France’s digital minister delivers a progress report from CES on efforts to build a startup nation

Battling France’s reputation as a nation of Luddites who hate innovation, the French government launched a program in 2013 called “La French Tech.”

The program is a mix of marketing, financial support, regulatory reforms, and community-building that aims to deliver a shot of adrenaline to the nation’s startup economy and convince international investors to give France a fresh look. With the nation battling double-digital unemployment — around 20 percent for people under the age of 25 — the initiative seeks to create more jobs by encouraging large companies to modernize, while at the same time making it easier for entrepreneurs to create fast-growing companies.

The program, which was started by then-digital minister Fleur Pellerin, was still in its infancy when Pellerin was replaced by Axelle Lemaire shortly after it launched. Lemaire is traveling to Las Vegas this week for the global gadgetfest otherwise known as the Consumer Electronics Show.

CES has become a big focus for the French Tech program’s marketing efforts. This year, Lemaire will appear with France’s finance minister, Michel Sapin, and a delegation of 260 French technology companies, including a wide range of fledgling startups that will again represent the largest international contingent in CES’ startup-focused Eureka Park. It’s part of the deep relationship France has built with the show’s sponsor, the Consumer Technology Association, which includes a one-day version of the event each October in Paris.

That CES invasion is just one sign of how France’s startup economy has exploded in recent years. Economists will likely one day debate how much credit the government does or does not deserve for this. And because the tech economy is still so young, it’s too soon to tell whether this is a temporary frenzy or a surge that will endure and transform the entire French economy.

But at this moment, the numbers tell a clear story.

According to a report from CB Insights, funding to tech companies in France topped $1.5 billion in the first nine months of 2016, a new high, with three months still to go. That means the number doesn’t include the $160 million raised by Sigfox or the $100 million raised by Devialet in November. In the third quarter, French companies raised more money than German startups and were closing the gap with the U.K.

If there is a big caveat here, it’s that the leading VC investor in the country remains BPI France, the government-controlled national bank that was created through a financial reorganization in 2013. But there are some hopeful signs here as well. In the last few months, Paris has seen the launch of two new venture firms: Daphni and Oneragtime. And several other established French investors have recently closed new funds.

French entrepreneurs still find themselves weighing the decision to move their headquarters abroad to London, New York, or San Francisco, where fundraising and expansion can be easier. Across the continent, Europe remains a fractured digital market in terms of financial rules and labor laws that still pose a challenge to entrepreneurs from any country across the continent.

Still, France’s stubborn unemployment rate has started to tick down over the last three months, including a 2.3 percent drop in young adult unemployment. And that has delivered some welcome good news to the current government, whose term ends in May 2017. With CES in full swing, and just a few months before national elections in France, this seemed to like a good time to get a progress report from Lemaire, who responded to VentureBeat’s questions via email.

The following is a lightly edited version of the questions and response:

Above: Axelle Lemaire, France’s digital minister

VentureBeat: Why is it important to continue bringing so many French companies to Las Vegas each year?

Axelle Lemaire: It is the fourth time my government is present at CES and the second time for me. I do hope we will keep coming, as I believe being here with a massive delegation is really strategic.

France has developed an impressive know-how in the tech sector, but we still need to increase awareness of our leadership in this sector — of course, we are well known as leaders in wine, culture, and the arts. So this is what this administration has been doing for several years now — focusing on the tech ecosystem. As a result, investment in La French Tech has been booming, and we can see that the French Tech label and its red origami Rooster are bearing fruit.

Our presence at CES and major international tech events such as Mobile World Congress, Web Summit, etc. gives us the opportunity to demonstrate the strength and growth of our domestic innovation ecosystem, as well as the vitality and strength of our entrepreneurs (which is, as you know, a French word).

Numbers speak for themselves, and the number of French tech startups at the CES is growing each year: 66 in 2015, 128 in 2016, and 178 this year. In 2017, 32 percent of startups attending the CES will be French, the second delegation in Eureka Park, just after the U.S., but far ahead of other startup nations like Israel, South Korea, or China.

VB: La French Tech program is three years old. Can you evaluate its progress so far? What has worked well, and what has not worked as the government had hoped?

