France Digitale launches with a *bang*: French Startups make 1 Billion Euros per year!

Jul 3, 2012
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France DigitaleYesterday morning, Elaia Partners’ Marie Ekeland and Meninvest’s Marc Ménasé welcomed what seemed to be the entire Parisian startup scene at the Pavillon Vendôme to announce the launch of France Digitale, the association created to lobby the French government. Among the invited masses and speakers was Fleur Pellerin, the Minister of the Digital Economy in France, who spoke about her support for the startup scene and the need for improvement in the financing of startups.

Having gathered most of the most influential entrepreneurs and investors in the Paris scene into one room, the biggest announcement came in the form of a study. Partnering with Ernst & Young, France Digital put out a definitive report on the economic and social impact of tech startups in France.

France Digitale interviews 108 Startups for its report

“The Barometer”

Looking at over 100 startups with an average age of seven years, the study looked at the key figures in 2010 and 2011. The 108 startups generated, on average, €7.7 Million since their creation – that’s €1M+ per year per company on average (based on average age). Breaking down their annual revenue by year, the study foudn that, while the 108 startups brought in a total of €753 million in 2010, they brought in more than €1 Billion in 2011. As France Digitale pointed out, if instead of treating each startup on its own, you look at the 108 startups as one big company, you get a company that, in 2011, produced over €1Billion in revenue with 33% growth over the previous year – that beats out most French giants – that beats out most global giants on growth. In no other stage of a company’s life cycle can you anticipate this type of growth, and as the startup scene grows in 2012 and beyond, there is a clear sustainability and benefit to France as a whole.

The report also highlighted the fact that more than 25% of the startups’ annual revenue came from outside of Europe in both 2010 and 2011, with 65% and 61% coming from inside of France, respectively. In 2011, the 108 startups employ a total of 5433 people, a 24% increase over 2010 (4384). More importantly, from a ‘sustainable employment’ perspective, 87% of all employees are employed under a CDI contract, the ‘strongest’ type of contract in France with the highest amount of job security. While many investors and international entrepreneurs have railed about the harm of the CDI contract (primarily because it makes it very difficult to hire CDI employees in a startup), it is clear that, in France, what the government wants to help is to improve job creation, and if startups are employing people under CDI, there’s (yet another) reason for the government to support startups.

OSEO is great, but it’s just not enough!

Another interesting point in the report showed that, while startups spent €80,4M in €109M in 2011 on R&D, OSEO, the R&D grant group for startups, only subsidize €24,2M and €27,7M respectively, leaving a large gap of unsubsidized budget spent on R&D in startups. I gave OSEO a bit of guff a while back when rumors began to fly that OSEO was cutting back its funding in startups, but hopefully Fleur Pellerin got a good look at the #1 way she can help startups – increase the budget for R&D grants (subventions). This goes equally for the help that comes from the JEI (young innovative startup) status, which subsidizes startup employment costs, essentially reducing the taxes paid to the government on CDI contracts to 0 for a certain number of years (current 1, if I remember correctly).

The report also quickly pointed out that in 2010/2011, 71%/83% of startups made use of some sort of capital funding. I’m sure the France Digitale could think of twenty different ways that the government could improve the venture capital system in France – in fact, I’m sure that plenty of them are praying for it. I’d personally love to see some sort of set up that discouraged firms from holdong onto their capital for too long, namely because VC firms right now can raise  €100+M funds every couple of years and just pay their wages based off of the management fees (~%5). Secondly, the ridiculous tax benefits that go to individual investors (I heard 95% tax break at one point), which allows & encourages wealthy individuals to “invest” in the companies of their children.

Conclusion

Both the report and the launch of France Digitale announce the beginning of a big change in France: startups will no longer be taboo. This unfounded cultural stigma that launching your own company is a bad thing to do must change, and the more the startup community in France works to get studies and facts out to the geenral public, the less ground the nay-sayers will have to stand on. When Hollande and Pellerin jumped into the big seats in France, a lot of people thought it was the end of startups in France – after all, how can “Socialist” and “startup” go together, right? Well, I think we might just start seeing how a country who puts its citizens before its companies might just be able to foster an environment of innovation in growth that will benefit France and impact the world.