Alex Dewez, a partner at 20VC, has just released the highly anticipated State of the French Tech Ecosystem report, offering a detailed and insightful follow-up to Atomico’s broader State of European Tech report. While Atomico’s study painted a high-level picture of the European startup landscape, Dewez dives deeper into the French tech sector, highlighting key trends and metrics that define its current state.
A Resilient Market Despite Global Challenges
Atomico’s findings revealed that European startups collectively raised $45 billion in 2024, down slightly from $47 billion in 2023. While this $2 billion drop may seem minor, it underscores a dramatic 50%+ decline compared to the record-breaking 2022 figures. France’s trajectory mirrors this trend, albeit with its own nuances.
According to Dewez’s report, venture funding in France reached €7.1 billion in 2024, a modest increase from €6.8 billion in 2023. However, this figure remains significantly lower than the €11.8 billion raised in 2022. It’s important to note that such data often varies depending on the source. For instance, EY, as reported by Les Échos, estimates that French venture funding fell slightly in 2024, from €8.3 billion in 2023 to €7.8 billion. Despite these discrepancies, the overarching takeaway is clear: venture funding in France has stabilized, with artificial intelligence emerging as the driving force behind this resilience.
The AI Surge: A Double-Edged Sword
Artificial intelligence has become the standout star of the French startup ecosystem, commanding an increasingly significant share of total funding. In 2024, AI startups accounted for 27% of all venture funding, marking an 82% increase compared to 2023. This surge offsets an 11% decline in funding for non-AI startups.
There are two ways to interpret this trend. On one hand, a pessimistic view suggests that without the AI boom, the French startup ecosystem might be experiencing a funding slowdown. On the other hand, the optimistic perspective sees AI as the next big opportunity, drawing investors who are eager to capitalize on its transformative potential. Many argue that some of today’s AI founders might have pursued other verticals in a different economic climate, highlighting the tech industry’s adaptability and opportunism.
France’s Position in Europe’s Tech Hierarchy
France continues to hold its position as the third-largest tech ecosystem in Europe, trailing only the U.K. and Germany in total funding. However, Paris shines as a leading tech hub, ranking as the second-most prominent European city for startups, just behind London and ahead of Berlin. This centralization gives France a competitive edge in attracting talent and investment to its capital.
In 2024, France’s ecosystem added three new unicorns to its roster:
- Pennylane, a cutting-edge accounting software startup
- Pigment, a next-generation business planning platform
- Poolside, an AI-powered development tool for software engineers
This brings the total number of French unicorns to 45. However, it’s worth noting that some of these valuations may not stand the test of time, as market fluctuations and financial scrutiny intensify.
Challenges in a Changing Landscape
While new unicorns have emerged, 2024 also witnessed several high-profile bankruptcies, reflecting the challenging macroeconomic environment. Companies like Ynsect, Cubyn, Masteos, Luko, and Cityscoot have struggled to secure growth-stage funding amid stricter investor demands for profitability and financial performance.
Late-stage French startups that have weathered the storm and are poised for potential public offerings include:
- Back Market (refurbished electronics marketplace)
- Dataiku (AI and machine learning platform)
- Doctolib (healthcare appointment booking)
- Qonto (neobank for SMEs and freelancers)
- Content Square (digital experience analytics)
These companies stand out for generating over $300 million in annual recurring revenue, growing at 20-30% annually, and nearing or achieving profitability. Yet, despite their strong fundamentals, the French IPO market remains lukewarm. Many of these firms are likely to explore listing on U.S. exchanges, although this poses challenges for those without an established American customer base.
AI Startups Leading the Charge
France has solidified its reputation as a burgeoning hub for artificial intelligence innovation. In addition to Poolside, promising AI startups include:
- Mistral AI, specializing in foundation models
- Owkin and Aqemia, revolutionizing drug discovery with AI
- PhotoRoom, an AI-driven image editing app
- Dust, an AI-powered productivity platform
These startups exemplify the potential of AI to drive France’s tech ecosystem forward, attracting both local and international investors.
The Exit Landscape: Stability Amid Decline
Although the total number of exits in France declined by 14% year over year, the total exit value has remained steady at approximately €12 billion for the past three years. This consistency underscores the long-term value of French startups, even as the broader market faces headwinds.
A Warning Sign for the Future?
One concerning trend highlighted by Dewez is the reduced pace of investment from U.K.-based funds in French startups. This decline could have ripple effects on the ecosystem’s growth trajectory in the coming years, especially if other international investors follow suit.
Conclusion
France’s tech ecosystem has proven its resilience in 2024, with artificial intelligence emerging as the linchpin of stability and growth. While challenges remain—from IPO hesitancy to the impact of macroeconomic pressures—the country’s position as a European tech leader is undisputed. As AI continues to reshape the startup landscape, France’s ability to foster innovation and attract investment will be critical to its future success.
