French tech talks: From start-up to titan

07 November 2019

On 17 October, Gowling WLG, in collaboration with its partners Erevena and GP Bullhound, hosted a breakfast debate in its Paris office, gathering more than 100 investors, founders and CEO attendees, who brought their vast and varied experiences of the French tech ecosystem to the table.

The panel event focused on the common challenges facing French entrepreneurs in their hyper-growth journey and on what measures still need to be implemented in France so that it becomes the leading European Tech country in the next few years.

Which are Europe's flagship tech companies? How is Europe's cohort of billion-dollar businesses doing in current markets? Which European tech companies will first reach a $50bn valuation? In the past years, European tech has undergone a remarkable journey and with more billion-dollar tech companies than ever and the largest year of fund-raising on record, it is clear that Europe has no shortage of ambition.

As France is positioning itself as the future "scale-up nation", what are the common challenges facing the entrepreneurs in their hyper growth journey? How are companies building the right stacks of technology, talents and capital to accelerate their growth and achieve their plans?

Presentations & Panel

Barbara Jouffa (Gowling WLG (France) - Partner and Co-head of the M&A / Private Equity department) introduced Gowling WLG, and its event partners GP Bullhound and Erevena:

  • Gowling WLG is an international law firm with more than 1,400 professionals, leader in Tech, who assists Tech companies in their growth and exit M&A in Paris and in its 19 offices across the world.
  • GP Bullhound is a leading technology advisory and investment firm, providing transaction advice and capital to the world's best entrepreneurs and founders through its offices in London, San Francisco, Stockholm, Berlin, Manchester, Paris, Hong Kong, Madrid and New York.
  • Erevena is an executive search firm that helps high-growth, innovative companies identify and recruit C-suite and board executives. They work with some of the fastest growing companies in France and the VCs that back them; and with publicly-traded companies undergoing transformation.

GP Bullhound's Titans of Tech: All Change at the Top Report 2019

Guillaume Bonneton (GP Bullhound - Partner), Joy Sioufi (GP Bullhound - Director) and Alon Kuperman (GP Bullhound - Director) presented the key findings of their latest report, "Titans of Tech: All Change at the Top". In this report, GP Bullhound provided an analysis for the sixth consecutive year of the growth of Europe's leading tech businesses and showed that several key players within the European ecosystem demonstrate the strength and velocity to reach the 'titan' status soon - a valuation of over $50 billion.

GP Bullhound's presentation showed that European Tech - and notably French Tech - has every reason to be optimistic about the strength of its ecosystem and its potential to produce a Tech Titan by 2021. According to the report, the European technology ecosystem is generating an unprecedented number of billion-dollar businesses - 21 new billion-dollar tech firms have emerged in the past year, while the total number almost tripled from 30 in 2014 to 84 today. GP Bullhound added that France is following this trend given that today, 10% of the European unicorns are French (vs. 5% three years ago).

GP Bullhound also explained that the landscape of Europe's Tech sector is changing: in the past, ecommerce generated many more billion-dollar companies than other businesses, but investors are increasingly switching focus from B2C ecommerce to B2B enterprise software and fintech.

Tech investment in European billion-dollar companies reached a record high in 2018, with $28bn raised in Europe, i.e. almost a tenfold increase compared to the $3bn raised five years ago. The aggregate value of the booming tech unicorn ecosystem in Europe has grown 3.4 times, from $89 billion in 2014 to $302 billion today. However, it has been pointed out that Europe remains far behind the US and China. For instance, the six current Tech Titans are all American (Facebook, Uber) or Chinese (Ant Financial, ByteDance, Didi Chuxing, Baidu).

Looking ahead, GP Bullhound identified the key companies set to enter the billion-dollar Tech ecosystem within the next year and noted that French start-ups are well represented: Dataiku, Shift Technology, Mano Mano, Openclassrooms, Alan, Believe, Voodoo, Talentsoft and EcoVadis.