Lemaire: In three years, we have gained a lot of ground in structuring our ecosystems in France and abroad. There are 13 ecosystems already operating in French regions that are already famous for their size and maturity. You may already know Bordeaux, Marseille, and Lille for their historic heritage or their gastronomy. But now the world is discovering these cities for their entrepreneurial vitality and the dynamism of their digital ecosystems! In the meanwhile, we have encouraged the creation of a 22 tech-hub network with communities of French entrepreneurs who live abroad, from San Francisco to Shanghai, and Abidjan to Moscow.

Two years ago, the French Tech initiative had only begun, and we weren’t yet on the global map of tech ecosystems. Today, we have gained visibility, and our model is an example for the world. The key factor for success was that La French Tech initiative is driven by entrepreneurs and backed by the government, not the other way around! The French Tech is not operated in the offices of the Ministry of the Economy in Paris; it belongs to the entrepreneurs themselves. This new pragmatic and collaborative approach to public policies has proven much more effective at problem-solving than the old-fashioned, centralized approach.

Of course there is still work to do. I would sum it up with two words : scalability and diversity.  Our tech ecosystem is rich in terms of its quantity and quality of startups and entrepreneurs, but it still needs to scale up. We need more unicorns, but I’m confident we will have them in the months to come, as the potential is there and we are moving quickly forward, with as many as four French startups raising over a hundred million euros in 2016.

Then, I realize how much our entrepreneurs still lack diversity, as most of them are men from the middle or upper classes and with good or very good qualifications. I am convinced that our ecosystems’ creativity and potential would widely benefit from having more women, and more people with varied backgrounds. So this is a challenge for the French Tech initiative to address. Very soon we will be launching a specific program aimed at supporting and promoting diversity in entrepreneurial ecosystems.

VentureBeat: You have talked in the past about wanting to transform the venture capital landscape in France to encourage more risk-taking. Is it changing enough, or are you concerned that BPI must still play such a large role in funding startups?

Lemaire: When the BPI was created by the government in 2013, it filled a gap in investment for innovation. It strongly supported the growth of our innovative ecosystems and is still a very useful tool to facilitate financing rounds for our most innovative companies. In 2015, BPI allocated an overall 1,5 billion euros to innovation.

BPI has had a powerful leverage effect on the venture capital landscape, and we have positive and encouraging results. Let’s give a few recent examples: Daphni, a fund launched in 2016 by Marie Ekeland, raised €150 million so far. And Partech Entrepreneurs II, another French fund, recently raised €100 million.

Of course, we need to go further and create opportunities for our future scale-ups to raise substantial money. That is why we promote France’s  attractiveness to foreign VCs worldwide. It’s also great that the French funding model is spreading in Europe, and we have just launched a €1 billion fund together with Germany.

VB: Are you seeing a change in the landscape for exits in France (either through IPOs or acquisitions)?

Lemaire: Yes. Venture capital investments have doubled between 2014 and 2015, from €900 million to €1.8 billion. For the third quarter of 2016, according to tech.eu, the amount of investments raised by French startups is 30 percent higher than in the same quarter last year, while overall investment dropped by 17 percent for the whole European tech sector. And we had many success stories recently, as Devialet raised €100 million and Sigfox €150 million in the past month.

This positive trend has been acknowledged by many observers. Take the Deloitte “Technology Fast 500 EMEA” that highlights the 500 technology firms with the highest growth rates between 2012 and 2015: France has had the most firms in this ranking in the three last years, and two French firms — Horizontal Software and Chauffeur Privé — are in its 2016 top 10.

All these signs demonstrate the increasing maturity of our ecosystem, which looks ready for more and more exciting exits in the very near future.

VB: Is the startup economy having the broader economic impact in France that the government had hoped? Is it creating enough new jobs, for instance?

Lemaire: Startups are the emerging part of the iceberg, which is really the digital transformation of our entire economy. As you know, we have in France very big firms (our “CAC 40,” the 40 largest companies on the stock exchange) that have long appeared as conservative when it comes to startups and open innovative environments. But now, they have really understood that they need to address their digital transformation and to rely on the potential of more agile and innovative startups ecosystems to prepare for their future, instead of trying to kill initiatives.

One year ago, I launched a Partnership for Open Innovation aimed at supporting the efforts of these big firms. Last June, we saw the first edition of Vivatech, a major event dedicated to new partnerships between big firms and startups. Indeed, startups are now leading the innovation and transforming the entire economy in France. But when you look at the increasing numbers of big French companies coming to the CES this year in order to develop partnerships in an international tech environment, it’s clearly a sign that not only startups, but the whole country’s economy, are now embracing the digital age.

