In the past few weeks, the French government has been in talks to cut down the country’s famously generous unemployment benefits — and it’s causing a stir among an unexpected community: entrepreneurs.
Prime Minister Gabriel Attal has proposed reducing the length of the benefits to 15 months when the national unemployment rate drops below 6.5% — an economic context that is deemed favourable enough for job seekers. The programme was cut from 24 months to 18 months last year.
“It immediately worried me, and my startup managers have seen in their one-to-ones that it is a cause for concern for founders,” says Koussée Vaneecke, the chair of Lille-based startup incubator Euratechnologies.
That’s because unemployment benefits are central to startup creation in France. Data from France’s national statistics body Insee shows that about a third of all companies created in 2021 were supported by the allowances.
The impact on startups is hard to quantify — there’s no legal definition for ‘startups’ in France — but the consensus is that the trend is the same, if not stronger, in the tech ecosystem.
Vaneecke says that a Euratechnologies poll showed that 80% of the incubator’s 200 early-stage founders are on benefits — and 100% of them consider the support to be ‘important’ or ‘critical’.
“It is by far the first startup pre-creation subsidy,” says Vaneecke. “Many say they couldn’t have continued their company without the allowance.”
A common running joke is to label France Travail, the government body in charge of allocating benefits, as the country’s first business angel.
“It’s clearly an integral part of the ecosystem,” says Jen Schradie, a sociology researcher who specialises in the digital economy at French university Sciences Po. “It’s completely part of the equation when thinking about your funding.”
Entrepreneurs and chômage
The French chômage (unemployment benefits system) has a reputation for being more generous than in some other countries.
France tops the list of OECD countries that spend the most on unemployment by a distance. It pays out 2.8% of its GDP, compared to 0.8% in the US and 0.1% in the UK.
One reason for this is that the 7% unemployment rate in France is higher than the 4% in the US and the UK. It is also because of the country’s comparatively strong unemployment compensation scheme. The UK, for example, provides a fixed allowance to job seekers for a maximum of six months.
Jobseekers who want to start a company in France can either receive monthly payments for 18 months which represent, on average, two-thirds of their previous salary, or ask to receive 60% of their total allowance in two separate lump sums, which are typically used to inject capital into the business.
For some, it’s a significant safety net. Sandrine Claus launched biotech startup Starfish Biosciences just a few months ago, after she was made redundant at the start of 2023. She received allowances for six months, during which she developed her business idea; when she launched the company at the end of 2023, she was able to get part of her remaining allowance as a lump sum, which she used to fund €10k of share capital.
What remains of her allowance is still available to her for the next two years, in case the company goes bust. “The risk is really minimal for an entrepreneur,” says Claus.
“Would I have gone for it without the benefits? It’s hard to know,” she says. “But the fact I got them meant there was no reason not to.”
Building solid foundations
Many founders start pondering their entrepreneurial project before they’re eligible for unemployment benefits — and the relatively favourable conditions of chômage are part of the reason they leave their job to launch a company.
A mechanism called rupture conventionnelle, which is an amicable agreement between employer and employee, allows employees to leave a company and still benefit from unemployment allowances. About a third of job seekers who launch a business left their previous company through a rupture conventionelle, according to labour market analyst Unédic.
Fabien Cazes, the founder of insurtech Neat, did that. He left his job as a general manager at a startup in 2021.
“I needed the mental bandwidth to develop the project,” he says. “And that wasn’t compatible with my job.”
Cazes chose to get his lump sum of “a few tens of thousands of euros” up front. Combined with some personal savings, he was able to use the money to launch the company, develop the product and close, eight months later, a first fundraise. By then, he says, the company already had a few clients and had started to generate its first revenues.
“You get time to really think the business through, instead of throwing yourself into a project,” he says.
For many entrepreneurs, the main appeal of the benefits scheme is its length. Founders feel confident that with 18 months’ worth of allowances they’ll be financially covered until they are ready to commercialise or raise funds.
“Two years is what I need to establish the product before I launch commercially,” says Nicolas Texier, who is currently building a deeptech startup after leaving his previous company late last year as part of a voluntary redundancy scheme.
His monthly allowance means that he’ll be able to keep a similar standard of living while investing his personal savings into the company.
“You don’t build a deeptech in six months. You need 18-24 months,” he says. “For me, it’s less about the amount of benefits than it is about the duration of the scheme.”
France’s best seed investor
Reducing risk-taking can seem at odds with the notion of entrepreneurship — a criticism that Roxanne Varza, the director of Paris-based startup campus Station F, has heard many times, particularly from international founders and investors based in countries that have less advantageous benefits systems.
“I hear people saying that these mechanisms don’t create entrepreneurs, because if they don’t have a safety net, there is more rush, they are more likely to go quickly,” she says.“But so many companies start [thanks to the benefits].”
In a tech ecosystem that is still emerging, some entrepreneurs see the cash earned from unemployment benefits as essential to compensate for the lack of VC capital in France.
Funding for French startups has increased significantly in the past five years, quadrupling between 2017-2022 to more than $15bn. But it remains far behind larger hubs like the UK or the US.
“The pre-seed market in France is still nascent,” says Neat’s Cazes. “You have to give out large parts of your company’s shares for small amounts. Unemployment benefits compensate for the lack of depth of our capital markets.”
Cazes adds that in an ecosystem that remains risk-averse and tends to take bets on the usual suspects, this also means that entrepreneurs get a chance to get started regardless of their background and connections to business angels.
Reforming chômage
Within French tech, chômage certainly seems to be a well-known mechanism for startup creation.
“Out of the non-representative sample of my 50 founder friends, everyone has [benefitted from the unemployment scheme],” says Cazes. “Absolutely everyone knows about it.”
This is why recent government proposals to reduce the length of the scheme have irked some founders.
Some argue that reforming the programme could be counter-productive for the state, given how many jobs are created for every successful startup launch.
One founder, who chose to remain anonymous, launched a sports tech startup in 2022 while receiving unemployment benefits, and now employs 14 people.
“What I pay to the state today in one month is probably equivalent to what I earned while on benefits in one year,” they say. “The return on investment for the state is stratospheric.”
Changing the benefits scheme could prevent potential founders from launching their project — with some groups more affected than others.
Sciences Po’s Schradie, whose research focuses on inequalities in the startup economy, says that disparities are already apparent in the use of unemployment benefits for entrepreneurship, with groups that are more precarious less likely to take advantage of the system to launch a company.
“It’s still a risk to launch a startup instead of looking for a traditional job,” she says. “The question is: What is the proportion of startuppers that come from more elite circles, are on chômage and are able to take advantage of it as a clear investment strategy?”
And for Euratechnologies’ Vaneecke, further reducing the duration of the unemployment benefits scheme will only increase this gap.
“Populations like women or people from the working classes can take less risk than others, and they wait to have many more elements secured before they launch a company,” she says.
“This will discourage them even more.”
Read the orginal article: https://sifted.eu/articles/france-chomage-startups-invest/