French Tech Talks - Panel of Investors & CEO

Barbara Jouffa (Gowling WLG (France) - Partner and Co-head of the M&A / Private Equity department) and Lilian Poilpot (Erevena - Senior Partner) moderated a debate between exceptional speakers: Audrey Soussan (Ventech Capital - General Partner), Yann du Rusquec (Eurazeo Croissance - Managing Partner), Philippe Chainieux (MADE.COM - CEO) and Philippe Collombel (Partech - Co-Managing Partner).

Barbara Jouffa introduced the panel highlighting that in France these past few years we have experienced an exceptional increase of Tech fund raising, the creation of new unicorns and a clear investment by the French government in the Tech industry. She raised the following subject: what are the challenges or areas of improvement to make France the European leader for Tech and more largely for Europe to become a serious competitor of the US and China in the Tech sector? Our panel of experts addressed this question by debating the following themes:

  1. Is financing still an issue in France today?
  2. Is access to talent and tax or social law creating constraints for France?
  3. Exits and IPOs in France: is there really a market?

1. Is financing still an issue in France today?

Our speakers acknowledged that raising funds is no longer an issue in France.

However, Philippe Collombel highlighted that one of France's biggest handicaps has been the inability of its start-ups to scale up due to a lack of French growth funding. Indeed, it has been pointed out that French growth stage funds can be counted on the fingers of one's hand, as only Bpifrance, Eurazeo, Partech and Ardian have the ability to make €50 million+ rounds in start-ups. Furthermore, it has been noted that only a couple of French funds have invested in the 50 next potential Titans.

As a result, many French start-ups look for international investors for their late-stage rounds.

For our panel, this explains the significant number of foreign investors in French Tech companies, in particular from the US: General Atlantic (Doctolib, Openclassrooms, Sézane, Mano Mano), General Catalyst (Shift Technology, Vade Securet) or Summit Partners (Akeneo), to name but a few. Yann du Rusquec also added that

"Foreign investors often lead late stage rounds in France."
Yann du Rusquec

Philippe Collombel indicated that this is not without consequences as the investor's nationality often has a direct impact on the company's future. He emphasized that France needs to have more French growth funds as local investors have a better knowledge of their ecosystem, which can be a strategic advantage to French start-ups.

Philippe Chainieux then shared his experience of both the French and UK Tech ecosystems and explained that it has been easier for him to raise funds in London where investors are more likely to invest spontaneously whereas French investors are more cautious.

Audrey Soussan pointed out that this lack of French growth funding is not an obstacle to the growth of French start-ups, as today many of them can attract foreign investment funds. She nonetheless underlined that France needs to do better on growth financing.

"Indeed, with a much stronger focus on high-growth start-ups rather than on scale-ups with a solid path to profitability (like Ogury and Believe), growth investing today in France is missing some global winners"

Audrey Soussan, commenting on the pertinence of this concern in light of a potential future economic downturn.

Our panel reported that last month, ahead of France Digitale Day, President Emmanuel Macron announced that the government had convinced institutional investors to invest €5 billion, including €2 billion that will go into late-stage funds. The government's ambition is to see the creation of ten new late stage funds in France over the coming years.

For our speakers, the government wants to clear any hurdle that prevents French start-ups from raising a $100 million+ funding round in France, becoming a unicorn and eventually going public. All agreed that this is an interesting initiative to foster late-stage funds and investments in Tech companies. Even so, it has been stressed that there is still a long way to go and that France needs to speed up the process in order to catch up with its competitors.

2. Is access to talent and tax or social law creating constraints for France?

As recruiting talents is one of the main priorities for a start-up, our speakers first highlighted the importance of having an international team in order to foster talent, expertise and culture.

