part of "Tibi II," 28 institutional investors have committed to investing nearly 7 billion euros in technology companies by 2026, including Allianz, Axa, BNP Cardif, BPCE, Crédit Agricole Assurance, and Société Générale. "Mission Midy", on the other hand, aims to bring 500 million euros to French Tech.

Even though the French startup scene has produced some well-known names in recent years, it has so far failed to create a globally leading tech company like those in the US. "The problem is that in Europe, unlike in the US and Asia, local companies are not favored", says Noël. Therefore, she advocates for a European counterpart to the American Small Business Act.

Focus on artificial intelligence

To avoid missing out on the next big revolution in artificial intelligence (AI), France now wants to promote initiatives in this area more actively. The topic is also becoming increasingly important in French Tech. Mistral AI, for example, raised over 385 million euros in a financing round, while battery manufacturer Verkor reached 850 million euros. According to experts, AI and Greentech are expected to remain the growth drivers of French Tech in 2024.