France: From Incubator Nation to Startup Nation?

Founders of 14 of the most prominent startups in France were President Emannuel Macron’s guests of honor at this year’s World Economic Forum in Davos. A first for the country and a symbol of Macron’s objective to turn France into Europe’s “Startup Nation,” a welcoming and supportive venue for entrepreneurial innovation. This goal has been at the core of Macron’s political ambition since he took office in 2017.

Founders of 14 of the most prominent startups in France were President Emannuel Macron’s guests of honor at this year’s World Economic Forum in Davos. A first for the country and a symbol of Macron’s objective to turn France into Europe’s “Startup Nation,” a welcoming and supportive venue for entrepreneurial innovation. This goal has been at the core of Macron’s political ambition since he took office in 2017.

France in the past four years has become the top hub for foreign direct investment in Europe. The “Choose France Summit” is a pivotal reason behind this success. The initiative, launched in 2018, invites international businesses to invest in France. The 2023 edition brought an investment of 13 billion euros from an array of companies wanting to do business in France. This was a record-high investment for France, a clear sign of the growing appeal of doing business in the country. Alongside the “Choose France Summit” is the France 2030 Strategy. This is a long-term domestic approach, in part, aiming to reindustrialize France, with a large focus on investing in the startup ecosystem within the country.

The role of the state, a new generation of private actors, a growing talent pool of entrepreneurs and an aspiration to reindustrialize makes France a perfect recipe for the growing presence of startups, but is it suitable for sustainable, long-term growth?

The Emerging Market

“We’re in France, so the state is very present in business.” Explains William de Broucker, the co-founder of Paris-based medical startup Ordotype.

In addition to funds coming from France 2030, publicly-funded organizations like La French Tech bring together investors and startups with the mission “to make France one of the most attractive countries in the world for startups that want to get started, conquer international markets and build a meaningful future.” The Public Investment Bank (BPI), France’s government-funded investment bank, has also been one of the largest backers of startups in the country.

On the private investment side, Xavier Niel is the name startups know well. Niel is one of the richest people in France, a tech billionaire who launched Station F in 2017. Station F is housed in a Paris railway station with thousands of entrepreneurs and businesses working there, ranging from well-known L’oreal to the latest and little-known tech startup. Station F is heralded as the world’s largest start-up incubator. Yet, the private sector remains a small percentage of investment in startups in the country.

“There are two markets in France: second-time founders and first-time founders… second-time founders have a lot easier of a time raising and gaining capital” de Broucker explains. Second-time founders have an initial leverage in their market. For first time founders to raise funds in France, the options are limited, he says. “Business angels are a still a very new concept in France.”

But de Broucker believes the winds are shifting and angels are emerging to invest in startups. “There’s a new generation of investment coming from the initial wave of French startups that are now reinvesting… and this new generation of business angels have experience how a startup functions in the country.” This is starting to bring in more private actors, which would shift dependency on the role of the state, and with this, could shift France’s overall business culture.

The Pioneers

As of early 2024, there are 28 unicorns in France. Unicorns are startups that have reached a value of over $1 billion. This is a massive success for France, given how only eight years ago the country only had a single unicorn. And after the United Kingdom and Germany, France is ranked as the biggest start up hub in Europe.

In addition to the startups themselves, the talent pool in France is massive and presents opportunities across sectors. In the field of emerging technology for example, one of the names the French are most proud of is now META’s Chief AI Scientist, Yann LeCun. “Almost all of the members of META’s foundational large language model are French” elaborates François Luc Moraud, an entrepreneur based in Bordeaux. This talent around emerging technology is not by chance. “There’s a special program of excellence in the country.” France has long been respected for its achievements in mathematics education and research making it competitive in this industry, and attractive to companies around the world.

Beyond AI, the talent pool for biotech entrepreneurs, green tech, emerging technology as a whole is vibrant in France. It's clear that the country offers the environment to cultivate and encourage pioneers to pursue the goal of being a startup nation. Yet having the talent and the motivation is not enough. In the long term there are a few critical obstacles that France must overcome to truly become a fully-fledged “startup nation.”

