Alex Dewez, partner at 20VC, has released the much-anticipated State of the French Technology Ecosystem report. This is a great follow-up to Atomico's European State of Technology report, and includes a more in-depth look at French startups in particular.
As a reminder, the gist of Atomico's report is that European startups raised $45 billion in 2024 compared to $47 billion in 2023. Although this figure is only a decrease of $2 billion, it represents a decrease of more than 50% when compared to the 2022 figure.
In France, the overall theme is more or less similar. According to Dewez, venture funding in 2024 will be 7.1 billion euros, an indicator that has increased slightly compared to 2023 (6.8 billion euros). However, in 2022, French startups raised €11.8 billion in funding.
Of course, data on private companies varies depending on the source. For example, EY and Les Echos report that venture funding is slightly lower in 2024 compared to 2023 (€7.8 billion vs. €8.3 billion).
The conclusion is similar. Venture funding has remained fairly stable from year to year, with artificial intelligence accounting for a large portion of the total.
There are two ways to look at it. A pessimistic view is that without artificial intelligence, startup funding would be stagnant. AI currently accounts for 27% of total funding for French startups. AI startups raised 82% more funding in 2024 compared to 2023. Additionally, non-AI funding is down 11% year over year.
The optimistic view is that artificial intelligence is the next big opportunity for startups, and more technology funders are choosing to focus specifically on this area. Some AI founders may have launched non-AI startups in other environments. The tech industry is multifaceted, and many investors take an opportunistic approach without a specific industry in mind.
As a result of these metrics, France has the third largest technology ecosystem in Europe based on total funding, after the UK and Germany. However, since Germany is a more decentralized country, Paris is the second largest city in Europe after Berlin and after London.
There are currently 45 unicorn companies in France. However, some of them are just unicorns on paper and may not be able to maintain that label for long. In 2024, three emerging startups joined the group: accounting software startup Pennylane, business planning platform Pigment, and AI-powered software development tool Poolside.
2024 was also a year in which large-scale bankruptcies occurred frequently. Companies in distress include Ynsect, Cubyn, Masteos, Luko, and Cityscoot. Changing macroeconomic conditions are making it difficult to finance growth without strong financial performance to justify the investment.
In addition to Poolside, other promising AI startups based in France include basic model maker Mistral AI, AI-based drug discovery companies Owkin and Aqemia, and AI applications PhotoRoom and Dust.
DeWes said there are a small number of late-stage companies that generate more than $300 million in annual recurring revenue, are growing 20% to 30% year over year, are profitable or about to become profitable, and are preparing to go public. I believe that this is possible. Companies that check all these boxes include Back Market, Dataiku, Doctolib, Qonto, and Content Square.
However, like the UK, France remains a lukewarm market when it comes to IPOs. Most French technology companies are likely to consider listing in the United States. But for companies that don't yet have customers in the US (such as Doctolib and Qonto), that seems like a daunting task.
Regarding business closures, Dewez believes that although the total number of business closures has decreased by 14% year-on-year, the total value of business closures has remained stable over the past three years, hovering around €12 billion.
A final piece of interesting information that may be of concern for the next wave of startup founders is that UK funds are slowing down in the pace of their investments in French startups. It will be interesting to see whether this trend has a broader impact on the overall health of the French tech ecosystem in the coming years.
