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France’s Tech Start-ups Surge In Number

Uplift is welcome, but concerns rise about the transition to profitability

by Alex Scott
September 28, 2015 | A version of this story appeared in Volume 93, Issue 38

Photo of Paris skyline.
Credit: Shutterstock
Scientists in Paris and elsewhere in France increasingly are developing new businesses.

It was widely reported back in 2002 that then-U.S. President George W. Bush told U.K. Prime Minister Tony Blair that “the trouble with the French is that they don’t have a word for entrepreneur.” At the time, this raised more than a few hackles across France, where the word was invented. These days, it makes a lot of French people chuckle, not least because entrepreneurism in France is taking off.

While the number of technology start-ups being created in European countries such as the U.K. and Germany has remained relatively steady in recent years, in France they have doubled since 2009, according to data compiled by the Organisation for Economic Cooperation & Development, a publicly funded economic think tank. This French phenomenon has been driven partly by tax breaks and R&D reimbursements for start-ups.

Although growth in start-ups has skyrocketed compared with the rest of Europe, the situation is far from perfect. French start-ups still face challenges such as scarcity of capital and strict social laws that must be addressed if they are to transition into profitable companies, industry experts say.

There are about 20,000 start-ups in France, of which about 6% are focused on chemistry, according to France’s chemical industry association, UIC. A key piece of legislation encouraging the creation of these start-ups in France is crédit d’impôt recherche. It enables entrepreneurs to recover 30% of their R&D expenses in the form of tax credits or a cash payment.

Another important package of legislation is jeune entreprise innovante, which ensures that employees in companies less than eight years old pay lower taxes. In addition to having this supportive legislation, France has a growing track record of crowdfunding to finance start-ups, says Eric Firtion, UIC’s innovation director.

Paris-based financial analyst firm Invest Securities has noted an uptick in activity specifically by French biotech start-ups when compared with the rest of Europe. In the first six months of 2015, nine French biotech companies made initial public offerings (IPOs) of stock that raised a cumulative $190 million, Invest Securities says.

The uptick is because the legal and fiscal environment in France has become one of the best in the world for encouraging start-ups, according to Denis Lucquin, managing partner with Sofinnova, a Paris-based venture capital firm that invests in life sciences companies. “There has been a cultural shift in France in the past 10 years. The entrepreneurial spirit is coming of age,” Lucquin says.

The French government encourages scientists in publicly funded research institutes such as the National Centre of Scientific Research, known as CNRS, to set up their own technology companies. “If they are not successful, they can get their job back two years later,” Lucquin says. Additionally, every good science university in France now has its own start-up seed fund and technology transfer team, he says.

Students in France are also much more interested in starting their own companies. “Nothing is better than the U.S. for start-ups, but we have been catching up,” Lucquin says.

The quality of the technology being developed in France is also high, according to Alexandre Ouimet-Storrs, a chemical engineer by training who seeks out commercially interesting intellectual property and new technology start-ups for the French venture capital firm Truffle Capital. “France is an incredible country for technology,” he says. “I’m like a hungry kid at a buffet.”

Start-ups that Truffle has invested in during the past few years include Cascade Light Technologies, a spin-off from a private technology firm in France. It’s developing an opticalfilm for agricultural greenhouses that increases crop yields by up to 80% by shifting the solar spectrum into the wavelength range most efficient for photosynthesis.

Truffle also invested in Deinove, a Paris-based firm started in 2006 to make chemicals from renewable raw materials using engineered Deinococcus bacteria.

In addition to raising about $18 million from an IPO and venture capital funding, Deinove has received about $7 million in loans and grants from French public investment bank BPI, says Emmanuel Petiot, the start-up’s chief executive officer. The firm is also in line to receive a further $4 million from France’s environment agency for meeting goals in the development of biobased chemicals, Petiot says.

Deinove also gets a percentage of its R&D spend back from the government. “We expect to get a check for $1.8 million from the government in 2015,” Petiot says. Such tax credits have helped the firm to hire an additional 25 people. Further incentives are given if those hired are young and have a Ph.D.

But raising the tens of millions of dollars that are often required to move technology out of the lab and into the marketplace is much harder to do in France than in the U.S. “We just don’t have the same amount of capital available in France,” Petiot laments.

If France, and other European countries, are really to flourish, they need to work together to create a single public market for investing in technology firms, Lucquin argues.

France also has limited access to angel investors—individuals willing to fund start-ups. They number less than 8,000 in France compared to about 300,000 in the U.S. Other obstacles include administrative red tape around R&D management, UIC’s Firtion says.

France’s labor laws, however, are the biggest obstacle for many start-ups. “They are difficult to manage,” Deinove’s Petiot says. Employees have seven weeks of vacation and are limited to working a 35-hour week. “We could be more competitive if the system provided more flexibility,” he says.

Allied with high corporate taxes, the 35-hour week is one reason why few start-ups become mid-sized companies, according to Truffle’s Ouimet-Storrs.

It looks to be a problem that won’t go away anytime soon. French Prime Minister Manuel Valls is reviewing the country’s complex labor laws, but he said the 35-hour work week is not up for negotiation.

Robert Moor, president and owner of Protex International, a Paris-based specialty chemicals firm with annual sales of about $200 million, also recognizes that while France may be fostering more start-ups, not enough of them are involved with chemistry. “Part of the problem in France is that graduates in chemistry and engineering prefer to go into banking or Internet-related activities outside of chemistry,” he says.

Moor would like to invest in start-ups with technologies and know-how that could augment Protex’s products, which are as varied as perfume ingredients and water treatment chemicals. It’s not easy, however, to find good fit for Protex, Moor says. Perhaps one in 50 may be suitable, he says.

“What is missing is French people’s willingness to be entrepreneurs. They speak of it, but often it is not the reality,” Moor says.

But the entrepreneurial spirit in France is growing, Firtion maintains. “It seems that mentalities are changing in France and that the new generation is keen to create its own activity,” he says. “The new generation wants to change the world and modify the rules of the game of the current economy. More and more, French scientists are open to taking risks and developing new businesses.”  


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