France is undergoing a pro-business revolution – don’t miss the signs.

Aug 5, 2013
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France Champs Elysees

When everyone around you tells you it’s a bad idea to do something, it’s often a bad idea; however, if your gut tells you to do it anyway, it might just be the best time. Looking at the dot-com bubble burst, we see a plethora of companies that were started in the years following – Digg, Facebook, Skype, Meetup – and even in the 12 months after the burst – Jive Software (just bought Producteev earlier this year), eHarmony, Friendster. While the bubble burst was caused by over-speculation of the then-present value of the internet (distribution = huge, audience = small), many companies still saw that the adoption rate of the internet was growing rapidly, and that down the road, it would be huge.

Today, France is seen as a bad bet. According to public opinion, there are no startups here (I mean, other than that one that’s IPOing for $1-2Billion this year, the one that raised 100 Million euros, and that one that Yahoo tried to buy), people only work 35 hours a week (except for that huge percentage of people who don’t), and the government is anti-business (except for those 10 measures that the government put forward this year & that giant R&D tax credit available to all tech startups).

And yet, numbers don’t lie. France continues to represent 18% of Venture Capital in Europe (behind the UK’s 20%, ahead of Germany/Austria/Zurich’s 16%). A deeper look into France’s recent successes – Criteo, Neolane, Withings – shows a propensity for building hardcore technology, in addition to innovating in the design/product world on top of existing technologies – Deezer, Dailymotion, Blablacar.

“It’s not the startups, it’s the government, the workers, the regulation”

French engineers have been emigrating since as early as the 1980s to the Silicon Valley to work for the best tech companies – I know because I grew up with their children. Ask a Silicon Valley startup today what they think of the French workforce: second to none. As startup success stories continue to decentralize around the world, France’s best engineering talent will no longer be compelled to go to Mountain View to get paid well and work for the next Google, because the next Google has its main office in Paris already (and Google has one, too). The osmosis of startups from the Silicon Valley across the rest of the world is just beginning – decentralization has happened with every revolutionary sector (automobile, finance, hardware, printing) in the history of the world, so don’t expect software to be immune to it – and thus the “talent suck” of the Silicon Valley will start to compensate itself.

And now we come to the big change inside of France.

Evidence A: Europe. The European Commission has been instrumental in weeding out France’s anti-business tendencies. The separation of France Telecom from the Government has led to Orange, a Telecom giant with a higher market cap than Telefonica (lower than Deutsche Telekom), with presence across Europe, the Middle East, and a pioneer in Africa. The European Commission has imposed strict anti-protectionist measures and fines that have led to both EDF (utilities) and SNCF (train) opening up to competitors.

Evidence B: Taxis vs. Smartphone Chauffeurs. In the past week, the government backed a proposal for a law that would require smartphone chauffeurs apps like Uber & SnapCar to have a 15-minute delay between order and pick up. “Unfair competition” some call it. “Union blackmail” others have responded. The Paris taxi union is among the strongest in the world (if you measure based off the number of taxis/drivers per inhabitant in Paris, Paris falls well below the ranks of NYC, London & Dublin, lying between Lisbon & Amsterdam – study here). While this move appears to be a law, the fight is not over, and the fact that the fight is not in the streets, but in the media and in the courtrooms & senate floors suggests a stronger will for change or clarification.

Evidence C: BPIFrance. France’s propensity for building great technologies is matched only by its propensity for over complicated government. Even its recent “Digital Neighborhoods” announcement is lined with over-regulating government; however, the recent Banque Publique d’Investissement France (BPI France) has hinted at a desire to streamline how the government manages, enables and encourages innovation. The organization, headed up by former CapGemini executive Nicolas Dufourcq, regroups four major channels which the French government used in the past to encourage innovation. The CDC Enterprises (caisse dépôts consignations) – you can see their investments here – OSEO (almost every Venture-backed startup has raised equity-free R&D grant money either before or in complement to its fundraising), the France Sovereign Wealth Fund (FSI – invested notably in Viadeo recently) and FSI Régions, an early-stage (<4 Million euros) version of FSI.

Bringing BPIFrance together represents a huge opportunity to streamline public support of innovation in France. Couple that with the overdue need to reduce the size of the government (they recently announced a 80% reduction in admin time for businesses by 2015), as well as France’s overdue Paris version of London Tech City and you’ve got a recipe for change.

It’s not about whether they’ve got the solution or not, it’s the desire to solve the problem

Some will argue that this is yet another government initiative, or that the changes above are just isolated incidents; however, take a minute to treat a government for what it is – a company with revenue, clients, overhead, and market cap – and realize that this company is looking to enter a new market (startups), by reducing its overhead, investing in said market, all with the intention of increasing its client base, revenue, and thus market cap.

In the end, this government is looking to solve a huge problem it has, and it’s testing out solutions. The delta here is huge and the opportunity for change has never been higher.

Professionals with blinders on (or no financial stake in anything) will bemoan about “capital gains tax” “labor laws” “regulation.” If you stand in the middle of Paris’ tech economy for one month, you’ll see that all three are on the chopping block today, and that everything is in motion.

If France has been able to produce billion dollar companies with all these chains before, imagine what will happen as, one by one, France begins to inch into a pro-business environment. After all, what other choice does the government have?