France goes unicorn hunting
Plus, UK spy chief tells the FT of concerns over Chinese central bank digital currency
Liberte, Egalite, Fintech
When French president Emmanuel Macron said his country should have 25 unicorns by 2025, the nation counted nine and wasn’t exactly known as a tech hub. Two years later, nine of France’s 22 private companies valued over $1bn are fintechs. Banking app Lydia joined the ranks last week after closing a $100m round.
“France is a great place to build European start-ups,” said David Sainteff, partner at Global Founders Capital. Because of its “challenging” regulatory environment and competitive scene, start-ups that “reach a market-product fit despite those constraints” are often mature enough to compete on a European scale, added the backer of French digital accountancy firm Penny Lane.
Ten years ago, France suffered from chronic bureaucratic syndrome. Administrative hurdles stifled innovation and entrepreneurship. Homegrown talents, despite strong maths and finance credentials, would start companies elsewhere. Eventbrite and Datadog are among the billion-dollar companies that French entrepreneurs founded in the US.
The sheer perspective of “building champions” able to scale up beyond national borders “didn’t use to exist in France” said Lydia’s chief executive officer Cyril Chiche. “In fact, it existed very little in Europe outside of the UK,” he added. Chiche saw a shift take place in the last three years, as France started to attract foreign capital “in very large proportion”. China’s Tencent and US-based venture capital firm Accel are among Lydia’s investors.
Capital concentration in the UK’s fintech scene meant European start-ups were slightly undervalued in comparison, making them attractive to investors. “Once they realise there are companies of this calibre, which already have users, revenues streams, and a maturity they hadn’t imagined . . . they realise valuations are attractive and it’s a good place to invest,” said Chiche.
This year, France raised $2.8bn in fundraising rounds fin fintech, overtaking Sweden as the third-hottest European destination for venture capital in the sector, after UK and the Germany.
Lydia plans to add an investing arm to its banking and payments app, in a bid to become a European “super-app”. If scaling beyond borders is the next frontier for most French fintechs, the UK is not on their horizon, said Sainteff. As a “very competitive” environment, it has “well-established local players” and is seen by American companies as the “easiest gateway to Europe”. Like N26, Lydia closed its UK operation citing “local constraints”, and has instead focused on expanding in Portugal and Spain.
Though Emmanuel Macron has tried to nurture the French tech spirit — his government unveiled a pandemic stimulus plan for the digital sector worth €7bn — most fintech players say the trend predates him and expect it to transcend his presidency. “You’d have to be crazy to hit the brakes now,” said Chiche. According to BPI France, French fintechs have created over 25,000 jobs and most are actively hiring.
Chiche says the “tens and tens of concrete measures” implemented in the last decade helped the ecosystem flourish. He cites fiscal reforms, the creation of a public investment bank and the “bettering of relations between the tech scene and national administrations”.
“Crazy puzzles” used to penalise start-ups, says Chiche, such as the now-reformed Banque de France’s solvency scoring system. Previously, it was based on profitability and size, meaning lossmaking start-ups struggled to borrow cash.
“We believe that by 2025, two or three scale-ups will be on the CAC40, with probably one fintech among them,” said Paul-François Fournier, Innovation director at BPI France.
But challenges remain, such as fierce global competition for talents, said Sainteff.
When asked about the challenges of competing in a crowded pan-European market, Chiche said: “If we look at potential future big actors in digital banking . . . there are maybe 10 at most . . . Do you know how many banks there are in Europe? 5,073. So actually, well there is room, you know.” (Akila Quinio)