France has much to offer the world of innovation and corporate venturing. This is so even though it is not Germany with its famed industry, nor the UK with its banking and services sectors, nor the US or China with their economic might.
A record level of corporate venture capital was comitted in France last year, and it is now neck and neck with Germany’s $1bn spent on corporate-backed deals last year.
Data provider Sifted noted France’s €3.7bn ($4.2bn) total venture capital investment in more than 500 deals put it third behind Germany’s €4.4bn and the UK’s €7.7bn last year, and in a survey of VC fund managers by the European Investment Fund last year, the French were “on average more confident about the long-term prospects of their market”.
To the external investor, there are two reasons why France is not yet understood to be an innovation hub. The first is reputation. French bureaucracy and its regulatory environment are seen as prohibitive, perhaps unfairly so. The second is language. French cannot compete with English as a trader’s tongue – Germany, for example, has 45 million English speakers – and francophone countries are often less developed, representing less attractive investment opportunities when compared with New Zealand, Australia, South Africa, Ireland, Canada, India and the US.
Yet while France may not have those advantages, it is still one of the world’s strongest economies. As Antoine Delafargue of Total Energy Ventures said: “France is home to a vibrant innovation and startup ecosystem. Over the years, several regulatory and fiscal incentives have been introduced to make life easier for startups and investors. The country is reputed for the quality of its engineers, its research institutes and world-class multinationals.
“It is just a matter of time before the country’s reputation as a hot VC ground crosses borders to foreign VC investors.”
Roxanne Varza agrees. She knows the grass-roots scene in France well, having initially been at Microsoft’s startups platform and is now director at Paris startup hub Station F, tech billionaire Xavier Niel’s contribution to France’s entrepreneurial ambition.
She said: “France has really risen to the forefront of innovation in Europe, perhaps in part because the UK is less attractive for entrepreneurs as a result of Brexit. There are now tons of additional resources for startups and [government-backed ecosystem catalyst] La French Tech has just introduced a new visa making it very easy for startups to recruit foreign tech talent.”
Station F is the world’s largest startup campus, set in a former freight rail depot. It gives Varza a unique perspective, both being at the ground level as well as seeing a high volume of startups. “We have over 1,000 early-stage startups on campus and one-third of our residents come from outside France. We have over 50 different nationalities represented on campus and over 600 people at Station F do not even speak French.”
If language is no longer the barrier it once was, how about the bureaucracy? Has President Emmanuel Macron changed things? Varza acknowledged that Macron had changed the image of France but pointed out that a many changes were made by previous administrations.
“The French ecosystem did not change overnight with the election of President Macron. In fact, a lot of the different elements already existed. However, what Macron really changed was the image of France – he was able to project a more pro-business innovation-friendly France.”
Delafargue is more direct, noting the minister in charge of digital affairs is an “energetic” former entrepreneur. For Delafargue, two measures introduced by the former administrations have been beefed up – a stronger fiscal incentive to support research and development, and the public BPIFrance funds, now ubiquitous in the French startup scene. In addition, the large French multinationals are now on board. Delafargue said they had become more open and were deploying more firepower to help startups grow.
Part of that firepower is aimed towards incubators and accelerators. Varza said more corporates were launching their own incubators, and both she and Delafargue agreed that entrepreneurship was catching on. As Delafargue said: “Culturally, millennials are much more attracted to entrepreneurship than a lifetime career in a CAC40 company [the top of the French stock index].”
There have also been changes in universities, with an increasing emphasis on technology transfer offices, while more immediately, universities and public research institutes, such as the French Alternative Energies and Atomic Energy Commission, have, according to Delafargue, been “structured into excellence centres, with an emphasis on more autonomy and seeking more practical and industry funded research”. As a result, there have been more university spinouts – nine in 2017 and seven in 2018, up from just two in 2014.
Young people are emerging from French universities with valuable skills. Delafargue pointed out that, being in France, they do not have to pay the Silicon Valley tax for engineers and data scientists. Plus, he said, the “quality of life in France does play a role in attracting the best scientists”.
