The digital revolution at the heart of the transatlantic relationship

The United States remains the tech Eldorado, but a European dynamic is underway and the digital revolution gap that we had is closing. France, in particular, has acquired the means to be a leader in this European recovery. There is still some way to go, nonetheless, for Europe to find a place in the new digital world that would be in keeping with its economic power, its talent pool and its entrepreneurial strength. The goal will be attained when our entrepreneurs can benefit from loyal competition in Europe, find financing at all stages of their development and when setting up in EU countries will be, for them, the most efficient stepping stone to becoming international.

Big, but Shrinking, Disparities

Next to the two giants that are the United States and China, Europe is in a position that corresponds neither to its economic power, as second in the world, nor to the size of its market, the first. A few figures are enough to highlight this flagrant contrast. Between them, the United States and China possess 80% of the unicorns (1); the European Union has 5%. They have the near totality of digital platforms, the EU just 3%. The differences in terms of financing are even more eloquent. In 2020, American start-ups raised 130 billion euros against 5.9 billion in France, or a gap of 20 + 1.

However, when we look at the evolution of the past few years, the dynamic has dramatically changed. European start-ups and scale-ups have known very strong growth. In 2021, funds raised grew by 169%, against 120% in North America and 43% in Asia (2). These passed the symbolic barrier of $100 billion to reach the record figure of $121 billion, or three times more than in 2020 (3). In addition, the average amount for rounds has more than tripled in 10 years, growing from $13 million in 2010 to $43 million in 2021. With fund-raising reaching up to $5 million, European start-

ups make up 31% of all capital invested in the world, against 33% for the United States, or near equality. At the same time, Europe’s share in venture capital activity is rapidly growing: between 2014 and 2021, it nearly doubled in financing terms, going from 10 to 19% (5). Fund-raising above 100 million euros averaged 14 per year in Europe between 2016 and 2020; it multiplied in 2021 to reach the record figure of 131 (6). European start-ups attract American funds en masse: in 2021, nearly 30% of the capital invested in French Tech was international, mainly American. This was the confirmation of the quality of our tech ecosystem. Sequoia launched an acceleration programme in Europe in 2022 which selected 15 start-ups seeking a first raising of funds – called early or seed stage – and invested

$1 million in each one. Today, we can list more than 6,200 venture capital funds in Europe, 1,820 of them in the United Kingdom. As for the number of unicorns, this has exploded: 31 new European unicorns were born in 2022, taking their number to more than 320 against 131 in 2018, or a rise of nearly 150% in hardly five years. These figures demonstrate that the weight of Europe in innovation is rising much more quickly than in the rest of the world. The EU has well and truly entered a phase of accelerated catching-up.

France accounts for a significant share of this European bright spell. For about 10 years, it has multiplied initiatives to take on the challenge of the digital revolution. Let us recall some of the stages. At the beginning of 2013, Bpifrance, the public investment bank, was created with the main mission of backing the development of start-ups and small and medium-sized and intermediate enterprises. The same year, the French Tech initiative was launched, aimed at stimulating the creation of ecosystems favourable to the hatching and rise of French start-ups in metropolitan France and in the world. In 2018, President Macron launched the Scale-Up initiative. In 2019, drawing inspiration from the acronyms of the Paris financial district, the French Tech Next 40, which became French Tech 40/120 in 2020, was created to promote this ecosystem by re-evaluating its classification every year to engender healthy competition.

In parallel, financing by project became established in the framework of future investment programmes, starting with the stimulus package and then with France 2030. For example, the ‘industrial start-up and deep tech’ strategy, endowed with 2.3 billion euros, supported the emergence of companies with a strong technological density.

The results were not slow in coming. Today, France accounts for, according to the INSEE statistics bureau, more than 1 million start-ups. The number of unicorns has gone from zero in 2014 to 31 in 2022; this was multiplied by 7.5 between 2016 and 2021, compared with 4.7 in Germany and 3.4 in the United Kingdom (7). French Tech only raised 2 billion euros in 2017: it jumped to 5.9 billion in 2020, then to 11.57 billion in 2021 (8) and 13.7 billion in 2022 (9). Financing by French players also progressed strongly: from 600 million euros invested in 2011 by some 30 French venture capital funds, this increased to 11 billion euros in 2021, granted by more than 100 funds. Fund-raising by French venture capitalists reached 3.6 billion euros in 2022, or more than double that of the previous years with the exception of 2021. We should finally note that these developments were accompanied by a cultural change: in 2018, 60% of 18 to 25 year-olds wanted to become entrepreneurs, against 13% in 2009.

Underscoring the Surge in Power

This encouraging rise in the power of European tech must still, however, continue and grow if we want the ecosystem of European start-ups to reach the level of that of the United States or China. This presupposes at the same time using all the American levers of opportunity, mobilising EU finance actors and deploying innovative and ambitious European public policies.

More Recourse to the American Stepping Stone

The United States remains the nerve centre of world innovation. The San Francisco Bay is an ecosystem without equal thanks to three aces: the number and excellence of people with talent, the number of big tech companies and the unrivalled sweep of available financing. Its venture capitalists hold a third of funds invested in the world (10) and the region is home to nearly 300 unicorns. Our European partners are actively pushing their national start-ups to settle there to acquire the state of mind which has forged the success of Silicon Valley, to gain access to its capital and to break through into the American market, which is still indispensable for becoming a world leader. Many incubators and accelerators – Y Combinator, Plug & Play, 500 Global, for example – contribute to this, easing the integration of European start-ups at the start of their growth into the Bay’s ecosystem.

