Macron releases 5 billion euros to boost funding for startups
To prevent French startups and scaleups from taking the same path as Drivy, Alderaban Robotics, Luckey Homes or Zenly, which have all switched to foreign flags, Emmanuel Macron announces this Tuesday a series of measures to complete the funding chain of the he French technological ecosystem in the late-stage segment. In this context, the executive was able to rely on the recommendations of Philippe Tibi, former president of the French association of financial markets, who submitted in July its report on the financing of French technology companies to the Minister of the Economy and Finance, Bruno Le Maire, and to the Secretary of State in charge of Digital, Cédric O.
On the sidelines of France Digitale Day, an event that brings together entrepreneurs and investors from French and European Tech, the President of the Republic thus releases a global envelope of 5 billion euros to allow France to keep its technological nuggets in France and help them gain international stature. This sum does not come from the state budget, but from other funding mechanisms, such as the possibility of allocating money from insurance.
With this envelope, the objective is to divert the future French champions from the Nasdaq, a benchmark stock market index in Tech, chosen in particular by Criteo in 2013, to propel them towards the Paris Stock Exchange, which today suffers from a weak portfolio of major startups. In 2018, 7 French startups raised more than 50 million euros, compared to 9 in Germany and 25 in the United Kingdom. In the United States, 189 start-ups raised more than $ 100 million last year, according to the venture capital barometer of the consulting firm EY.
Tickets over 30 million euros still too rare in France
While French Tech can now count on a particularly active early-stage investment (seed, series A and B) to help startups take off, the funding chain is weakened by a deficit in late-stage funding. . However, fundraising exceeding 30 million euros is essential for startups that have not yet reached a break-even point. And for good reason, these companies need capital to continue their development and establish themselves on a global scale. This is particularly the case of Meero who raised 205 million euros in June. A round table that allowed the startup to join the very closed circle of French unicorns.
Very often, for lack of sufficiently solid structures in France and in Europe to support them, these promising young shoots then turn to Anglo-Saxon funds to finance the next stages of their growth. A failure highlighted in the Tibi report. “French funds are rarely able to finance tickets above 30 million euros. According to France Invest, in 2018, they only financed two tickets exceeding 30 million euros and invested an amount between 15 million and 30 million euros in only nine companies, for a total amount of 271 million», Underlines the document.
2 billion from life insurance funds and institutional funds
Consequently, the 5 billion euros promised by the Head of State will be cut into two parts. As part of an initial envelope of 2 billion euros, the State is betting on two verticals. On the one hand, Bpifrance, the specialized subsidiary of the Caisse des Dépôts, is called upon to continue its action. For the time being confined to a role of supporting young shoots in their start-up phase, the structure must now become a spearhead of late-stage financing via investment vehicles under its control.
The latter could be supplied by French asset managers, in particular insurers who have dedicated subsidiaries to manage the funds collected by life insurance products. The windfall to be exploited is substantial since France is the leading market in continental Europe for asset management with nearly 4,000 billion euros in assets under management. France can count on leaders in the sector with global reach, such as Amundi, Natixis Investment Managers, AXA Investment Managers and BNP Paribas Asset Management.
However, these heavyweights have not yet committed to managing actions in the technology sector. And for good reason, for regulatory governance issues, they do not have the possibility. Investing in risky projects not being part of their mandate, French asset management specialists concentrate their investments in less risky investments such as government debts and real estate. The government wants to remedy this to add the missing link in the funding chain for French startups. Regulatory relief is to be expected, but the outlines of the system intended for the government have not yet been clearly defined.
An announcement greeted by François Véron, co-founder of the Newfund investment fund. “VSit is both positive and logical that life insurance is increasingly invested in private equity in the broad sense», He explains. “This marks a movement – which I think is really structural – of orientation of savings towards companies via the vehicle of life insurance. It’s a good thing for the economy and for savers. “ Xavier Lazarus, co-founder of the Elaia fund, also welcomes this news with enthusiasm. “That’s excellent news», He comments. “We have made a lot of progress, but if we compare it to other ecosystems what is still very lacking is long-term private funding. For this, the Anglo-Saxons have pension funds, etc., a whole series of tools to finance the very long term. As we do not have the same retirement system in France, the only ones that have this savings are life insurance. If the movement initiated is still small in terms of what they can do, it is already a very good news that it has started.. “
The challenge for insurance companies will be to make the shift. “VStis a structural change that will require new skills, reporting, management, etc.“, remember Francois Véron. A point that also underlines Xavier Lazarus. “QWhen you have something that was underdeveloped and suddenly you are putting a lot of resources in, you have to be careful not to flood the engine», He explains. “We will therefore have to succeed in building quality teams and strategies and give ourselves a little time before seeing the results. ”
Paris, future “European Nasdaq”?
In this sense, the emergence of “Global Tech” funds, called for in the Tibi report, could promote rounds of funding exceeding 100 million euros, essential before the listing of a technology company. “For this, the funds must manage at least one billion euros“, Says the report. The creation of a framework conducive to shareholding in technology stocks could then allow the Paris Bourse to become a “European NASDAQ”, Advocated by the Tibi report.
To collect the 2 billion euros promised by Emmanuel Macron, the executive also relies on investment funds that will have been carefully identified by Bercy. Among the best endowed French funds are Partech, Ardian, Idinvest, Alven and Iris. However, only managing between 200 million and 400 million euros for their current fund, they are still too small to compete with their foreign competitors. And it is not necessarily necessary to cross the Atlantic to find a more substantial strike force. A crossing of La Manche is more than enough to realize this. “In the UK, Atomico managed to raise $ 765 million in February 2017, while Index Ventures raised $ 1 billion for its fourth growth capital fund in July 2018“, Notes the Tibi report. Based on this desire to publish a list of funds stamped “validated by Bercy”, Xavier Lazarus notes that this can also be used to initiate the movement provided that it is not “a hold or a little too strong control“State, at the risk of”fall back into the past“. But the latter wants to be optimistic: “I tend to believe that the vision today of the people who devised this plan is to initiate something and not a will to control“.
3 billion euros for “Buy Out” operations
Alongside this € 2 billion financing line, € 3 billion will also be released and entrusted to asset managers in order to release early stage funds from their investments in startups by allowing founders or managers to finance operations of “Leverage Buy Out», Also called redemption with leverage. A boon for early stage investment funds whose exit opportunities are currently reduced.
If the device is well thought out, it could indeed be an additional asset for the ecosystem. Xavier Lazarus. “We’ll have to see what they want to do with it. If it is just a question of completing a system which is already very complete with overheating, that is to say the traditional LBO in standard PME-ETI, there is not much interest. On the other hand, if it concerns technological companies still in search of growth and projection so that the shareholders of the first ages can exit without having to sell the company in M&A or to put it on the stock market while it is still fragile, it can be very virtuous. “