Domestic French talent is all well and good, but Varza said attracting international talent was a key issue, one hopefully to be rectified by La French Tech’s overhaul of the visa system. Startups need talent to succeed, but they also need funding. Fortunately for France, that is where the country is relatively well placed.
Both Varza and Delafargue agreed the early-stage startup and funding ecosystem was working well. Varza said: “France is now the leading location for recruiting technical talent in Europe and for finding early-stage funding for startups – two very important components when launching a business.”
More startups are finding funding, particularly from corporations. The CVC-backed deal count has risen from just six in 2013 to 47 in 2018. That is in part because of miniature ecosystems like the one Varza leads as well as more established networking centres around venture capital firms, such as Iris Capital’s noted corporate partnerships (see Iris Day flowers, overleaf).
Varza and the team at Station F have “put together an entire ecosystem with all the resources a young company could possibly need all under one roof – this includes 30-plus administrative or public services, an investor community with over 40 members, 30 different startup programs, a makerspace for prototyping, events and meeting spaces and more”.
Delafargue said work remained to be done in the latter funding stages. “The next steps will be to strengthen later-stage funding and growth phases, to yield more unicorns [companies worth at least $1bn].”
He added: “Unicorns do not appear overnight. It takes time to build global leaders, along with the late-stage investors that are needed to support them. A more technical factor may be the fact that historically French VC funds have pretty much covered the whole French dealflow, leaving little room for foreign funds, but this is evolving. France cannot benefit from market sizes as big as in the US and China, so French startups need more late-stage funding to internationalise without losing too much time.”
Sigfox is an example he cited – the French communications startup has had two rounds over $100m – but that size of deal is still relatively rare. Since 2011, there have been only nine $100m-plus rounds in which a CVC unit has been involved, and the most frequent corporate investors in France in 2018 are still all European, barring Intel and Salesforce. Orange, XAnge, and BNP Paribas were the three most dominant, and other French firms round out most of the rest of the list – Danone, Crédit Agricole, France Telecom, and SNCF to name a few.
Accountancy firm KPMG in its venture review of last year noted Blablacar’s $117m series D round was one of the region’s largest in the fourth quarter and said: “France truly came into its own as an innovation ecosystem.”
Varza added something to that list: “The local exit market is really less developed than some of the other markets.” Again, exits are rare for CVCs: just 21 since 2011, and no unicorns, although French firms have been involved in others around the world, such as Middle East-focused ride hailing service Careem. Yet despite that, Varza is confident “For the moment, things are really heating up. The government is making a conscious effort to address a lot of our concerns, we are seeing a more international investors as the geopolitical situations deter investors in the US and the UK.”
While the situations in the US and UK may be apparently deterring investors there, although the data so far is hardly conclusive for both given record years for venture deals in both countries, according to Pitchbook, competition is increasing globally for Delafargue, although he still things France is in a strong position. “Although many other countries are becoming innovation hotbeds, I think the future is very positive for France. At Total, we would be delighted to increase the French share of our portfolio, as this would only increase Total’s competitiveness on the global energy scene.”
As each issue in turning France into an innovation hub is identified, they seem to be overcome: visas, corporate culture, and bureaucracy. The great organs of the French economy, the French state, universities and research centres, and the big multinationals are all pulling in the same direction: towards innovation.
Focus: Iris Day flowers
James Mawson, editor in chief
Iris Capital’s corporate day in Paris highlighted the flowering of France’s entrepreneurial ecosystem and its position among the global venture elite. Iris Day was held for the second year at the Eiffel Tower – designed by German-born immigrant Gustav Eiffel – was a suitable reflection of the Franco-German firm’s international ambitions and successes.
Iris Day included a fitting tribute, by Pierre de Fouquet and Antoine Garrigues, Iris Capital’s founding partners, to the late Erkan Kilicaslan, managing partner. He would have been proud of the team’s achievements through supporting entrepreneurs and with more than 260 exits, the latest being ride-hailing service Careem, sold to Uber for $3bn in cash and stock – a 100-times return.