The Limiting Factors

Money, Money, Money

“When you start to raise funds, it’s difficult to reach the levels required for your investors within Europe” explains de Broucker. This leads many startups to have to re-evaluate where they should focus their growth. While Germany might be an appealing market for a French start up to continue to grow, the intra-European red tape still is a challenging feat for entrepreneurs to navigate. de Broucker argues that “it’s equally as difficult to set up shop in Germany as it is in the United States, so why not go to the U.S.?” He himself has plans to shift his work in the coming years to the U.S. market unless European red tape is lifted and access to capital expands.

Over the past few years there has been a push to retain European startups in Europe. In 2022, the French Secretary of State on Digital Issues argued for pooling and expanding European funds dedicated to startups. The goal was to grow from 2 to over a dozen billion-dollar funds across the European Union. In comparison, the United States has over 40, making it a more appealing market for entrepreneurs.

The amount of regulation around investing and raising capital is a huge limiting factor for aspiring entrepreneurs in France. “Having regulation is important to protect from financial shocks, but it might be time to loosen the grip a bit” de Broucker asserts. Allowing for a bit more leeway might encourage increased personal investment in business as well.

The French government is actively looking for ways to encourage more flexible investment in entrepreneurs. One example has been establishing a “young innovative company” (JEI) status with the national bank which allows increased financial access and provides different tax and welfare advantages. This would open up eligibility to receive access to these funds and further encourage aspiring entrepreneurs to start their business.

Alongside this is a growing concern over how much the government should be involved in providing funds to startups. As of 2023, there were a million startups in France- with over 70% failing. French taxpayers bear the brunt of this investment. With a country that has a national debt of 110% of GDP leveraging that return on investment is the only way forward.

The Degree

While the French university system has been hailed due to its high quality of education, it’s also been criticized due to its limits on pathways for students. “This concept of majors and minors in the university systems in the U.S. is now starting to come to France. Students would have the opportunity to approach studies transversally and be given 1-2 years to navigate their studies” says Moraud. This would be a fundamentally different approach for French students who currently must decide on a scientific or liberal arts track when they are as young as 15 years old.

“The capacity to give a taste to change and transformation is through education and diffusing information. At the end of the day, the human aspect is the most important,” Moraud explains. He champions investing in a younger generation by giving them more flexibility to test out different academic pursuits. This, he says, will encourage an entrepreneurial mindset. Universities could play an important role in this future.

Learning to Fail

“There’s a joke in France that talks about American entrepreneurs around a table talking about creating a product that will change the world, while the same in France are asking: ‘how can we get bought out in five years?’” While Moraud notes that the joke is a few years old, the core mentality is entrenched in French culture. “It’s not the same mindset. When you tell yourself you’re being bought out in five years, you have different strategies in mind… and it kills innovation.” It’s not a long-term approach for entrepreneurs to flourish.

This mindset is rooted in the fact that France isn’t friendly to the notion of failure. In the U.S. startups are told: if you fail, “fail fast.” In France, this isn’t the approach. Failure is fear.

de Broucker linked the fear of failure to the long-term effects of the World Wars. “We are risk-averse because we’ve had war in our country. I was born in 1988, but growing up I would talk to my grandmother and she would always have fear of war coming again. War and sufferance have caused risk to be seen as a bad thing. And this fear has been transmitted generationally. In France, it’s better to preserve what you’ve built rather than to gamble and lose it all” de Broucker says.

“But this is changing. This mentality around fear and risk has started to shift with a new generation of entrepreneurs.”

A New Entrepreneurial Era

It takes time for the role of the public and private sectors to strike a balance; for citizens to accept a new mentality around risk; and for institutions to change with the times. And while there are still some limiting factors present in the country, the role of the entrepreneur and business is quickly changing in France. Perceptions are changing and environments are adapting accordingly. If this momentum continues, France may rise to become the startup nation it aspires to be.

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