French venture expected to flourish under Macron

"I want France to be a startup nation, a nation that thinks and moves like a startup. To put it in one word, entrepreneur is the new France."

These were the words of president Macron as he addressed a cheering crowd at Paris's Viva Technology event in early July. "We must change our 'small-is-beautiful' mindset. If an entrepreneur is successful, we are envious, we criticise, and impose taxes on him. But successful entrepreneurs help others succeed," he said.

To say that French venture capitalists are eagerly looking forward to the next five years would be an understatement. In light of all the economic measures announced in Macron's programme – 30% flat-rate tax on all capital gains, partial axing of the ISF – and of his intention to give France's entrepreneurial and startup community the strong push it needs, this comes as no surprise.

"You have to keep in mind that Emmanuel Macron was our best ambassador even before he was elected president," says Benoist Grossmann, managing partner at Idinvest Partners. "This was already the case during his time as deputy secretary general of Hollande's government (2012-2014), and as finance minister (2014-2016).

Four years ago, few UK LPs would invest in France because of the country's bad reputation with regards to investments. However, on re-meeting UK-based funds-of-funds during more recent fundraisings, we've been witnessing a more positive attitude" – Benoist Grossmann, Idinvest Partners

"Many of the measures that were beneficial to our sector during Hollande's mandate were introduced by Macron," Grossmann says. "His arrival to power is excellent news for French entrepreneurship, and the country is likely to become a startup haven."

French venture capital has been keeping up well lately, with the number of deals closed significantly larger in H1 2017 than in H2 2016 – 115 deals, compared to 72, according to unquote" data. Rounds, however, were of a generally smaller size in H1 this year, with an average deal value of €13.6m compared with €25.4m during the previous semester, and around €1.6bn of total funding gathered compared with €1.8bn.

In spite of this increased activity, French venture is still lagging behind the UK, which totalled 126 deals for H1 2017 with €2.1bn in committed funds. However, this represented a drop in activity compared with the previous semester in the UK, which saw 184 deals closed with around €2.5bn of equity deployed.

French venture: bigger, faster
French venture capitalists have known for years that one of the biggest impediments to the country overtaking its neighbour across the Channel is its lack of presence in the later-stage venture space.

Marc Fournier, managing partner at Serena Capital, says: "The material is there and all the resources needed, too, and France is just as good as Silicon Valley, but the final step now has to be taken.

"We are still missing financing resources for growth-stage investments, and for larger rounds of €50m, €100m or €200m. It is this last part of the ecosystem that is still missing in France, and which usually comes from foreign investors; that's what needs to change."

This also means French GPs should look to raise larger funds in the first place. "It will be easier to raise funds now," says Idinvest's Grossmann. "Four years ago, few UK LPs would invest in France because of the country's bad reputation with regards to investments. However, on re-meeting UK-based funds-of-funds during more recent fundraisings, we've been witnessing a more positive attitude."

Thanks to BPI France's contributions over the past few years, French GPs have already been able to raise larger funds and take part in more significant rounds, Fournier and Grossmann confirm. "It's all going in the right direction, but what we need now is that final push," says Fournier.

A few announcements made over the past few weeks should support this progression. During his speech at Viva Technology, president Macron announced the future creation of a €10bn government fund to support investments in the tech sector, and to boost the country's innovative capacity. While its precise features are yet to be defined, the vehicle will most likely be managed by BPI France.

In addition, the French tech visa initiative, announced earlier this year and designed to lure foreign talent and investments, has now officially been launched.

Finally, the world's largest incubator and startup campus, Station F, opened its doors in central Paris earlier this month. Created by France's most famous entrepreneur and business angel Xavier Niel, the station is set to accommodate more than 1,000 startups, and counts companies such as Facebook and Microsoft among its founding partners.

Says Grossmann: "It's very good timing for France to try to become number one on the startup scene, and gain a lot of traction in terms of investments, VCs, entrepreneurship and innovation. Macron's election has brought a wind of optimism over France."

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• IDInvest Partners (AGF Private Equity)
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