France has developed specific services to accompany its own start-ups internationally, particularly in the United States. The agency in charge of internationalising the economy, Business France, each year puts into effect some 30 programmes deployed in nearly 30 countries to which more than 1,000 start-ups have access. The agency proposes three types of service – ignition, immersion and impact – that respond to their needs at each stage of their development. The youngest are guided to indispensable tech events after being actively prepared to optimise their presence and visibility.

More advanced start-ups benefit from French Tech Tours and French Tech Days which permit them to define their priority markets and to tune their conquest strategy. To more mature start-ups, the agency, together with Bpifrance, offers an intensive programme concentrating on their installation and quick commercial success in American, Chinese and, now, European markets. Since 2014, Impact USA, which became SaaS Lander in 2022, has ‘immersed’ more than 110 start-ups: 70% of them are implanted in the United States and they have raised more than $2 billion in funds. Among other examples, Mirakl achieved the status of unicorn, Jellyfish acquired Tradelab, and Vadesecure, the world N°3 in e-mail security, raised more than $80 million.

Some emblematic French start-ups such as Ivalua, Loft Orbital, Platform.sh or DNA Script, have moved to San Francisco Bay. Our presence is, however, still not at the level of the reputation acquired there by French Tech or of the recognition that our engineers, entrepreneurs and our innovations enjoy.

In addition, the Franco-American partnership is not just limited to our companies on the American market. It also aims to increase our collaboration with American actors directly on European soil with the aim of applying good practices developed in the United States. Several major Silicon Valley actors have made known their desire to deepen the links that tie them to France: Google X, the R&D arm of the group, would like to work with academic institutions of excellence in France; Plug & Play wants to host more French start-ups to ensure their growth within the local ecosystem; StartX, Stanford’s most important incubator, is ready to sign an agreement with France, envisaging a privileged access for our national start- ups; Xcelerator, the Berkeley incubator of blockchain technologies, aspires to meet French start-ups in its sector. There are a number of opportunities that France must seize while fleshing out its local institutional representation so as to start a dialogue with these actors and follow up on their offers of partnership.

Speeding up Construction of Tech Europe

The continuation of the boom in French Tech and other national Techs in the EU also requires the deployment of a high- performance European ecosystem whose interests would be better protected.

During the French presidency of the European Union, France and Germany proposed, on 8 February 2022, three concrete advances in this direction. They followed on from the Scale-Up initiative, launched in France by Emmanuel Macron in 2018, then extended to the European level in 2021. Scale-Up Europe brings together a group of more than 300 founders of start-ups and scale- ups, investors, researchers and big groups with the ambitious aim of creating more than 10 technological giants worth more than 100 billion euros inside the European Union between now and 2030.

Europe in effect lacks funds of sufficient scale and only invested in the venture capital universe late, at the end of the 1990s, well after the United States, in response to the financing needs of its start-ups in a period of exponential growth. According to a Dow Jones Private Equity study, pension funds bring in nearly 20% of the financing of American venture capitalists whereas in Europe they have difficulty reaching 2% (11). In consequence, European start- ups have to resort to financing from outside Europe, which often leads to their expatriation or their being bought out, and thus to a loss for the EU. As for late-stage funds which finance the acceleration of growth and international ambitions, there was just one in Europe in 2020, compared with 28 in the United States, leading to the first proposal, backed by 18 member States: the creation of a fund to finance the final development stages of scale-ups to promote the emergence of the European companies of world rank of tomorrow. This fund, called the European Tech Champions Initiative, will feed European risk-capital funds to increase their investment capacities. Its management will be entrusted to the European Investment Fund, a subsidiary of the European Investment Bank, which already plays a major role in the financing of French and European start-ups. This new European mechanism aims to help the creation of 10 to 20 European funds of more than 1 billion euros, focussing on the growth of unicorns and Tech champions. It already has 3.5 billion euros and will be topped up as the deployment of this initiative progresses.

The second advance aims to help the emergence of world- ranking European disruptive innovation companies. To this end, the European Innovation Council (12) was endowed with an increased project-finance support capacity with ceilings of investment that can exceed 15 million euros, and an EIC Scale Up 100 project was launched to select promising disruptive innovation companies to accompany them in their development.

Finally, the third advance consists of organising to attract more international talent to Europe. Many member States have already deployed measures to this end – tech visas especially – but the lack of visibility and coordination still impedes the mobility of talented individuals from abroad towards Europe and within Europe. That is why several European agencies and bodies in charge of attractivity have begun to ease administrative procedures and the arrival of foreign talent on European soil, notably by installing a single information point, European Tech Talent, in tandem with the European Start-Up Nations Alliance (ESNA).

Rediscovering Competitive Liberty

To all these welcome initiatives must still be added a larger consideration, that of the general competitive framework in which European companies are to develop. Their creation and their success require in effect not just financing and talent, but the capability of attracting a customer base. In fact, the existing big platforms, especially American, the GAFAM to give them their name, tend to make companies and consumers dependent on their services and therefore hinder competition by other firms. European competition regulation obviously applies to them, but sanctions often come very late and on an isolated basis. The Digital Markets Act of 14 September 2022, coming into force on 2 May, is designed to remedy the uncompetitive practices of these Internet giants and correct the imbalances caused by their domination of the European digital market. It will introduce loyal competition between digital actors, especially to favour small and medium companies and start-ups in the EU; it will also stimulate innovation, growth and competition on the digital market and strengthen freedom of choice for European consumers.

After the adoption of the DMA and the DSA (13), European authorities are now working on a Digital Governance Act (DGA) aiming to favour the European Union’s digital sovereignty. Complementary to the European regulation on the protection of data (GPDR), it aims to facilitate the secure sharing of data between different sectors of activity and between member States by creating a single European data market. This shared availability will allow the creation of new services and innovative products and, in consequence, the stimulation of European Tech entrepreneurship.