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, in which each pillar represents an area considered as an important determinant of competitiveness. In this report France was ranked 21st, sliding down three places from its position last year. The report states that this decline is due 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. Hollande’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, and is applicable to around 1,400 people. However this has not stopped the tax being labelled ‘unfriendly to business’.
Fabienne Herlaut, managing partner of Ecomobilité Ventures, an investment structure financed by SNCF, mobile phone operator Orange and oil major Total, said of the 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 French young generation who wants to become successful entrepreneurs. They will leave France and launch their projects in other countries.”
When asked the same question, Westermann emphasized that any subsequent halts in innovation within France would not be down to salaries of €1m, but because of taxes on stock options which “penalizes investors and don’t 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, with its energy infrastructure, transport and communication links ranked among the best in the world (4th).
The state-owned French National Railways (SNFC) operates ones of the fastest train services 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 the high-speed services, according to the International Union of Railways, 2010.
France also continues to maintain a high standard within its higher education system, which was ranked 27th in the report.
France’s business schools have established themselves as some of the best, three of which feature among the top 10 in Europe (HEC, ESCP Europe and Instead) according to the Financial Times business school rankings. HEC, 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 also has 71 innovation clusters which create partnerships between private businesses, public-sector research laboratories, universities and academic institutes for innovation. 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 €2.5bn between 2009 and 2011, according to www.locations4business.com
Moreover recent reforms in France have established that these clusters will receive a further €1.5 billion of support over a three year period.
A key element for start-ups in France has always been the hybridization between private enterprise 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 corporation in France launching their own funds with the main aim of going global and being managed independently.
Over the last 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.
So far it has provided some positive results with Venture capital firm Iris, as part of the Orange-Publicis mandate, expanding, recently opening offices in Canada, China and Japan.
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].”
However France’s strict rules on hiring and firing, mean its labour market was ranked 111th in the GCI. France’s tax regime was also deemed disruptive to business decisions, ranking it 128th.
Despite the negative reviews of the French Tax system, the French government does continue to invest vast amounts in Research and development and supplies a tax credit for R&D focused companies. France has the lowest research tax credit in Europe. and Innovative New Companies (Jeune Entreprise Innovante – JEI) 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 exempt from tax.
More recently there has been the announcement of the CICE tax credit –Crédit d’impôt pour la compétitivité et l’emploi, which has been outlined as beneficial to all businesses as it aims to enhance 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. It aims to help businesses reduce labour cost and improve employment.
For start-ups there are other breaks. The Prêt à la Création d’Entreprise (PCE), a loan of for up to €7,000, available for start-ups which are less than three years old.
With these measures in place, the French government remains a pivotal financier for many start-ups in France.
France is also viewed as being technology ready and able to readily adapt the development of new products, business models and thus enhanced productivity.
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 the French media to increase their revenue by using Google’s advertising technology, increasing and promoting their presence online.
Overall it a good time to be a French start-up? Is it a good time for corporate to be investing domestically? Marc Westermann replied: “young French people want to be entrepreneurs, we have good mathematicians and good designers here”. With French innovation “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.
With innovation in France “It’s really about the talent and young people being more daring”.