Innovation:
France's Got Talent

France initially struggled to enter the startup race. The first public policies providing funding and guidance for start-ups were only implemented in 2010. Between 2010 and 2015, fewer than 400 French startups received seed-stage funding, compared to more than 500 in Germany, and almost 1,000 in the UK over the same period.

In addition, Europe itself is persistently behind the US and Asia. As recently as 2020, the total amount of venture capital funds raised in Europe was $41 billion, compared to $74 billion in Asia, and $141 billion in the US.

A boost from public authorities

During the 2010s, France pursued a catch-up strategy to bolster innovation through an unprecedented mobilization of public funds, mainly focusing on entrepreneurship.

In 2012, the creation of the Public Investment Bank (Bpifrance) brought together various public funds to support research and investment. Thanks to its capacity to provide grants, material and real estate investments, or equity, Bpifrance became the central player in start-up financing. Its resources have almost doubled in 7 years, going from €17.3 billion in 2013 to nearly €30 billion in 2020.

In 2013, one year after the creation of Bpifrance, the "French Tech" label was launched to crystalize the French start-up ecosystem and promote its entrepreneurs. Labeling hubs as French Tech enables the public authorities and potential investors to identify the environments favorable to the development of French start-ups.

A number of public funding mechanisms have followed suit, such as the French Tech Exchange and the French Tech Acceleration fund. The French Tech Next 40 and French Tech 120 programs were launched in 2019, with the aim of bringing together the 40 and 120 most promising scale-ups (hyper-growth start-ups) each year. Together, these initiatives have bolstered the visibility of the start-ups with the strongest potential for international growth, enabling them to develop a network of investors, customers and partners.

Restructuring the ecosystem in this way has encouraged the development of local, public and private initiatives. In 2021, France counts over 100 accelerators and incubators, compared to only 30 in 2012. Among them, Station F, which opened in Paris in 2017, is now the largest incubator in the world and certainly emblematic of French Tech.

A favorable environment for private funding

This massive allocation of public resources towards start-ups has had a decisive leverage effect on the development of private funds in France.

Public subsidies, co-financing and guarantees have largely encouraged commercial banks to become more involved in the financing of innovative start-ups, both by developing their expertise in the matter, as well as by creating seed accelerators.

Public financial support has also been instrumental in the development of venture capital. The Fonds national d'amorçage (FNA, the National Seed Fund) is a fund of funds managed by Bpifrance, aiming to invest in private seed funds. A key actor in the development of venture capital in France, it is responsible for the investment of 29 private venture capital funds, averaged at  €43.4 million, and supported a total of 483 companies in 2019.

Ambitious tax and regulatory reforms redirecting French savings towards investment have also been implemented. The government’s goal was to shift the historically high savings of French citizens towards investment in company shares and stocks, by reducing investment costs and by taxing real estate. In total, between 2008 and 2018, the annual amount of tax aid directed to innovation rose from €4.1 billion to €6.7 billion.

In 2020, French start-ups raised an unprecedented €5.4 billion. But this funding-driven strategy cannot fully bear fruit without adequate investment in human capital and research.

A lack of diversity

The growing digitalization of the economy has resulted in new labor market needs. Jobs such as Content Manager, Customer Success Manager or Business Developer have been identified as key to fostering the development of start-ups. However, there is still a significant gap between these needs and what French higher education can provide.

The vast majority of French unicorn founders come either from business schools or have engineering backgrounds - in stark contrast to Germany or the UK, where half of unicorn founders have a background in computer science. German and British start-up founders also have more varied academic backgrounds, with training in science, mathematics, and law.

As far as gender equality is concerned, female representation in start-ups in France and in Europe remains extremely low. In 2020, 85% of the founding teams of European start-ups were male, a prevailing trend in the world of corporate R&D.

This lack of diversity is also reflected in the low number of international profiles and backgrounds among the entrepreneurs. Only 16% of start-up founders in France have studied abroad, and only 3% are foreign nationals. The rate of foreign researchers is slightly higher in companies, but only at 6%. That’s all the more striking given that 39% of young PhD candidates in France are foreign nationals. Diversifying the talent pool will thus be instrumental to improving the performance and openness of the French innovation ecosystem in the years to come.

Bringing students and researchers into the world of entrepreneurship

Teaching, research and business still operate in silos and the culture of entrepreneurship is underdeveloped among French university students. To that end, some 30 Student Centers for Innovation, Transfer and Entrepreneurship (PEPITE) were created in 2014. Aimed at bringing together higher education institutions and economic actors, these centers serve as an entryway for students into the world of entrepreneurship and innovation. Nonetheless, their capacity has remained overall limited, in part due to insufficient funding.  

Though researchers are increasingly interacting with the business world, that is not the case across all sectors. Half of the talent is concentrated in scientific and technical activities, computer and information services, the automobile industry and aerospace construction, while programs such as social sciences still have far too little contact with the world of business research and entrepreneurship. Moreover, the majority of researchers tend to join large companies and too few of them end up creating start-ups of their own.

Breaking down the walls between the worlds of research and entrepreneurship, and encouraging students, researchers and professionals to engage with the field of innovation requires state support. Through competitive calls for projects or programs such as the Programmes d'investissement d'avenir (PIA) or the Fonds pour l'innovation industrielle (FII), the state can stimulate breakthrough innovation and encourage researchers to become more involved in entrepreneurial projects.

Anchoring start-ups in universities thus implies increasing their funding. While France only spends about $60,000 in purchasing power parity per student, the United Kingdom and the United States spend $70,000 and $80,000 per student respectively. Total annual spending on higher education per student is also higher in Germany than in France.

France also lags behind when it comes to R&D funding. In 2017, France allocated only 2.2% of its GDP to R&D, far from the 3% target set in 2000 by the Lisbon Strategy for the knowledge-based economy, below the OECD average of 2.4%, and far behind Germany or the United States. In line with what Institut Montaigne recommends for the reform of higher education in France, a substantial financial effort for higher education and research is a prerequisite for expanding the pool of innovative French start-ups.