Entrepreneur

Dylan’s Desk: France’s tech scene is pretty good. So why are investors staying away?

Above: France needs to spiff up its image as a startup-friendly country -- just as it's spiffing up the Arc de Triomphe.

Image Credit: Dylan Tweney/VentureBeat
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PARIS — You might be forgiven for thinking that France is a terrible place to start a tech company.

Emails forbidden after 6 p.m. Insanely high tax rates for high-income earners and for stock options. Strict labor laws that make it nearly impossible to fire employees or lay them off in the event of downsizing. And a government that is so afraid of losing control of its most successful startups that it quashed Yahoo’s $300 million offer to buy DailyMotion.

But every one of those points is false.

Emails are not forbidden after 6 — that was a misconception based on a bad translation by a British newspaper. The government has substantially adjusted tax rates in the past two years so that high-income earners pay approximately the same as they do in the U.S., and the capital gains rate is only slightly higher than in the U.S. It’s now possible to give stock options to employees without them being taxed as income. The laws about layoffs and firings have been liberalized so startups’ hands aren’t tied if they need to downsize or replace underperforming workers.

And the DailyMotion deal probably wasn’t quashed out of misguided patriotic fervor, but for other, more prosaic reasons, such as conflicts between Yahoo execs, or between DailyMotion execs and their board. (People I talked to had varying explanations, so I don’t know for sure, but it doesn’t appear to have been a nationalistic move — and other French startups have been acquired by foreign companies before, so the “patriotic” explanation doesn’t seem to hold water.)

And, while France officially has a 35-hour work week, entrepreneurs here work just as hard as anywhere else, putting in long hours to make their companies a success.

In fact, as I’ve learned in the past week here, France has a thriving tech startup ecosystem.

(Note: I came to France, along with some U.S. investors, on an organized tour to meet startups, attend “France Digitale Day,” and meet with government officials. My airfare and hotel were paid for by BPI France, an investment bank run by the French government.)

There are now over 80 incubators and coworking spaces in the city. A thousand entrepreneurs and investors showed up for “France Digitale Day,” a conference designed to show off the country’s startups and give them a chance to learn from the most successful entrepreneurs. The city is filled with talented engineers and eager entrepreneurs. One district, the former fashion district known as the Sentier, is turning into a sort of startup zone as young companies move into former garment factories and convert them into hip office space, much as San Franciscans did in their South of Market area over a decade ago. The Sentier has over 200,000 square feet of office space available now.

A few success stories stand out. Criteo, an ad retargeting company, went public late last year on the NASDAQ and is now worth about $2 billion. Free, an ISP started in the late 1990s, has a market cap over $13.5 billion and its founder, Xavier Niel, is aggressively investing his money into educating future engineers and incubating new startups. BlaBlaCar, a ride-sharing company that helps consumers arrange carpools, has customers all over Europe and helps transport more people every month than the Eurostar train system. Talend, a big-data integration and management company, is readying itself for a 2015 or 2016 IPO in the U.S. And those are just some of the highlights.

Entrepreneurs here are more aggressive and ambitious than ever before, people tell me — and it showed in their conversations with me. Whereas before French entrepreneurs would have been happy with a $20 million exit, they are now looking to Criteo as a model and aiming for billion-dollar valuations. To get there, they know they have to build global companies with worldwide impact, not just companies that serve the local French market.

France’s real problem is not encouraging entrepreneurs. In fact, there is not much wrong with the startup ecosystem here. The problem is with foreign investors.

According to a study released by the European Union in February, foreign investment in France fell 77 percent last year to $5.7 billion. (That counts overall investment; venture capital invested into startups would be a small proportion of that total.) Meanwhile, foreign investment in the rest of the European Union was up — in Germany it quadrupled to $32.3 billion. The numbers are a bit controversial, BPI officials tell me, but the picture is clear.

Bottom line: Investors don’t like France. The American VCs I talked to here seemed to fall on a range from “extremely skeptical” to “cautiously optimistic” about the investment possibilities. But even that is more positive than most VCs in the U.S., who simply aren’t interested in investing in a French startup.

French tech’s biggest issue, it seems, is an image problem.

Not to be flip, but maybe France needs to start sending more emails to Silicon Valley — after 6 p.m.

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11 comments
Ed Fo
Ed Fo

The issue with France is not its people or its young graduates.


The issue is its government, making gaffe after gaffe, a president who got elected saying on TV "Je n'aime pas les riches" (I don't like rich people), who does not speak English, and a minister of economy who has never set foot in a company during his whole civil-servant life...

Donnacha Mac Gloinn
Donnacha Mac Gloinn

France has never been a safe place for money. The lousy attitude doesn't help either.

Robert Albertella
Robert Albertella

In France too many people don’t like those who are ambitious and successful in business. Nothing new under the Sun :(

Laurent Jacquot
Laurent Jacquot

Funny fact is that the word "entrepreneur" is actually coming from the French. As an entrepreneur and a French person (I am launching a B2B micro call to offer solution - www.reqwest.fr), I can confirm that there is definitively something peaking up in France : start-ups are everywhere in Paris and in other cities, the environnement is very positive and we are definitively offered performing help from incubators. We only lack investment, but I guess it'll come pretty soon. 

Thomas Schmid
Thomas Schmid

Because they have a incompetent rat government that steals the money of investors.

Jeffrey Taylor
Jeffrey Taylor

Wow, that was a lazy puff piece that omitted quite a bit that makes France a total pain on the ass to do business in (22% sales tax, high social charges, unionized offices, antiquated nationalist attitudes that are unfriendly to foreigners, and so much more). This piece shows a lack of depth.

Tom Spencer
Tom Spencer

The same reason Sarkozy doesn't live in France anymore

Ed Fo
Ed Fo

lol where does he live then ? you re making stuff up. he lives in paris.