The French start-up scene

The Covid-19 pandemic has not slowed down the momentum of the French startup ecosystem. Thanks to the French government’s dedication to developing the nation into a global frontrunner in innovation, France is currently ranked as having the fourth best startup ecosystem in western Europe and the eighth best in the world, according to the Global Startup Ecosystem Index 2023.

On the other side of the world, Hong Kong's startup ecosystem has also demonstrated remarkable resilience. It maintained its growth momentum through 2022, despite the challenges brought about by the pandemic. Hong Kong's startup ecosystem is the most dynamic in Asia, and is ready to work with French startups, scaleups and even unicorns. Some French unicorns have already successfully established strong footholds in Hong Kong. Examples include Vestiaire Collective, a marketplace for preowned luxury and fashion items, and Ecovadis, a globally recognised sustainability ratings services agency.

With most, if not all, economies attaching greater importance to the incubation and acceleration of startups in driving innovation and economic growth, it is crucial to understand how each target market is moving their startup ecosystem forward. To gain a deeper understanding of the French startup ecosystem and explore potential Hong KongFrench collaboration, HKTDC Research conducted an inperson visit to the French cities of Lille and Nantes in France to gather firsthand insights from relevant stakeholders.

Government policies and measures

Government support is crucial in shaping the environment for startups and entrepreneurial ventures. In France, the national investment and development plan, France 2030, is spearheading the accelerated reindustrialisation of the French economy by focusing on the critical role of industrial and deeptech startups. Some of the major initiatives and policies offered by the French government to the domestic startup ecosystem are summarised below:

French Tech

The French Tech was established in 2013 with the aim of supporting the development and structuring of the French startup ecosystem. It acts as a platform for the implementation and coordination of public policies. It has three key missions  promoting the French startup ecosystem, supporting the growth of technology startups that align with the nation’s development priorities, and leading the French Tech Capitals and Communities (teams of volunteers who work to energise and encourage the development of the French Tech ecosystem around the world).

The support programmes offered by the French Tech are designed to help companies that align with the French government’s innovation strategy with a comprehensive range of services using available resources from the state. This involves mobilising the French Tech ecosystem of over 22,000 startups and scaleups and some 4,800 prospective investors, engaging public and private buyers and implementing promotional initiatives. The platform has also launched various programmes in collaboration with other government bodies such as French Tech Next 40/120 and French Tech 2030 to support the growth of the French startup ecosystem.

French Tech Visa

In order to attract global talent, the French government has offered a simplified and accessible visa programme called French Tech Visa. Different types of visas are provided for employees, founders and investors, allowing eligible talent to work and settle in France with residence permits that are renewable for up to four years. The French Tech Visa is designed for individuals coming from countries outside the EU, the EEA and Switzerland. Since its inception in 2017, the programme has helped more than 1,200 companies in France recruit talent from abroad.

Funding and tax incentives

The French government offers financial support to startups, primarily through Bpifrance, the country’s public investment bank. It offers a wide variety of funding options, including equity investment, loans, guarantees and grants. The bank also provides support measures such as acceleration programmes and international business missions to help startups and scaleups expand globally.

In 2022 alone, Bpifrance directly invested €726 mn (HK$6.075 bn) in 149 companies through its innovation capital, along with €854 mn in indirect funding into venture funds. It also issued approximately €580 mn in loans to over 1,500 companies through its seed loans schemes.

In addition to the financial support it provides, the French government also boasts one of the most generous tax relief packages in Europe for R&D activities. According to the OECD, France’s implied tax subsidy rate on R&D expenditure for SMEs is 36%, the second highest level in the EU behind only Portugal.

In general, the tax credit rate for qualifying R&D expenditure can be up to 30%, while the rate for innovation expenditure is 20%.

Sectors in focus

Sustainability has emerged as a leading area in innovation, gaining significant attention both locally and overseas. From the France 2030 investment plan budget, aside from decarbonisation, 50% is dedicated to emerging sectors and innovations like foodtech and biopharmaceuticals. The aim is to incubate 100 unicorns (including 25 green unicorns) by 2030. Green tech startups are increasingly becoming a favourite choice for investors.

In addition to green tech, the French government also plans to invest another €500 mn to create 500 deeptech startups annually through to 2030 under its France 2030 plan. To drive the creation and growth of deeptech businesses, regional technology hubs in France have established joint consortiums with incubators to help provide comprehensive business and financial support. Examples of these regional hubs include Euratechnologies in Lille (which has raised €24 mn to back deeptech startups and their expansion in eastern Europe) and Atlanpole in the Pays de la Loire region.

