French Tech industry on the rise: the signs of a successful future
By: Nicolas Dufourcq
Tags: France, Startup, Frenchtech, Investment, Tech

We have all read that dull but necessary warning countless times: past returns are not indicative of future performance. The good news is, in one case at least, you can disregard the warning and fully commit yourself: that case is France!

France’s venture capital-backed tech ecosystem has grown at astonishing speed. In less than 10 years, France has gone from just average to one of the most vibrant innovation hubs in the world — and the party is just getting started. Covid-19 is certainly not going to stop that rise in its tracks; France’s startups have actually shown incredible resilience and just like the rest of the world’s innovators, they have often seen Covid-19-induced disruptions as an accelerator for transformation.

A wide range of indicators show that French Tech, as we call the French innovation ecosystem that is financed through venture and growth capital, has reached maturity. Yet this does not mean that things are set to become boring or slow down from here: quite the contrary in fact.

On top of its maturity, French Tech retains an explosiveness and a thirst for achievement that have almost no equivalent in Europe — dare I say in the world? It is the perfect cocktail of maturity and explosiveness.

What does this mean for investors? Well, quite simply, it means that they can have their cake and eat it too: by getting into French Tech (for those who have not done it already!), they can invest into a mature industry while benefiting from the upward potential that only a fresh and unbridled spirit of innovation can bring.

Having a cake and eating it too: a look at French Tech in numbers

Let us then dive deeper into the unique cocktail that French Tech is by taking a look at its two core ingredients: maturity and explosiveness.

1. First, maturity.

In 2019 alone, France was home to 5 new unicorns (Doctolib, Kyriba, Ivalua, eFront & Dataiku), covering a wide range of cutting-edge innovation domains, from AI to health tech. French Tech is not a mere constellation of small businesses trying to get a seat at the big guys’ table. Venture capital invested in France has already produced market leaders and will continue to regularly produce them in the coming years.

More broadly, France has built a comprehensive financing system for private innovative companies that has now reached its developed form. An important milestone in France’s mission to reinvigorate venture capital-backed innovation was the creation of Bpifrance in 2013. Its role is to provide strategic financing to promising businesses alongside private investors, helping bring the best out of both public and private funds to foster growth.

We have come a long way since 2013: back then, French startups only raised 600 million dollars to finance their growth. In 2019, that number had reached 4.3 billion, and it is still poised to grow. France now has the largest venture capital ecosystem in continental Europe, with more than 3.1 billion euros in venture capital funding for the year 2019.

Source: Bpifrance US Roadshow | February 2020

Another sign of the ecosystem having reached maturity is size: 56 rounds of financing from French startups surpassed 20 million euros in 2019, signalling that France’s innovation leaders are now reaching critical mass. As more and more French startups reach unicorn status and continue to charge forward, scale will play an increasingly large role in their development and ability to consistently generate value.

Do these accumulating signs of maturity mean that a slowdown may be around the corner for France’s venture-capital backed tech companies? That is clearly not the case when you look at the other side of the story.

2. That side is about explosiveness.

The best news is that the tech and financing infrastructure that has risen in France is now fostering new aspirations and a reinforced entrepreneurial spirit among the new generation. 36% of French people aged between 18 and 24 want to create their own business. When that trailblazing spirit becomes embedded in people, you get tremendous upward potential at the scale of the country itself, and you get explosiveness: the ability for the ecosystem to perpetuate the creation of fresh and unexpected ideas that will carry it even further.

France does not rely solely on the new generation’s aspirations: it also has a well-established but still booming education infrastructure for the kinds of talents that will be needed tomorrow. France trains 100,000 engineers per year, along with 70,000 PhD students. It is home to more than 70 AI labs and 400 business incubators. While it can rely on longstanding institutions such as its top business and engineering schools, the country keeps creating new startup campuses and schools, some of them directly created or backed by the nation’s foremost entrepreneurs.

When looking at growth rates along several parameters, it also becomes clear that France is right in the middle of its impetus rather than reaching some sort of “slowdown” stage. From 2013 to 2018, over a mere 5-year period, venture capital investments from the United States into France have tripled in volume, from 16 billion euros to 49 billion. From 2013 to 2019, the amounts raised by French companies have grown at a startling 34% compound annual growth rate.

Source: Bpifrance US Roadshow | February 2020

French Tech’s momentum is such that it has even led to the flourishing of a new generation of funds to provide it with the capital it needs. Since 2018, more than 22 new venture capital and growth teams have been created in France. The average size of France’s venture capital and growth funds has more than doubled over the past 10 years.

With all said and done, France’s venture capital-backed technology companies have a potential that is shared by few others in the world and has already started to attract significant amounts of attention from all around the globe, with international and especially United States-based financing of French startups increasing at lightning speed in recent years. As the Covid-19 tide recedes, France’s innovation ecosystem is only going to grow stronger. If you do not want to miss out on the action, the time to invest in French Tech is now!