In October, lafrenchtech celebrated its tenth anniversary: this government-backed initiative has been responsible for promoting and fostering the startup community in France. When comparing the metrics of the French tech ecosystem from now to then, it is true that things have changed drastically with some impressive success stories.
And yet, the celebration at the Ministry of Economy and Finance may have been too self-indulgent for the businessmen present. Like many tech ecosystems, the French tech ecosystem is currently going through a rough patch, facing layoffs, layoffs, liquidations, and even bankruptcies.
From a blank page to 28 unicorns
Sometimes numbers tell a story. And this is particularly true in the case of the French technology ecosystem. There was a notable change in mentality between 2013 and 2014.
For the first time, emerging entrepreneurs based in France didn't just want to create something cool. They wanted to innovate on a global scale and build technology giants that could compete with American or Chinese companies.
Also for the first time, policymakers realized that they needed a coherent approach to the technology ecosystem. Hence the creation of La French Tech and the formation of Bpifrance, a French public investment bank that arises from the merger of several public investment funds, such as Oseo, CDC Entreprises and the French sovereign wealth fund. It was about generating stability.
Soon after, entrepreneurs began raising larger rounds of funding and venture capital firms managed to raise larger funds. Foreign investors also started spending more time in Paris to find some investment opportunities (starting with London-based funds such as Index Ventures, Atomico, Balderton Capital, the Accel team in London, etc.).
Overall, it has been a decade of growth for the entire European ecosystem and the French tech ecosystem is growing at an even faster rate.
“We have noticed that we started investing more in European startups without even thinking about it, not just in French startups, but throughout Europe,” Chelsea Stoner, general partner at Battery Ventures, said in 2018 during an analysis of the French tech ecosystem.
The first French unicorns (startups that have reached a private valuation of $XNUMX billion or more) began to appear, such as BlaBlaCar, a marketplace for long-distance car travel between cities, music streaming service Deezer and healthcare SaaS startup Doctorlib.
On the acquisition front, some startups managed to secure exits of over $100 million, including Zenly, Captain Train, TheFork, Teads, Leetchi, Shine, and Compte Nickel.
More recently, things started to seriously heat up, just like in the US. There are about 28 unicorns in France: startups that have reached a private valuation of $XNUMX billion or more. Alan, Back Market, Ledger, Lydia, Qonto… the list is long.
But the current technological crisis is a global phenomenon. Interest rates are rising around the world. And venture capital investments, which are attractive when interest rates are low because of their potential for high risks and high rewards, are drying up.
According to a recent EY study, funding rounds have decreased by almost 50% in the first half of 2023 compared to the first half of 2022. However, French startups have raised $4.500 billion (€4.260 billion) during the first six months of this year. In 2018 they raised $3.800 billion. throughout the year (3.620 million euros)
And it generates tangible effects in the technological ecosystem. Last week, Maddyness reported a list of layoffs in the French technology ecosystem. Hundreds of employees working for Back Market, PayFit, OpenClassrooms, Ÿnsect, Sunday, Ledger and ManoMano face job cuts.
At this point, how many of France's 28 unicorns are still unicorns today? In other words, could they get the same valuation if they tried to raise a new round of funding today?
Happy birthday, La French Tech
On the anniversary of La French Tech, it invited hundreds of businessmen, investors and journalists to the Ministry of Economy and Finance, a few hours after the publication Les Échos reportage that ManoMano (e-commerce focused on DIY and home improvement) was about to cut 25% of its workforce.
Most of the evening was talked about everyone who contributed in one way or another to the creation and continued success of La French Tech; at some point, birthday cake included.
“It is true, we are at a turning point. The context is a little more difficult, I understand it”, Clara Chappaz
And it is true that La French Tech has been useful when it comes to referencing the French startups with the best results (Next 40 and French Tech 120 rankings), promoting equal opportunities through various programs and solving problems with public administrations.
But some people rightly highlighted some of the challenges that lie ahead for the French tech ecosystem in general.
“It is true, we are at a turning point. The context is a little more difficult, I understand,” said La French Tech director Clara Chappaz in the introductory speech. "But I think we should strive to be even more ambitious in the current environment."
Xavier Niel, the French telecommunications billionaire who created Station F and who invested in hundreds of startups through Kima Ventures He noted that there is still much work to do in terms of gender, social origin, and racial and ethnic diversity.
Tatiana Jama, the founder of Last, a nonprofit organization that promotes gender equality in technology, doubled down on the issue of diversity. "There are some women in the room, but unfortunately we are all very similar," she said.
The French tech ecosystem is also too…French right now. While France's special visa for tech talent goes a long way in attracting international talent, there are not many foreign entrepreneurs moving to France to start a company.
“We shouldn't focus too much on ourselves. We should expand internationally and let foreign venture capitalists invest in our companies,” Fleet co-founder and CEO Alexandre Berriche said at the event before the speeches. He is also an investor explorer of Sequoia Capital.
Poolside, a lively artificial intelligence startup, recently moved its headquarters to France. We will see if it is the beginning of a new trend, as there is a large pool of AI talent in France thanks to the quality of the country's engineering schools. Many American companies have also opened artificial intelligence laboratories in Paris.
“Another wish I have is to see people from all over the world come to France to create a startup,” said Bpifrance CEO Nicolas Dufourcq.
What happens after the investment party. Cost effectiveness
Earlier this year, startup lobby France Digitale and Actual Group found that French startups have created one million jobs in the last 10 years. In many ways, this period was an investment phase, leading to a spurt of job creation. But when you talk to French entrepreneurs today who run late-stage startups, they all talk about profitability.
“After all, we raised 200 million euros. And we didn't do it so we could go out and have mojitos. It was about continuing to gain market share,” Swile founder and CEO Loïc Soubeyrand said in July. But his company, focused on employee benefits, now expects to turn a profit in EBITDA terms this quarter.
In early 2022, Lydia's co-founder and CEO Cyril Chiche also realized that the tech ecosystem was undergoing a paradigm shift.
“I held a general meeting in front of everyone to explain something important about our strategy. And I told them that the world has changed and from now on we are going to have to change everything,” Chiche told Sébastien Couasnon on his podcast. Tech 45′. At the La French Tech event, Chiche said he hopes to reach profitability in 2024.
Following a study carried out by CSA for La French Tech, the director of La French Tech, Clara Chappaz, shared some metrics with a group of journalists. And profitability was, in fact, at the top of the list. "When we ask business owners what their current priority is, 72% of them say profitability, and 48% put it first," she said.
“I think we are at an inflection point. “We have built a lot in the last 10 years, but above all we have built some very solid things,” she added.
There is one thing for sure. As venture capital money is deployed at a glacial pace, the coming months will see whether French startups can survive the current crisis.
