French venture capital remains steady thanks to AI startups
20VC partner Alex Dewez has just released his highly anticipated report on the state of the French tech ecosystem. This is a great follow-up to Atomico's State of European Tech report, specifically a more detailed look at French startups.
As a reminder, the bottom line of the Atomico report is that European startups raised $45 billion in 2024, compared to $47 billion in 2023. That number is down just $2 billion, but is down more than 50% from 2022 numbers.
In France the general theme is more or less similar. Dewez said that total venture capital investment in 2024 will be 7.1 billion euros, which is a slight increase from 2023 (6.8 billion euros). However, in 2022, French startups raised a whopping €11.8 billion.
Of course, private sector data vary by source. For example, EY and Les Échos report that venture capital investment will be slightly lower in 2024 compared to 2023 (€7.8 billion vs. €8.3 billion).
The bottom line is similar. Venture capital investment has remained more or less stable year over year, with AI accounting for a large portion of the total.
There are two ways of looking at it. The pessimistic view is that without AI, our startup funding will slow down. Currently, AI accounts for 27% of total funding raised by French startups. AI startups will raise 82% more money in 2024 compared to 2023. Non-artificial intelligence financing fell 11% year-on-year.
The optimistic view is that AI represents the next big opportunity for startups, with more tech funders choosing to focus specifically on this vertical. Some AI founders might launch a non-AI startup in a different context. The tech industry is made up of porous verticals, and many investors take an opportunistic approach without considering any specific investment vertical.
According to these indicators, France remains the third largest tech ecosystem in Europe by total funding, after the UK and Germany. However, since Germany is a more decentralized country, Paris is the second largest city in Europe, before Berlin and after London.
There are now 45 unicorns in France – and although some of them are only unicorns on paper, that label may not stick around for much longer. Three new startups are joining the group in 2024: accounting software startup Pennylane, business planning platform Pigment and AI-powered software development tool Poolside.
2024 is also the year of massive bankruptcies. Troubled companies include Ynsect, Cubyn, Masteos, Luko and Cityscoot. The changing macroeconomic landscape makes it more difficult to raise growth rounds without strong financial performance to justify the investment.
In addition to Poolside, other promising AI startups in France include basic model maker Mistral AI, AI-based drug discovery companies Owkin and Aqemia, and AI applications PhotoRoom and Dust.
Dewez believes that there are a handful of late-stage companies that are ready to go public because they have annual recurring revenue in excess of $300 million, are growing 20% to 30% year over year, and are already profitable or on the verge of becoming profitable. Companies that meet all these requirements include Back Market, Dataiku, Doctolib, Qonto and Content Square.
However, like the UK, France remains a tepid market when it comes to IPOs. Most French tech companies would likely consider listing in the U.S., but that appears to be a tall order for those that don't already have customers in the U.S., such as Doctolib and Qonto.
In terms of exits, although the total number of exits fell by 14% year-on-year, Dewez believes that the total number of exits has remained stable over the past three years, hovering around €12 billion.
One final piece of interesting news that may worry the next wave of startup founders is that the pace of British funds investing in French startups has been slowing down. It will be interesting to see whether this trend will have wider implications for the overall health of the French tech ecosystem in the coming years.