Many incubators and startup clusters in France are operating under publicprivate partnership (PPP) models. For instance, the startup acceleration programme designed by Bpifrance is supported by a number of established French businesses in its efforts to help startups develop business networks and secure funding. Big corporates are also keen to invest in or acquire startups that have the potential to enhance their existing businesses, reinforcing the commitment of both the government and the private sector to fostering and supporting entrepreneurial ventures.

The success of startup clusters and incubators in France has drawn the attention of private investors across the world. A thriving cluster with a track record of successful ventures and a supportive ecosystem can instil confidence, encouraging private investors to provide more money for startups. This virtuous cycle of success, where private funds are attracted to successful clusters, has greatly strengthened the French startup ecosystem and created a conducive environment for entrepreneurial innovation.

Lille – an alternative destination

The French startup scene is heavily centralised. The capital Paris hosts more than 8,000 startups and its startup ecosystem is ranked by one international startup research service as the best in France and the secondbest in western Europe after London [1]. However, the city’s high cost of living – the highest in France – is posing a challenge to resourcepoor startups.

Just an hour away from Paris, the city of Lille is rapidly emerging as a favourable alternative for startups. Lille is the capital of the HautsdeFrance region, and is close (within 300 km) to key business centres, including London, Brussels, Amsterdam, Cologne and Luxembourg.

Much of Lille’s famous textile industry departed overseas in the 1980s. Since then, the city’s economy has been transformed by a combination of cluster development policies and the regeneration of derelict industrial sites. Several of its startup campuses have been converted from disused mill facilities. Lille’s five key startup clusters and incubators, along with the specific sector that they focus on, are listed below:

EuraTechnologies was established in 2009. It is a leading technological startup incubator, with four campuses providing workspace for over 300 startups in Lille. Each year, the incubator welcomes around 200 startup projects across seven domains of digital innovation. These domains are: (i) fintech/assurtech, (ii) retailtech/ecommerce, (iii) proptech, mobility and smart city, (iv) agritech/greentech, (v) edtech/hrtech, (vi) industry, robotics and spacetech and (vii) cybersecurity.

The incubator organises over 500 networking and educational events every year, which have helped raise over €500 mn since 2009. With the help of generous public funding, EuraTechnologies is able to provide startups with a year of incubation and six months of acceleration services, all free of charge.

In order to attract global talent, the incubator has a special team to help international startups looking to expand in France. According to EuraTechnologies, approximately 30% of the founders of its residents (including current ones and those that have graduated from it) come from abroad, the majority from Europe and North Africa. Investors have shown increased interest in green tech startups, which have in the recent past accounted for the lion’s share of the investment in EuraTechnologies.

One important testimony to the achievements of the incubator is the impressively high survival rate of its start‑ups, with around 80% of them still remaining active after five years of incubation. This is largely due to Euratechnologies’ strong support for start‑ups’ long‑term success.

Challenging funding environment

Securing funding has always been a major headache for start‑ups, and this is particularly difficult now with the macroeconomic environment hit by high inflation, tight credit, the global economic slowdown, and a reduced appetite for risk. The collapse of Silicon Valley Bank has also had a major adverse effect on funding. The momentum of European venture investment has been sluggish in recent quarters, despite a slightly better performance since Q3 2023, and France has been no exception to this trend.

Euratechnologies believes that venture capitals (VCs) and investors were previously more attracted to investing in innovative high‑risk business models and placing greater emphasis on larger potential markets. Now, however, their focus has shifted towards projects that can demonstrate quick profit‑generating or revenue‑enhancing potential. In other words, investors have become more selective regarding start‑ups and their business models and innovations. They are becoming less willing to invest in early‑stage start‑ups, which typically involve higher risks, and are instead looking towards start‑ups that have already established a more consistent customer base and a more reliable source of income.

Hong Kong-France crossovers

When it comes to start‑ups, both Hong Kong and France have their own strengths. For instance, in 2023, Hong Kong (together with Shenzhen and Guangzhou) was ranked the world's second‑best science and technology cluster in the Global Innovation Index (GII), and Paris was ranked 12^th. France, meanwhile, was ranked the 11^th most innovative economy in the same study, whereas Hong Kong was placed 17^th. In short, Hong Kong excels in the input pillars, while France performs better in knowledge and technology output. Crossovers such as the French Tech Hong Kong-Shenzhen, which is part of the French Tech network communities, can help French tech start‑ups explore partnership opportunities and investments in Hong Kong, Shenzhen and the rest of the Greater Bay Area (GBA).