In France “It takes even more courage then usual to be an entrepreneur” replied Marc Westermann, principal of telecommunications and internet corporation SFR Développement, when asked about the current climate for French-based start-ups.
In the recent Global Competitiveness Index 2012-2013, a report which globally ranks the pillars of institutions, France was ranked 21st, sliding down three places on last year. The report outlines this decline as down to the falling confidence and untrustworthiness in public and private institutions and the financial sector.
It is true that it is a time of great upheaval in France. Like many European countries, France’s economy is currently facing numerous challenges. When socialist President Francois Hollande was elected in May last year his economic policy became a target for the press and his government’s 2013 Budget proposals concerned both corporate venturers and entrepreneurs, most notably for the proposed supertax on the countries top earners. The 75% ‘supertax’ effects individuals who earn €1m or more, which is applicable to around 1,400 people.
The tax has been accused of being ‘unfriendly to business’. Is it? Fabienne Herlut, president of multi-corporate fund Ecomobilité Ventures as a spin-off from French national railway SNCF, thinks not: “we have never been a country where billionaires are the most welcome. They like to have a house in the south of France but they don’t like to live here forever… It will still attract people (to France) the real issue is the way the government treats those who make money… it’s more of an image problem”.
When asked the same question, Westermann Emphasized that any halts in innovation in in France was not about salaries of €1m, but of taxes on stock options which “penalizes investors and does not give companies the leverage they need to grow”. There are more concerns over the fact that the market is not longer secure and that corporate ventures units may not be able to return profit.
Positively, the same report also highlight the high standard of infrastructure within France; its energy infrastructure transport and communication links are ranked as among the best in the world, 4th overall and all important in the boost for growth.
The state-owned French National Railways (SNFC) operates ones of the fastest train service in the world, the TGV (Train à Grande Vitesse). France has the 2nd most developed high-speed rail network in Europe, with 1896 km of rail lines for high-speed services, according to the International Union of Railways, 2010
France’s higher education system was ranked 27th in the report exemplified by France’s business schools which have established themselves as some of the best, 3 of which feature among the top 10 in Europe (HEC, ESCP Europe and Instead) according to the Financial Times business school rankings. HEC, which is ranked number one, boasts an alumni which includes the current President and 15 graduates who are currently chief executives of a Fortune global 500 company.
France’s strict rules on hiring and firing, meaning its labour market was ranked 111th as well as the tax regime France has in place deemed disruptive to business decisions, ranked 128th.
A key element for start-ups in france has always been the hybridization between private enterprise and government involvement. Currently the domestic climate in France is poor and has thus has spawned a new model of investment which have led to some of the biggest corporation in France to launch their own funds with the main aim of going global and to be managed independently. Over the last view years have these have included advertising agency Publicis and mobile phone operator Orange sponsoring a €300m fund managed by Iris Capital and nnovacom 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.
To see this in action we only have to look to some of France’s biggest companies with Venture capital firm Iris, as part of the Orange-Publicis mandate recently opening offices in Canada, Beijing, China, and Tokyo, Japan.
Orange-Publicis fund Telecoms group France Télécom-Orange and France-based communications company Publicis Groupe have jointly invested €150m in a venture fund and are targeting to raise €300m in total for the fund from outside investors.
Antoine Garrigues, co-managing partner of Iris, told GGV last year: “The strategic scope of corporations are 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 new patterns. 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 amounts in Research and development as well as the R&D tax credit. There’s also the recently announced CICE-Crédit d’impôt pour la compétitivité et l’emploi which has been outlined as beneficial to all businesses, with the aim of enhancing competitiveness of businesses in France, regardless of their legal status, as long as they employ salaried workers and be liable for either corporation tax or income tax, based on actual profits. For start-ups, businesses Prêt à la Création d’Entreprise (PCE) for up to €7,000, available for start-ups which are less than three years old, avalible for up to five years.
The French government remains a pivotal financier for many start-ups in France. These government funding agencies can often be ignored in favour of highlighting the high taxes.
Frane has the lowest research tax credit in Europe, Innovative New Companies (Jeune Entreprise Innovante – JEI) are exempt from tax, social security and research tax credit in their first year of business and since 2007, capital gains on the sale of equity transfers have been exempt from tax.
France also has 71 innovation which creates a partnership between private businesses, public-sector research laboratories, universities and academic institutes. These Clusters employ over 700,000 people.
Between 2006 and 2008 these clusters received €2bn in State funding to support their R&D projects and a further €2.5 billion between 2009 and 2011, according to www.locations4business.com
Moreover recent reforms in France have established that innovations clusters will receive €1.5 billion of support over a period of three years,
Importantly France is viewed as being technology ready, able readily adopt new technologies which is important for the development of new product, developing business models and enhanced productivity It’s position in this innovation and a developed financial market can help boost France’s growth.
I s it a good time to be a French Start-up? Marc Westermann replied: “young french people want to be entrepreneurs, we have Good mathematicians and good designers, It’s not the excitement that you an 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”
Paris was ranked 29th in mercer’s global living index in which European cities continue to score a hight quality of living due to advanced city infrastructures and increased stability despite economic unease.
“It’s really about the talent and young people being more daring”.