Experiencing the aftermath of the post-Covid economic context, the year 2022 could have been more favorable for French Tech companies. If some performances had been artificially inflated during the pandemic, the global economic context of the post-crisis period is characterized by caution.
First of all, central banks around the world have raised interest rates to fight inflation, leading to a significant drop in the main traded technology values, and affecting the private venture capital market. As a result, funding difficulties are being felt, especially from the second half of 2022, when a massive slowdown occurred. Startups and growing companies, whose high funding needs are thus impacted.
This new economic situation is reflected in the massive layoffs affecting all public and private markets, as well as in the reversals of fortune and sometimes sudden bankruptcies.
Moreover, growth capital is becoming increasingly rare. Crossover funds such as Coatue or Tiger, which funded growth on a global scale, are no longer as active as before. Similarly, unconventional investors, especially Softbank, have significantly slowed down their pace and have not made any new investments in France in 2022.
French Tech in 2022
However, the French Tech ecosystem has shown resilience and has demonstrated its strengths in 2022.
A European Leader
France is now the second most important tech ecosystem in Europe, with Paris ranking second in the technology behind London and ahead of Berlin.
Furthermore, France was the only European tech environment to have continued to grow in 2022, with no less than 689 financing rounds raising a total of €11.5 billion.
We can confidently say that the quality of entrepreneurs and operators in France has never been better than it is today!
An overall healthy environment
In France, the competition to invest in startups remains very strong.
The ecosystem has a large number of local seed-type funds (10 to 15 funds) and the "Seed" phase has become the most competitive stage to invest in France, for several reasons: the macroeconomic context, the launch of new companies by experienced founders or operators, the presence of well-equipped European funds comfortable with investing in France, as well as international funds increasingly willing to invest in France.
The growing support of Business Angels
Angel investors are also increasingly participating in financing startups in the French ecosystem.
In France, angel investors are divided into three categories: structured family offices, super angels, and emerging angel investors. Competition among angel investors for funding has increased and the branch has become more professionalized.
In 2022, they participated in 215 transactions (31% of the total), representing €1.1 billion raised by French startups (9% of the total).
Therefore, these are very positive signs, but they need to be put into perspective as we approach 2023.
First of all, foreign investors were less active in France in 2022 than in 2021.
Secondly, the average amount raised by French startups dropped by nearly 70%, from €34.6 million to €10 million, mainly due to the slowdown in mega-fundraisings. On the other hand, financing rounds for Seed have been the main driver of the overall growth in the number of rounds compared to 2021.
Perspectives for 2023
The year 2022 was marked by a 50% decrease in the exit value of French startups compared to the previous year. Large French technology companies took advantage of the opportunity to consolidate by eliminating competitors, expanding geographically, or developing new products.
In 2023, we will witness a general adjustment. Companies will have to adapt quickly in what could be a year of contraction. But these downtime periods always offer opportunities resulting from natural selection among companies, with the elimination of companies with the weakest foundations, allowing for a focus on the best values.
Massive technological paradigm shifts also create incredible opportunities for new innovative companies.
Among these technological developments to watch closely for in 2023, are projects for sustainable development, reducing carbon footprint, financial tools for Web3 companies (dealing with cryptographic assets), and of course, artificial intelligence.
Other investment sectors that have taken the spotlight in 2022 remain excellent growth drivers. Biotech is the most active investment sector, with nine French startups raising a total of €168 million. Cybersecurity is also a promising sector, with cyber insurance for SMEs looking to protect against cyber risks, a predominant threat in our time.
The healthcare sector is also experiencing significant development, while agriculture and food are growing areas of interest, particularly for food waste management, combating food waste, and alternative meat. Second-hand and B2B marketplaces are also other sectors to watch.
A Robust French Environment
French Tech has many strengths and assets, and technology remains the main source of value creation in the French economy.
The French ecosystem is firmly anchored on robust foundations, including a favorable political environment, a strong base of local investors in Seed and Series A, combined with an increasing number of foreign investors interested in investing in the French ecosystem, rapid recycling of talent, and capital within the ecosystem, and a proven ability to create global leaders.
Also, several powerful technological drivers have yet to be fully explored and exploited, such as digitization, cloud adoption, and crypto.
A new paradigm is emerging, and every stakeholder in the ecosystem must quickly and vigorously adapt to this new reality.
Once this is done, the French tech ecosystem can enter a new stage of its development.
This involves greater gender, ethnic, and social origin diversity, as well as greater uniqueness through a greater real risk-taking for entrepreneurs and funds.
In addition, the development of the ecosystem relies on a greater share of sustainable capital at the growth stage and resolving the lack of European growth capital.
The development of the French Tech sector must also continue to "internationalize" its mentality to attract experienced foreign operators.
Being a French Company in Vietnam, Dirox has forged and maintained a deep connexion to the French Tech environment.
We provide our French customers our SmartSourcing solutions, with affordable digital services outsourced in Ho Chi Minh City, and a direct point of contact in France and an access to French management assets.
Contact Dirox today and tell us all about your new idea!
Started in 2003 in Ho Chi Minh City Vietnam, our Development Company operates on a Global Scale in Asia, Europe, and America. Dirox’s team of technology consultants, business gurus, software & apps coders, and design visionaries bring you innovative solutions on time, on budget, and on quality. We strive to bring you the best IT outsourcing & offshore services.