There were 590 venture capital raising rounds in France last year (2016). According to Dealroom, this is more than any country in Europe, although, startups in Britain took more capital (€3.2 billion). Yet the rate of increase in France was as high as €2.7billion. Corporate investments in infrastructure – incubators and training facilities – is nurturing entrepreneurial ambition. Thus angel investors, venture capitalists, and private equity firms are finding interesting financing opportunities.
According to a report from the Association Française des Investisseurs pour la Croissance (AFIC) and Grant Thornton, French private equity market participants raised €14.7 billion in global commitments during 2016 – a 51% annual increase. These funds were largely invested in French companies over the next five years. Continuing the trend over the last three years, private equity firms invested €12.4 billion to support and accelerate the growth of companies engaged in growth projects – a 15% annual increase.
There’s more to the emergence of France as the land of entrepreneurs.
France was ranked tenth in the 2016 global entrepreneurship index, with an entrepreneurial environment considered to be better than in Germany (14th). The ease of doing business in France is high, as it takes only 3.5 days to find a company there, while it takes 4.5 days in the UK and 10.5 in Germany. A large number of business incubators and accelerator programs are bringing not only coaching and advice but also networking opportunities to startups. The Conference Board ranked France seventh in the world for hourly labor productivity, ahead of Germany and the UK, in 2016. The highly qualified and productive workforce implies improved cost competitiveness.
We, at SparkUp, conducted a study to have a deeper and more precise understanding of the capital increases in France. We sourced data on companies from BODACC and Infogreffe, two sources registering the information contained in the legal announcements published from 2013—16, which represents three million firms. Amongst the many data points across 600 different sectors, we downloaded revenue, number of workers, and capital. To cover significant activity, we decided to focus only on the sectors with more than 100 capital increases; that restricted our scope to 37 sectors. We divided the results into different categories as follow:
- Revenue : < 50 K, 50—250K, 250K—1M, 1—5M, >5M
- Number of workers: 1—2, 2—5, 5—10, 10—50, >50
In order to give a clear understanding of the capital increases, we implemented a three-stage scoring method covering two cuts – sector x revenue and sector x number of workers. For the sector x revenue cut, we followed this methodology:
- Stage I: sectors belonging to the cluster containing the highest number of firms, were scored a three. On the other hand, sectors containing the smallest number of firms were given a zero.
- Stage II: we compared the percentage of capital increases in the sector with the total volume of fundraising deals. This number was then compared with the sector size. If the first percentage is higher than the second one, the sector is particularly attractive towards capital increases. Depending on the difference between those two percentages, we attribute a second grade.
- Stage III: each sector was divided into five categories based on the revenue. We computed the number of capital increases across sectors and revenue categories and how much it represented within the whole sector considered. Then we compare this percentage with all the sectors of the considered category. We grant a mark from zero to three depending on this percentage.
The scores from the study revealed that professional services firms (accounting and management consultancy), IT (system, software, and programming), investment funds, and real estate rental were the sectors with considerable capital increase. We investigated pertinent market trends within each of the sectors and the following insights emerged:
- Professional services firms were capitalizing on the global trend of cost reduction. They were helping their clients discover lower cost structures, consequently growing consistently above 6%. Firms with revenues in the range of euro one to five million scored the highest, while those with lesser (€250,000—1,000,000) scored the lowest in stage III
- The implementation of numerical and new tech tools are encouraging firms to rely on IT consulting firms and can explain the good shape of the sector. Systems and software consulting firms with revenues in the range of €250,000—1,000,000 scored the highest, while those with lesser (€50,000—250,000) scored the lowest in stage III. Programming firms with revenues in the range of €250,000—1,000,000 scored the highest, while those with more than €5M scored the lowest in stage III.
- The high density of fast-growing startups in home rentals and software engineering meant the capital increases were probably fund raises.
- Entrepreneurial interests are particularly inclined towards artificial intelligence, machine learning, and big data. By its own admission, 80% of Accel’s investment activity is in these segments. This is because graduates with specialized and advanced degrees in engineering and maths have particular strength in this sector.
The fervor in capital raising activity in France indicates not only closer ties between the demand (startups) and investors (angel investors, VC, and PE) but also a promising trend for an economic recovery. With revolutionary technologies and offering, startups create employment, stir innovation, generate competition. Over time as the ventures go public, new industries emerge that make money for the participants and stakeholders.