Philippe Chainieux again shared his personal experience as CEO of Made.COM. The London-based online furniture retailer has always had global ambition and brings together more than 30 different nationalities. He emphasized that during his previous experience in Meetic, recruitment was overly French-focused and turned into an obstacle that may have hindered its internationalization:

"Recruiting employees of different nationalities is a condition to enable international growth."
Philippe Chainieux

In the opinion of Philippe Collombel recruiting French and foreign middle-market Tech talents can prove to be a rather difficult task for a French start-up.

"There is a lack of international middle management recruitment in France which inhibits the development of our start-ups"
Yann du Rusquec

For our panel, this is mainly due to the misperception of French tax and labour regulation.

Barbara Jouffa recalled that labour cost remains high in France as the social security contributions rate is still much higher in France (42% to 45%) than in the UK or US (less than 15%) but the level of remuneration in France is generally lower than in the US and labour law should therefore not be automatically seen as a constraint. She also highlighted that France made significant tax improvements and became a more competitive tax location, by pointing out:

  • the reduction of the French corporate tax rate (which will be progressively reduced to 25% by 2022 - small and new businesses may benefit from lower rates);
  • the success and the tax efficiency of the "CIR" (research tax credit designed to encourage research and company development efforts by deducting from taxes the research and development expenses);
  • the favourable taxation of founders and employees' incentives (free shares, BSPCE) which are subject to capital gain tax (and not income tax).

Yann du Rusquec stressed that it is sometimes more profitable to recruit in France as net wages are lower and French start-ups can benefit from the CIR research tax credit.

Philippe Chainieux added that UK wages may seem higher on paper, but as France offers more free benefits, UK employees may not be better off.

Audrey Soussan stated that French start-ups are usually reluctant to recruit foreign talent at an early stage, as they believe it is too complexi. However, she added that significant progress has been made in the past few years and that France has become more attractive to international talents, notably thanks to the French Tech visa and tax reforms:

"With founders who are committed to the idea of recruiting foreign top executives, with the right global partners and the proper employee incentive, it can be done."
Audrey Soussan

She nevertheless pointed out that a common European regulation relating to talents' incentives in start-ups would help. Our panel concluded that France has made significant improvement to the benefit of Tech companies but needs political stability in order to become more attractive.

3. Exits and IPOs in France: is there really a market?

According to Philippe Collombel, the numbers of exits in France has decreased since 2016. He added that since only a few French CAC 40 companies are in a position to make multi-billion purchase deals, 80% of French start-up exits occur in the US.

Audrey Soussan also pointed out the lack of French public companies with a core Tech business unlike in the US or China. She added that today, the business model of CAC 40 companies is very different as their stock exchange price mainly depends on their EBITDA, which explain why they are cautious about acquiring an unprofitable start-up on its hyper-growth journey.

"We need more French Tech public companies in order to foster an environment favourable to local exits."
Audrey Soussan

When asked if he would prefer an IPO in New York, London or Paris, Philippe Chainieux answered that he would probably choose London for the sake of simplicity. He also drew attention to the fact that the location of the exit will depend on the modalities of such an exit. Yann du Rusquec indicated that most of European Tech companies would prefer to be listed domestically. Therefore, the objective is clearly to improve the French Tech stock market given that it is not currently a credible competitor to the NASDAQ.

Our speakers then highlighted that, further to French President Emmanuel Macron's announcements last month, the government is hoping that the new inflow of late-stage cash will convince banks and other financial institutions managing huge positions in Tech companies to create local teams in Paris and will make French stock exchanges more attractive.

"We need a European IPO market," Philippe Collombel suggested, while our speakers deplored the lack of cooperation between EU states and the competition between EU cities.

The debate was concluded with the following thought: although the situation has significantly improved, there is still a long way to go for France to become the leading European Tech country in the next few years.

We hope that this panel has helped to raise awareness among participants on what needs to be improved to achieve this goal.

We look forward to continuing this discussion soon and would like to thank everyone who attended, in particular our panel speakers who so readily delivered powerful insights combined with practical advice.

Thank you to all our attendees for coming along and for their positive feedback.


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