Last week, La French Tech celebrated its 10 year anniversary — this government-backed initiative has been in charge of promoting and fostering the startup community in France. When you compare the metrics of the French tech ecosystem between now and then, it’s true that things have changed drastically with some impressive success stories.
And yet, the celebration at the Ministry of Economics and Finance may have been a bit too self-congratulatory for the entrepreneurs in the room. Just like many tech ecosystems, the French tech ecosystem is currently going through a rough patch and facing layoffs, down rounds, fire sales and even bankruptcies. So let’s use this opportunity to check in with the French tech ecosystem.
From a blank page to 28 unicorns (or so…)
Sometimes, numbers tell a story. And it’s particularly true with the French tech ecosystem. As I wrote nearly ten years ago, there was a noticeable mindset shift around 2013 and 2014.
For the first time, startup entrepreneurs based in France didn’t just want to create something neat. They wanted to innovate at scale and build tech giants that would compete with American or Chinese companies.
For the first time as well, policymakers realized that the tech ecosystem needed a consistent approach with the tech ecosystem. Hence the creation of La French Tech and the formation of Bpifrance, a French public investment bank that is the result of the merger of several public investment funds, such as Oseo, CDC Entreprises and France’s sovereign fund. It was all about bringing stability.
Shortly after that, entrepreneurs started raising bigger funding rounds and VC firms managed to raise bigger funds. Foreign investors also began spending more time in Paris to find some investment opportunities (starting with London-based funds, such as Index Ventures, Atomico, Balderton Capital, Accel’s London team, etc.).
Overall, it’s been a decade of growth for the entire European ecosystem with the French tech ecosystem growing at an even more rapid pace.
“We’ve noticed that we started investing more in European startups without even thinking about it — not just French startups, but all over Europe,” Battery Ventures General Partner Chelsea Stoner told me in 2018 during a tour of the French tech ecosystem.
The first French unicorns started popping up (startups that have reached a private valuation of $1 billion or more), such as BlaBlaCar, a marketplace for long-distance car rides between cities, music streaming service Deezer, and healthcare SaaS startup Doctolib.
On the acquisition front, some startups managed to secure $100M+ exits, such as Zenly, Captain Train, TheFork, Teads, Leetchi, Shine and Compte Nickel.
More recently, things started to seriously heat up — just like in the U.S. There are around 28 unicorns in France — startups that have reached a private valuation of $1 billion or more. Alan, Back Market, Ledger, Lydia, Qonto… It’s a long list now.
But the current tech downturn is a global phenomenon. Interest rates are rising all around the world. And VC investments, which are appealing when interest rates are low because of their potential for high risks and high rewards, are drying up.
According to a recent study from EY, funding rounds are down nearly 50% in the first half of 2023 compared to the first half of 2022. Nevertheless, French startups have raised $4.5 billion (€4.26 billion) during the first six months of this year. In 2018, they raised $3.8 billion for the entire year (€3.62 billion)
And it leads to tangible effects in the tech ecosystem. Last week, Maddyness compiled a list of recent rounds of layoffs in the French tech ecosystem. Hundreds of employees working for Back Market, PayFit, OpenClassrooms, Ÿnsect, Sunday, Ledger and ManoMano are facing job cuts.
At this point, how many of France’s 28 unicorns are still unicorns today? In other words, would they be able to get the same valuation if they tried to raise a new funding round today?
Happy birthday, La French Tech
Last week, a few hours after Les Échos reported that ManoMano — the e-commerce marketplace focused on DIY and home improvement — was about to cut 25% of its workforce, La French Tech invited hundreds of entrepreneurs, investors and reporters to the Ministry of Economics and Finance.
Most of the evening was spent talking about everyone who contributed in one way or another to the creation and continued success of La French Tech — at some point, there was even a birthday cake on stage.
“It’s true, we’re at a turning point. The context is a little more difficult, I understand that,” Clara Chappaz
And it’s true that La French Tech has been useful when it comes to referencing the top-performing French startups (Next 40 and French Tech 120 rankings), promoting equal opportunities through various programs and solving issues with public administrations.
But some people rightfully highlighted some of the challenges that lie ahead for the French tech ecosystem at large.
“It’s true, we’re at a turning point. The context is a little more difficult, I understand that,” La French Tech director Clara Chappaz said in the introductory speech. “But I believe that we should strive to be even more ambitious in the current environment.”
Xavier Niel, the French telecom billionaire who created Station F and who invested in hundreds of startups through Kima Ventures, pointed out that there’s still a lot of work to do when it comes to gender, social origin, racial and ethnic diversity.
Tatiana Jama, the founder of Sista, a nonprofit that promotes gender equality in tech, doubled down on the diversity problem. “There are a few women in the room, but unfortunately we are all extremely similar,” she said.
The French tech ecosystem is also too… French right now. While France’s special visa for tech talent greatly contributes to attracting international talent, there are not a lot of foreign entrepreneurs who relocate to France to start a company.
“We shouldn’t focus too much on ourselves. We should expand internationally and let foreign VCs invest in our companies,” Fleet co-founder and CEO Alexandre Berriche told me at the event before the speeches. He is also a scout investor for Sequoia Capital.
Poolside, a buzzy artificial intelligence startup, recently moved its headquarters to France. Let’s see if it’s the beginning of a new trend as there is a large pool of AI talent in France thanks to the quality of the engineering schools in the country. Many American companies have also opened AI labs in Paris.
“Another wish that I have is that I want to see people from the whole world come to France to create a startup,” Bpifrance CEO Nicolas Dufourcq said.
What happens when the party is over?
Earlier this year, startup lobby France Digitale and Actual Group found out that French startups have created one million jobs over the past ten years. In many ways, this time period was an investment phase, which led to a job creation streak. But when I discuss with French entrepreneurs at the helm of late-stage startups today, they all talk about profitability.
“We raised €200 million after all. And we didn’t do it so that we could go out and drink mojitos. It was about continuing to gain market share,” Swile founder and CEO Loïc Soubeyrand told me in July. But his company focused on employee benefits now expects to turn a profit on an EBITDA basis this quarter.
In early 2022, the co-founder and CEO of Lydia Cyril Chiche also realized that the tech ecosystem was going through a paradigm shift.
“I held an all-hands 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’re going to have to change everything,” Chiche told Sébastien Couasnon on his podcast Tech 45’. At La French Tech’s event, Chiche told me that he expects to reach profitability by 2024.
Following a study conducted by CSA for La French Tech, La French Tech director Clara Chappaz shared some metrics with a group of reporters. And profitability was at the top of the list indeed. “When we ask entrepreneurs what their current priority is, 72% of them say that it’s profitability, with 48% putting it first,” she said.
“I think we’re at a bit of a turning point. We’ve built a lot over the last 10 years, but above all we’ve built some very solid things,” she added later in the conversation.
There is one thing for sure. As VC money is deployed at a glacial pace, we are going to find out in the coming months whether French startups can survive the current downturn.