VB: La French Tech has emphasized startup opportunities across the nation, yet most startup activity and investment activity remains concentrated in Paris. Do you think that will always be the case or do you expect that to change in the coming years?

Lemaire: You may have overlooked the strong dynamic of tech ecosystems outside Paris. Sigfox, which raised €150 million this year (the biggest round of funding this year in France), is actually based in Toulouse in the south of France. Of course, Paris remains a strong engine, with wide-scale initiatives like Xavier Niel’s Station F, supported by the government, that will soon be the biggest startup incubator in the world (30,000 square meters). But through the French tech initiative, we have also encouraged from the start development of innovative ecosystems outside of the capital, with some success.

One of the first programs I launched was to support 13 French tech metropolises, which included cities with booming local innovative ecosystems like Montpellier, Toulouse, Grenoble, or Lille. Startups coming from all these 13 metropolises will actually attend CES this year. As it’s always been a priority for us to give entrepreneurs the opportunity to create and grow a startup in the place where they come from. We’ve been investing a lot in hardware, too, in order to make this vision into a reality. In 2013, we launched a €20 billion investment program to spread fiber optic ultra-fast internet broadband all around the country. It’s ongoing now, and by 2024, every city or village in France will be connected to high-speed internet.

VB: Across Europe, we continue to see other governments create aggressive programs to encourage startups and entrepreneurship. (Portugal being just one example). Is La French Tech facing more competition from within Europe for startups?

Lemaire: I think this is very good news, as we like and promote competition! In the global economy, encouraging development of startups ecosystems at the European level and promoting interconnection between those is an absolute necessity. As we’re facing massive global competitors from the Silicon Valley or China, our common goal must be to create real European champions. This will be possible by promoting a healthy and level competition between companies and ecosystems all over Europe. The EU has an important part to play to promote a startup-friendly environment that could help European digital champions to succeed at a global level. Whether these champions are French, Portuguese, or German doesn’t matter, as their success will bring benefits to the whole interconnected European ecosystem. That being said, many French companies, like Sigfox, BlaBlaCar, Parrot, Devialet, etc. are well-positioned today to take leadership roles in the technology landscape.

VB: Speaking of Europe, most complaints I still hear from entrepreneurs are about the challenge of scaling across the EU. Is enough progress being made by the European Commission to reduce these barriers?

Lemaire: This is actually a real challenge for our startups, but, as you know, the European Commission launched last November a “Start-up and Scale-up Initiative.” It is a good thing, but only the beginning to make our startups European and world champions. I will keep on pushing that agenda.

VB: Can you offer any more details about the 1 billion euro fund that was recently announced with Germany?

Lemaire: This fund, launched by the French and German Ministers of Economy during the German French Digital Conference last month, is an answer to the lack of late-stage venture capital faced by European startups. We are finalizing the last details, but our main goal is to use public support as a strong lever for private capital venture.

VB: We still hear of many founders in France who feel that at some point they need to move their headquarters outside of the country to be able to raise later-stage venture capital, or to reach new markets, even as they leave most of their employees in France. Are you concerned about this? Is anything being done to encourage the founders to remain in France?

Lemaire: All our policies are focused on giving our entrepreneurs all possibilities to create and grow startups in France, in Paris, or in our metropolises of French tech. We still need to help increase access to later-stage venture capital through the creation of a best-in-class investor-friendly environment. For instance, we have created the “CPI,” a new tax credit starting in 2017 for business angels who invest in French startups and scale-ups. As long as they keep fueling money in the French innovation ecosystem, investors won’t pay taxes on their capital gains.

VB: Finally, with the elections approaching in May, are you confident that support for La French Tech will continue, no matter the results?

Lemaire: I am proud that our government created La French Tech and quite confident nothing now would be able to stop the momentum of this initiative. And it is not driven directly by government, but by entrepreneurs, with government in support.  Entrepreneurs made La French Tech into a success. I’m convinced they have the talent and energy to keep it that way.
That being said, I’m concerned as I get bad signals from both conservative and far right leaders about closing borders. When it comes to tech ecosystems, maintaining an open environment and a free circulation of talents is paramount. If that progressive attitude doesn’t prevail in the administration that will come out of the ballot, this could lead to dark ages for the French Tech…But voters will decide!