French president Emmanuel Macron recently announced a government initiative that will deploy 5 billion euros of committed institutional capital toward late-stage VC, a year after strategizing with entrepreneurs and startups to elevate the country’s standing in the global tech industry.
The investment cohort, mainly composed of insurance companies and asset management firms, will assume a double mandate: enabling fast-maturing French startups to raise the funds they desperately need to achieve hyper-growth and providing them with better IPO perspectives and higher stock market valuations.
Two billion euros of pledged capital will be allocated toward late-stage funds (investment vehicles that can cut $100 million-dollar checks for a single startup). The remaining 3 billion euros will bankroll asset management firms dedicated to investing in pre-IPO tech firms.
The goal is to push valuations for up-and-coming unicorns (startups valued over $1 billion), create a favorable environment for IPO activity and deter rising stars from listing elsewhere.
“Beyond unicorns, we want to accelerate the growth of companies worth $10 to $100 billion, so that we can build the economy of the future and guarantee high-quality jobs for our children and grandchildren. These are essential steps to ensuring the country’s economic sovereignty,” Cédric O, the deputy minister for the digital economy of France told Adweek.
This initiative is part of a new wave of startup-friendly policies that coincides with the creation of a French Tech Visa to allow French startups to recruit talent from all over the world. O will soon unveil a separate plan to devote hundreds of millions of euros to deep tech: “It’s natural for startups operating in fields in which we’re world leaders, to be preferred beneficiaries of public initiatives,” O said.
The announcement comes in the wake of a report released by Philippe Tibi, the former head of Swiss Bank UBS, which pressed public authorities to inject $20 billion of risk-capital into the French startup ecosystem to close the gap with Germany, the U.K. and Israel.
There are two ways to gauge the success of early-stage French companies. On the one hand, bets on tech startups have ballooned over the past decade. The report noted French startups setting new records: $3.1 billion in fundraising in 2017, $4 billion in 2018 and $5.5 billion in 2019 probably.
On the other hand, fundraising prospects remain bleak beyond Series A and B rounds. The French software company Akeneo recently made headlines when it raised $46 million from a consortium led by Summit Partners, a Boston-based venture-capital firm.
Alfred Vericel, the founding partner of Red River West, a French VC firm based in Los Angeles, considers that Macron is fed up with the glaring lack of last-stage VC culture—which has allowed American investors to plow large amounts into a host of promising European startups, and reap the benefits of their success down the road. Verical said the transformation of France’s tech and startup landscape should also serve to lure foreign investors.
“We need to develop a co-investing culture with top global and American VC firms, which can provide a strategic impulse for our best startups that seek to expand overseas,” Vericel added.
Other investors have sent mixed signals. Pierre Edouard Stérin, France’s leading VC investor, remains cautious: “I support any initiative that seeks to boost companies in high growth stages. For once, the French government is guiding private stakeholders instead of investing taxpayer money outright.”
Stérin also warns that venture capital represents a high-risk asset class.
“When I hear governments talk about startups, it sounds like a fairy tale,” he told Adweek. “The truth is that it’s tough to pick winners and that venture returns have been historically lower than more traditional asset classes.”
Between France and the United States, cultural differences in the role of government intervention vary sharply. Vericel explained in France, resources are mobilized to support ailing industries. Vericel added “Macron can’t be blamed for being proactive when French startups only represent 1% of the global ecosystem.”
The American government has tended to shrink from its responsibility of investing in entrepreneurs. But in 2011, President Obama’s administration launched Startup America, a White House initiative to expand access to capital for high growth startups aiming to shake up industries of the future such as clean energy, information technology and advanced manufacturing.
The initiative included a provision for the Small Business Administration (SBA) to commit $2 billion as a “match to private sector investment in promising high-growth companies.” But with a whopping $130 billion in annual investments, America is hardly facing a shortage of venture capital. If there is a role for the government to fulfill, it is to fix the territorial and social inequalities that plague entrepreneurs and early-stage companies operating outside of major tech hubs. A 2017 City lab study found an extreme correlation between urban density and venture capital investments across the country.
Skeptical commentators could regard Macron’s initiative as government meddling with entrepreneurship. Others may tout it as a last-chance attempt to bolster French innovation. Both views have merits. For now, Macron is hoping his scramble for billion-dollar investments in a clutch of French startup champions will spur the nationwide boom that will lead to his reelection.