Angus Paterson (via Zoom) and Alexander Wiedmer, partners at Iris Capital, indicated that another unicorn exit could be announced following Uber’s $3bn purchase of Careem last month. From seed investment through four rounds to unicorn exit and a four-times return of the whole STC Ventures fund for the Middle East, managed for Saudi Telecom by Iris Capital, indicates a second fundraising could be near.
Erik de la Rivière and Curt Gunsenheimer, managing and senior partner, respectively at Iris Capital, had earlier reflected on the past year’s 29% year-on-year aggregate growth in the revenues of 52 portfolio companies to €2.4bn, and a 20% rise in employee numbers to 10,600 as testament to their entrepreneurial successes.
They were followed by fascinating insights from Mari-Noëlle Jégo-Laveissière, deputy CEO for technology and global innovation at Orange, on how the shift to 5G (fifth generation) in mobile telecoms standards could open up “ambient intelligence” and internet everywhere, and by “not doing everything ourselves” will enable opportunities for entrepreneurs and hence a broader platform for corporate venturing.
Startups seemed ready to seize the opportunity, judging from some of Iris’s seven new investments in the past year that presented their plans to the gathering.
Gilad Rozen, co-founder and CEO of Israel-based wifi chip developer Celeno, said its Doppler radar technology allied to software and analytics could enable 5G to create smart homes and mobility, such as home assistance, without compromising privacy. This could have consumer and enterprise applications, and Iris’s France-based portfolio, including Exotec and Braincube, offered promising insights into how the so-called industry 4.0 era could develop.
Exotec’s 3D logistics robots offered a way to support the burgeoning e-commerce market, while Braincube has spent a dozen years building a unique set of customer relationships to help automate industrial plants through the use of artificial intelligence. Profitable for a decade before raising venture capital from Iris and Germany-based industrial conglomerate Siemens’ corporate venturing unit Next47, Braincube’s chairman Laurent Laporte and general manager Helene Olphe-Galliard said the money was used to transform the company’s strategy and fund customer development.
In a reflection on BPIFrance’s importance to the local ecosystem, Laporte said she had heard a presentation by the French state agency’s president calling for the next unicorns to apply and had sent a text message saying Braincube would be one. This led to a meeting and invitation to BPIFrance’s BIG conference, where Braincube met Siemens and started the path to Next47’s investment, while BPIFrance also usefully advised against too much dilution in its first round until the strategy was proved and a bigger round could be set up in future.
By using Bayesian logic to run multivariant probability analysis on the thousands of factors that can affect production of, for example, paper plants, Braincube is helping automate factories and supply chains and improve efficiency and reliability and hence lower costs.
All these startups focused on customer pain points and in conversation added that Iris’s ability to help with strategy and governance as well as capital and corporate introductions was an important aid to their growth rates – and corporate partners were also benefiting.
Agathe Bousquet, CEO of Publicis France, explained how the customer-first principle had helped the ad agency’s transformation to respond to cost pressures, disruption and questions of trust in brands through acquisitions, such as Sapient. With partnerships with peer tech companies in other sectors, such as Safran, R&D ties with top universities and corporate venturing through Iris and others, Valeo has a focused strategy on delivery of car parts to the next generation of mobility services, such as Unu Motors’ scooters, he added.
Christophe de Valroger, vice-president for strategy and product in Europe for Japan’s tyre maker Bridgestone, said it used incubation (Mobox, Fleetpulse), M&A (TomTom) and other innovation tools to develop its mobility solutions roadmap for predictive maintenance and “tyres as a service”.
They were both joined by Pascal Blum, co-founder and CEO of Unu Motors, and Thibaud Chassagne, ride-sharing peer Virtuo’s co-founder, to discuss the changing mobility landscape as ownership patterns changed between generations and how China’s rise to first in transport had made Europe a follower in areas such as ride-sharing.
From half a century of limited change, transport was undergoing a threefold transformation, as ownership models changed, electrification replaced power trains and autonomous vehicles started to emerge.
This would lead to new ways of living life, the panel agreed, with individuality at its centre.
