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By Reza Malekzadeh, Partech Ventures
The momentum behind France as a tech startup nation continues to gain worldwide headlines, as French entrepreneurs fuel a new generation of Silicon Valley-like energy and innovation. One need only wander the halls of mega tech shows like CES, Mobile World Congress, CES Asia or IFA to see the magnitude of the French Tech movement, with France typically sending the largest delegation of foreign-based startups.
Not surprisingly, investors are taking notice. Enthusiastic interest from VCs around the globe confirms that they are quickly warming to the idea of France as a viable incubator for the next wave of high-profile, successful startups, perhaps home to the next Facebook, Google or Twitter. Indeed, market watcher CB Insights predicts the number of VC deals in France will increase by 40 percent in 2017 compared to the previous year, while total investment funding could more than double. Paris has surpassed Berlin and threatens post-Brexit London to be the new high-tech mecca in Europe.
Some of this surge could be viewed as opportunistic. The combination of a new pro-business and tech-friendly administration in France, investor uncertainty around Brexit, and eyebrow-raising immigration policies in the U.S. have certainly put more wind in the sails of the French Tech movement. The splashy opening of Station F, the world’s largest startup campus, the global expansion of the highly regarded incubator NUMA, and the arrival of TechStars in Paris in partnership with Partech Ventures all build further excitement and draw attention to what’s happening there.
But the truth is this is a not recent phenomenon; the momentum has been building for some time. While formally branded La French Tech in 2013, the ecosystem is built on a solid and enviable foundation that has been in place for some time — namely a world-class education system and a deep pool of engineering talent (it’s no secret why the aforementioned tech titans set up advanced research centers in France). What was needed was a not-so-gentle nudge by some certain forces to get the snowball of entrepreneurialism rolling downhill in France.
Chief among those forces is access to capital. Historically, France was on the sidelines of the global race to become the “next Silicon Valley,” watching on as places like London, Tel Aviv, Berlin, Barcelona, Hong Kong and others blossomed with startup activity. A key factor in this inertia was the perception — in fact, in past times, the reality — that it is difficult to raise money in France. Those who did have entrepreneurial ambitions most often fled for the wilds of Silicon Valley, like miners in the 1840s who looked to strike it rich in the gold-laden hills — in this case the gentle slope rising above Palo Alto called Sand Hill Road. For as long we can remember, Silicon Valley was where the money was, so that’s where entrepreneurs went (as well as to immerse themselves in the lessons that can be learned from such a unique environment).
For their part, tech investors have historically not invested in France at the same rate as other ecosystems. Part of this is a numbers game: there simply weren’t as many startup opportunities to invest in as in the past. And part if it relates to perceptions of France as having some challenges that weren’t as well-suited to the fast-paced, high risk/high reward of the tech industry. Many of these issues — labor, taxes, operating costs, bureaucracy — are either overblown or have been addressed over the past few years. Most importantly, the surge in entrepreneurialism by a new generation of young French engineers is the most encouraging sign. As a result, the spigot of investment has definitely been turned up a notch.
Closing the circle of investment
But even as the tide has turned and the startup scene has taken off in France, there is still a gnawing concern among investors about the ability to capitalize on their investments. This is a concern everywhere, not unique to France. At some point, you want to get your money out. And the truth is, high-profile exits by French Tech companies have been few and far between.
Investors look at the world in a very simple and circular way. You put money in, you nurture it, and eventually you can extract your investment with some reasonable degree of return. Apart from the obvious baggage — whether real or perceived — France’s growing reputation as a “startup nation” is both a blessing and a curse. Yes, it’s great that all this entrepreneurialism is flourishing in France. But investors don’t want to see just a flurry of early stage flash in the pans; they want to know that there is both growth and an end game in all of this — an IPO, an acquisition, or some other liquidity event.
In a recent article in The Financial Times, Jacques-Antoine Granjon, founder of French unicorn Vente-Privee.com, said, “It’s terrible to be a start-up nation. Some people think short term without ambition. They are often happy with small money. Most think more about selling than creating. They’re not fully committed.”
Indeed, even with the increase in overall investment in the French Tech ecosystem, the majority of it is in early-stage companies. Growth capital has been harder to come by, although noted success stories include the likes of BlaBlaCar, Devialet, SigFox and OVH — each of which has closed triple-digit rounds and would seem poised to deliver significant investor return.
Changing lanes to position for exits
The times may be a changin’, though. A recent report from CrunchBase shows the number and value of exists is on the rise across Europe, closing the gap with the traditionally stronger American market. Within France specifically, we’ve seen a few signs of success over the past several years and a recent encouraging uptick that mirrors the trend CrunchBase observes.. Anyone who has invested in a French Tech company likes to point to Business Objects, perhaps the first great French Tech IPO in 2004 (the company was bought by SAP three years later). Or more recently Criteo, which succeeded in 2013 with an IPO and a listing on NASDAQ (the tech-friendly American exchange that itself has been viewed as largely out of reach in the past for many French entrepreneurs and investors). Talend in 2016 continued the “trend” (if three IPOs in 13 years can be called a trend) in tech. Add in biotech and IPOs like Advanced Accelerator Applications in 2015, and we see more proof that a French company could exit via the public market.
More common exit routes these days — especially with a generally tepid IPO market worldwide — are by acquisition, and France has an increasingly busy recent history in this department. In the past year, for example, Compte-Nickel, a disruptive Fintech startup, was acquired by BNP Paribas; Zenly, a social mapping app, was sold to Snap in June for $213m; and video ad platform Teads was sold to Altice for $307m. Just this month, Logmatic, which helps monitor online services, was bought by Datadog. They followed in the footsteps of such high-profile exits as Neolane (scooped up by Adobe in 2013), Withings (folded into Nokia in 2015) and Google’s acquisition of Moodstocks last year.
So why the change? Is it sustainable or just a momentary, opportunistic blip? All indicators are that France may in fact be emerging as not just a percolator of good ideas and legions of hopeful startups, but beginning to close the cycle of investment that VCs and entrepreneurs both want.
For one, French Tech has proven its mettle as a truly important source of innovation that breeds companies that have long-term legs. World-class technology and visionary leaders are separating them from the pack, and they are worth a serious look by the world’s top investors. This includes corporate investment, even by France’s own large enterprises, something of a new development there. Second, the successful companies like those mentioned above view the market from the outset as an international playing field. Their strategies and execution are global from the get-go, almost to the point of being geographically agnostic. These startups sans frontieres are better-positioned for broader success than previous generations that may have been too inwardly focused on France or Europe. Challenges still exist, but that is true everywhere. Given the recent track record of some of the more promising French firms, investors believe the risks are less and the rewards greater.
As the number of startups increases in France, the odds of more exits increase in parallel. A new wave of recent later-stage players may be well-positioned to accelerate the streak of liquidity events, whether through IPO or acquisitions. Companies like AB Tasty, Akeneo, Algolia, Dataiku and Ivalua represent a different breed of quasi-French, globalized startups that have raised impressive investment rounds and could help finally close the loop from startup to exit that defines a mature tech ecosystem.
Reza Malekzadeh is a general partner at Partech Ventures, based in the San Francisco office. He is a French Tech ambassador and an active catalyst and leader in the French and European Silicon Valley tech community. He has 20 years of experience in various executive sales, marketing and operations roles for both large and startup companies