As 2024 draws to an end, it’s becoming clear that French tech is going through a lull.
Sifted data shows that in the second half of the year, French startups have raised just under €3bn — half as much as the €5.9bn they raised in the first six months of 2024.
The drop is visible at all stages, with early-stage and growth-stage funding down 44% in the second half of 2024 compared to the first half; funding for Series D deals and beyond dropped by 66% in the same period.
“It’s effectively a bad semester for French tech,” Olivier Saint-Marc, associate at tech advisory firm Avolta, tells Sifted.
And investors say that they’ve been seeing fewer opportunities. “We haven’t managed to get excited about many projects,” Stéphanie Hospital, founder and CEO of early-stage VC OneRagTime, tells Sifted. “We won’t have invested much this year.”
France’s government freeze
The drop in funding for French tech coincides with a period of political instability in France.
In June, French president Emmanuel Macron called a snap election that resulted in a divided and ungovernable Parliament. Since then, the country has faced a government freeze, and in September Macron appointed former Brexit negotiator Michel Barnier as Prime Minister, who was ousted by Parliament just three months later. He’s been replaced by centrist François Bayrou.
Political instability and business rarely mix well, and the French tech ecosystem has been watching the developments with concern.
“There is so much uncertainty,” says Saint-Marc. “Everybody is looking at one other, asking themselves: ‘should I go forward, should I take a risk?’”
“Everything is inertial.”
But while the political context may have contributed to reduced investments in the second half of 2024, some investors say that the slowdown has been noticeable since the start of the year.
“We’ve seen it in our portfolio,” says Hospital. “In the first nine months of the year, we’ve only made one new investment. […] We did follow-on investments in portfolio companies that were going well, but we didn’t find anything we liked for new deals.”
Funding in the first quarter of 2024 was €1.7bn, according to Sifted data — on par with Q3 (€1.2bn) and Q4 (€1.7bn).
In Q2 funding reached €4.2bn, which was largely due to a series of megarounds, including gigafactory Verkor’s €1.3bn debt raise, AI darling Mistral’s €600m Series B and H Company’s $220m seed round.
In fact, nearly half of the funding secured by French startups this year (€4.1bn) was raised in 15 megarounds of €100m or more. But that hasn’t been enough to compensate for the rest of the ecosystem.
“There is a long tail of companies for which volumes [of capital raised] have decreased,” says Anaïs Monlong, venture principal at French VC Iris. “It’s creating a double market.”
A bad year for French tech?
With just two weeks left until the end of 2024, total funding for the year stands at €8.8bn, according to Sifted data. In 2023, French startups raised €9.5bn, according to Pitchbook.
After two years that saw French tech funding levels overtake Germany’s, France is on track to be back behind its neighbour this year. Sifted data shows that German startups have raised €9.5bn so far in 2024.
Hospital says that there’s a chance that French tech is feeling the repercussions of excessive VC investments that were made in startups in 2020 and 2021.
As interest rates went up in 2022, VC investments started slowing down across Europe. But that year, while every other major European ecosystem saw startup funding levels sink, French startups bucked the trend and raised more capital than they had in 2021.
It’s only in 2023 that French tech started seeing the impact of the downturn, with funding levels down 40% (€9.5bn) compared to 2022 (€13.3bn).
“In other European countries, there has been a correction in 2022-23, and for us that correction is only coming now,” says Hospital.
Fewer founders on the market
Investors say that they are seeing fewer founders coming to the market to fundraise.
At pre-seed and seed stages, Hospital says that this could be due to the ongoing economic and political uncertainty — which might be putting off founders from launching new projects.
“In periods of economic uncertainty, there are fewer founders,” she says. “And it also eliminates all the ‘tourists-entrepreneurs’.”
At later stages, Saint-Marc says that the new conditions for fundraising are keeping many founders from returning to the market to raise fresh capital.
VCs are now looking out for convincing metrics around profitability and revenues before making investment decisions. “Founders are now told, before they fundraise, that they should first demonstrate that there is a lasting business model,” says Saint-Marc.
He adds that with VCs more cautiously deploying capital also come term sheets that are less favourable to founders. Many companies are staying away from the market, therefore, or raising bridge rounds from existing investors.
“Right now, there is almost no single deal where we don’t negotiate at first a deal with existing investors, before we go out to seek new investors,” says Saint-Marc. “Founders are scared to be eaten alive by the conditions.”
Despite the lull, VCs are positive about the next few months. Monlong says that there has been “strong compensation” at the end of this year, and that early-stage deals are back on track.
“We’ve been working on a handful of new projects for the start of 2025,” says Hospital. “You can feel that things are picking up a bit, at least at seed and pre-Series A stages.”
Read the orginal article: https://sifted.eu/articles/french-tech-slowdown-2024/
