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La Startup Nation: French tech remains en vogue despite adverse market conditions

La French Tech resists and is attracting investors despite adverse market conditions which continue to push global tech valuations down.

The return of inflation and macroeconomic uncertainties related to the energy crisis have impacted startup valuations globally, but the investment flow received by the French tech ecosystem seems to be staying on its feet, thanks in part to strong government support.

Overall investment in French tech companies already reached a value of EUR 16.9bn in the first nine months of 2022, coming ahead of EUR 14bn in the whole of 2021, which was already a record year, Unquote data shows.

Meanwhile, tech investments of more than EUR 50m for the year to date reached EUR 15bn over 32 operations, a value already exceeding last year’s record value of EUR 11.8bn for 46 transactions, according to Unquote.

The flood of investments means that President Emmanuel Macron's pledge to create the conditions for another 100 French unicorns to emerge by 2030 seems doable. France just had five unicorns (unlisted startups valued at more than EUR 1bn) in 2018 but has hit some 25 this year. So far in 2022, at least six companies achieved unicorn status — Exotec, Payfit, Qonto, Ankorstore,  Spendesk and Ecovadis.

Macron's startup policy has two pillars. Since 2017, the government has sought to create stable conditions for entrepreneurs and investors, with supportive tax reforms and the creation of provincial clusters. At the same time, the country is using strict foreign direct investment (FDI) rules to safeguard its tech sovereignty.

Waiting backstage

Even though the number of unicorns is multiplying, turbulence in equity markets has hurt IPOs, which makes it harder for early-stage investors to exit successful projects.

The number of aspiring stars is growing backstage, but the ones that make it onto the catwalk so far have failed to become supermodels. Cloud storage provider OVH [EPA: OVH] and digital music company Believe [EPA: BLV] have both managed to list, but the aftermarket has been weak.

OVH lost nearly 50% of its value since it listed back in October 2021 – from EUR 20 apiece down to EUR 10.17 at close of play on Friday. Meanwhile, Believe saw its price share plunge from around EUR 17 in June 2021 to EUR 8.11 on Friday.

Believe has lost its unicorn status on the public markets. There is a hard lesson here for players in the startup world. Achieving unicorn status is based on expectations, while maintaining it is based on execution.

 Once listed, promising tech startups become exposed to greater financial transparency and have no choice but to deliver on their ambitious growth plan if they want to succeed in public markets, HSBC Head of ECM France and South Europe Jean-Baptiste Bureau said.

Time to internationalize model?

Nothing lasts forever, though. Public markets are likely to return at some point in the future. One name to watch in the meantime is Renault [EPA:RNO], which was in the process of appointing syndicate mandates in the run-up to the listing of its electric vehicle (EV) business next year, according to Mergermarket proprietary intelligence in June.

Meanwhile, the French government is also pushing to make its approach to startups the gold standard for the whole EU. The big-picture game plan hinges on creating European tech giants to rival those in Silicon Valley; and for that to happen local investors need to have a lot of cash at hand.

French Economy Minister Bruno Le Maire has been calling for the creation of more than 10 European venture capital (VC) funds with firepower of EUR 1bn each, compared to only two at the moment. The French government is supporting a fund of funds to channel investment into VCs to help make this goal a reality.

Former Rothschild banker Macron has until 2027 to make his mark on the European startup scene, when term limits will prevent him from running again. The big question is whether he has enough time to internationalize the French model.