France is not usually the first European country that comes to mind when it comes to investing in startups, especially since the arrival of socialist President Francois Hollande in 2012 and the ensuing Pigeon movement; France's entrepreneurs revolted against government plans to double the capital gains tax to 60%. And of course, stories like the DailyMotion saga do not help. Still, France's tech startups are not void of funding. In 2014, the top 10 investment deals amount to over €220 million. Furthermore, several French tech startups including Deezer, Blablacar and Sigfox have announced $100 million rounds of funding in the last few years. So, if it's such a bad place to invest, what exactly is going on?
Romain Lavault, a Partner at Partech Ventures - one of France's oldest VC funds founded in 1982 - says that while there may be fewer funds than before the dot-com bubble, all stages of funding are now better covered and there is no shortage of investment capacity.
But Partech isn't the only one playing a part in this evolution; on the early-stage side, France has seen the creation of additional early-stage micro-funds, like Breega Capital, Kerala Ventures and a few others. There are also rumors of additional funds to come, including the highly-awaited new fund of Marie Ekeland, former partner of Elaia Partners who famously invested in Criteo. Her fund Daphni is expected to launch shortly and have €100 million under management. Former Orange Digital Vice President Stéphanie Hospital has also been rumored to be launching a €100 million fund called One Ragtime, however she has not yet confirmed whether or not the fund will be based in France. Corporate venture has also shown an interest in early-stage investing with the launch of Orange Digital Ventures, Orange's €20 million fund that invests between €500,000 and €3 million in various early-stage startups. As far as early stage funding is concerned, all these changes have had a big impact; France now accounts for 35% of all of Europe's deals between €500,000 and €2 million.
ISAI Partner Jean-David Chamboredon has also seen positive changes in how the funding landscape is evolving. "The funding chain has evolved positively. There are now more accelerators and seed funds, and it is a very good thing to have all these players support the initial growth of startups," he says. Still, Chamboredon feels that France's angel investor community is not as well developed as it could be.
France does count some very active business angels, including well-known names like Xavier Niel, Fabrice Grinda, Pierre Kosciusko-Morizet, Oleg Tscheltzoff, Jean-David Blanc and more. French publication Challenges recently published a list of France's top angel investors, with the top 5 having invested roughly €90 million combined, though not exclusively into startups based in France.
That said, France's angel population is roughly 25 times smaller than that of the US and 10 times smaller than that of the UK. According to the government, this could be partially the result of some restrictions that were introduced in 2011 to certain investment vehicles used by angel investors, called Société d'investissement de business angels (SIBA). The restrictions caused the number of investments made by SIBAs to drop by 69% between 2011 and 2013 - and have fortunately been lifted as of January 1, 2015. Still, this doesn't necessarily account for a lower number of angel investors.
Some funds have started to develop early-stage offerings to co-invest alongside angels. Naturally, one of the most well known funds of this type is Xavier Niel and Jérémie Berrebi's Kima Ventures. With over 200 investments to date and another 1-2 investments made per week, Kima Ventures calls itself "the most active angel investor in the world." ISAI, which was an early investor in Blablacar, recently announced it would launch what it calls a "seed club" to invest alongside business angels. ISAI is also well-positioned to do so as its unique entrepreneur-fund model brings together over 80 entrepreneurs that would be able to invest as independent angels alongside the seed club. The government is also said to be working on an early-stage public fund that would co-invest alongside business angels.
Though public funding models do not always get a lot of praise from the startup communities in different countries, France's public investment bank, Bpifrance, is a central player in the local investment landscape. Playing a dynamic role in all stages of investment, Bpifrance covers the entire spectrum, from innovation to growth.
In 2014 alone, "la BPI," as it is known locally, invested €1.1 billion into some 5,500 innovative companies, both directly and through partners. This accounts for a 49% increase from the amount invested in 2013. Bpifrance is also an investor in a number of private funds, including roughly 100 funds dedicated to tech/innovation.
While there are various funds that are filling the gaps at various stages of investment, late stage funding is still somewhat less addressed. In addition to Partech's new growth fund, Bpifrance also launched a €500 million fund to do deals of €10 million or more. In fact, Bpifrance was one of the investors in Sigfox's €100 million round, alongside private funds like Partech, IDInvest and Elaia Partners. Still, some investors like Chamboredon feel that growth investment needs to be done at a pan-European level.
Naturally, not all the money invested into French companies actually comes from French funds.
Top international funds, like Accel Partners, Index Ventures, Balderton Capital, DFJ Esprit and more all have recently added French nationals to their teams (or in some cases, even hired people on the ground in France) in order to better-service the French market. According to a 2014 study published by Ernst & Young in partnership with France Digitale, roughly 20% of French startups who had raised €5m or less already had a foreign investor; this number jumps to 67% for startups having raised €50m or more.
A work in progress
There are still numerous areas for improvement. The government has been very focused on encouraging the development of corporate funds. Some investors, like Lavault, think the government should not only encourage large corporations to invest but also to acquire (through tax credits, for example). France's exit market still remains highly under-developed and we should expect to see the government address this more directly.
France's investment landscape is by no means perfect. But we can definitely say that the market is evolving fast and is moving in the right direction, despite occasional setbacks. The French market now includes lots of various funding possibilities, with funds becoming more specialized and becoming increasingly multistage.
While France's funds may also lack General Partners with entrepreneurial experience, this too is changing and we are seeing some interesting fund structures that seek to integrate entrepreneurs into the fund. The government is continuing to work on measures to promote angel and corporate investment. And hopefully, we'll begin to see stronger changes in the exit market as well.
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