“In France it takes even more courage than usual to be an entrepreneur,” says Marc Westermann, principal of telecommunications and internet corporation, SFR Développement, when asked about the current climate for French-based start-ups.
Like many European countries, France’s economy is facing numerous challenges. Unlike some of its European neighbours the country’s fiscal imbalances have come into focus only in the worst moments of the eurozone crisis, yet measures to reform its economy following the financial crisis, particularly in regards to tax, have been some of the most controversial in the eurozone.
Following socialist President Francois Hollande election in May last year, his economic policy has been centre stage in the
world’s press for its radical tax measures.
His 2013 Budget proposals affected corporate venturers and entrepreneurs, with the government generating headlines and intense opposition
concerning plans to reclassify entrepreneurs’ capital gains as income and a proposed super tax of 75% on the country’s top earners.
While the government has made several climbdowns on its tax reforms in the face of strong protest, the country is still perceived as a tax hawk. The World EconomicForum (WEF) report deemed France’s tax regime as disruptive to business decisions, ranking it 128th globally.
It has become a staple of the financial press to write stories about French entrepreneurs and business people moving to London and elsewhere to escape the tax regime, with actor Gerard Depardieu getting involved in a spat with the Hollande government as he moved to Belgium. He has since accepted Russian citizenship.
Fabienne Herlaut, managing partner of Ecomobilité Ventures, a venture firm financed by French rail company SNCF, mobile phone operator Orange and oil major Total, said of the super tax: “It affects, in reality, a very limited number of people in France but it will not encourage wealthy people to come and invest in France. It gives a poor image and motivation to the young generation who want to become successful entrepreneurs. They will leave France and launch their projects in other countries.” Yet for all the negative headlines France remains a country with enormous benefits for companies, entrepreneurs and residents. Besides the great cuisine and wine, the country is also one of the most dynamic in certain fields.
The WEF report highlights the high standard of infrastructure, with its energy infrastructure,
transport and communication links, ranked among the best in the world (fourth).
France’s business schools have established themselves as some of the best – three feature among the top 10 in Europe (HEC, ESCP Europe and Insead) according to the Financial Times business school rankings. HEC, ranked number one, boasts alumni which include the current president
and 15 graduates who are currently chief executives of Fortune 500 companies.
France also maintains high standards within its higher education system, which was ranked 27th by the WEF.
France also has 71 innovation clusters, according to business portal Locations4business, which create partnerships
involving private businesses, public sector research laboratories, universities and academic institutes for innovation. These clusters employ more than 700,000 people.
Between 2006 and 2008 they received €2bn ($2.6bn) in state funding to support research and development projects and a further
€2.5bn between 2009 and 2011, according to Locations4business.
These clusters will receive afurther €1.5bn of support over a three-year period.A key element for start-ups in France
has always been the hybridisation of privateenterprise and government involvement.
A relatively poor domestic climate has spawned a new model of investment in France which has led to some of the biggest corporations launching their own funds with the main aim of going global and being managed independently.
Over the past few years this has included advertising agency Publicis and mobile phone operator Orange sponsoring a €300m fund managed by Iris Capital and Innovacom, spun out from France Telecom-Orange in April after raising the €30m early-stage Technocom II fund backed by the phone operator, as well as equipment maker Alcatel-Lucent, electronics provider Groupe SEB and energy firm Soitec.
Iris, as part of the Orange-Publicis mandate, is expanding, recently opening offices in Canada,
China and Japan.
Antoine Garrigues, co-managing partner of Iris, said last year: “The strategic scope of corporations is now broader, especially in the digital economy.If Orange, for example, just looked for deals in telecoms its results would be limited, but by seeing what Publicis is doing
in mobile advertising it will see newpatterns. The same [broadening of strategic focus] is happening in life sciences and energy. By sponsoring a fund managed independently they get a broader scale, an international remit and we can leverage the reach of each corporate LP [limited partner – an investor in a fund].”
The French government continues to invest vast sums in research and development (R&D) and offers a tax credit to R&D-focused companies. France has the lowest research tax credit in Europe, and designated “innovative new companies” – Jeune entreprise innovante – are exempt from tax, social security and research tax credit in their first year of business.
Since 2007 capital gains on the sale of equity transfers have also been tax exempt.
Google recently created a €60m digital publishing innovation fund in partnership with President Hollande for France’s publishers following
issues regarding copyright in Google News. The deal also involves an agreement in which Google will help of the French media to increase
their revenue by using Google’s advertising technology, increasing and promoting their presence online.
Is this a good time to be a French start-up or for a corporate to be investing domestically? Westermann said: “It is really about the talent and young people being more daring. Young French people want to be entrepreneurs, we have good mathematicians and good designers here.”
He added of French innovation: “It is not the excitement that you can get in Berlin or the crazy technology you can get in Israel. In France there is a mix of everything, but on top of that you have a good quality of life.”