AI Startups Keep French Venture Funding Stable

French Tech Ecosystem in 2024: A State of Affairs

A recently published report by Alex Dewez, a partner at 20VC, provides a detailed analysis of the French tech ecosystem in 2024. This report serves as a focused complement to Atomico’s broader assessment of the European tech landscape, offering a more specific examination of French startups.

Funding Trends and Comparisons

Atomico’s report indicated that European startups secured $45 billion in funding during 2024, a slight decrease from the $47 billion raised in 2023. Despite this dip, the reduction represents a significant shift, being more than 50% lower than the figures recorded in 2022.

In France, the overall funding situation mirrors this trend. Dewez’s analysis reveals €7.1 billion in venture funding for 2024, a marginal increase compared to the €6.8 billion seen in 2023. However, this is considerably less than the €11.8 billion raised by French startups in 2022.

Data discrepancies exist between sources; for example, EY, as reported by Les Échos, suggests a slight decline in venture funding in France for 2024, totaling €7.8 billion versus €8.3 billion in 2023.

The Impact of Artificial Intelligence

The core observation remains consistent: venture funding has remained relatively stable year-on-year, with artificial intelligence now constituting a larger proportion of the total investment.

One perspective suggests that the stability in funding is largely attributable to the surge in AI investment. Currently, AI accounts for 27% of all funding received by French startups. Funding for AI startups has increased by 82% in 2024 compared to the previous year, while funding for non-AI ventures has decreased by 11%.

Alternatively, this can be viewed as a positive sign, indicating that artificial intelligence represents a significant new opportunity for startups, attracting increased attention from investors. It is plausible that founders who might have pursued non-AI ventures in different circumstances are now focusing on AI due to its prominence. The tech sector is characterized by fluidity, with investors often adopting flexible strategies.

France's Position in the European Ecosystem

Based on total funding amounts, France maintains its position as the third-largest tech ecosystem in Europe, trailing only the U.K. and Germany. However, considering Germany’s decentralized structure, Paris stands as the second-largest tech hub in Europe, surpassing Berlin and following London.

Currently, France is home to 45 unicorns, though the status of some may be subject to change. Three new companies achieved unicorn status in 2024: Pennylane, an accounting software startup; Pigment, a business planning platform; and Poolside, an AI-powered software development tool.

Challenges and Bankruptcies

2024 also witnessed several high-profile bankruptcies, including Ynsect, Cubyn, Masteos, Luko, and Cityscoot. The evolving macroeconomic conditions have made securing further growth funding more challenging, requiring companies to demonstrate robust financial performance.

Beyond Poolside, other noteworthy AI startups in France include Mistral AI, a foundation model developer; Owkin and Aqemia, focused on AI-driven drug discovery; and AI application providers PhotoRoom and Dust.

Potential for IPOs and Exits

Dewez identifies a number of late-stage companies that may be poised for an initial public offering (IPO), as they generate over $300 million in annual recurring revenue, exhibit 20-30% year-over-year growth, and are either profitable or nearing profitability. These include Back Market, Dataiku, Doctolib, Qonto, and Content Square.

However, similar to the U.K., France’s IPO market remains subdued. Many French tech companies are likely to consider listing on U.S. exchanges, though this may be difficult for those without an established U.S. customer base, such as Doctolib and Qonto.

Regarding exits, while the total number has decreased by 14% year-over-year, the total exit value has remained relatively stable over the past three years, averaging around €12 billion.

Trends and Future Outlook

A potentially concerning trend is the reduced investment pace from U.K. funds in French startups. The long-term implications of this shift for the overall health of the French tech ecosystem remain to be seen.

This evolving landscape presents both opportunities and challenges for the French tech sector as it navigates the complexities of the current economic climate.