PARIS France's corporate startup scene is gaining traction against the backdrop of booming investments by venture capital funds and high expectations for a business friendly government under new President Emmanuel Macron.
Bpifrance, the country's state investment bank, has led the effort over the past five years, acting as a catalyst for the burgeoning industry and a go-between for large cash-rich corporations and young entrepreneurs in need of funds to launch their business.
It has in effect become in the country's number one venture capital fund, having injected 191 million euros in 53 startup companies last year.
This taxpayer financing is 13 percent higher than the previous year and Bpifrance is adding 400 million euros to its so-called Large Venture fund, with individual investments of 10 million euros or more, bringing the total up to 1 billion euros ($1.12 billion), chief executive officer Nicolas Dufourcq told Reuters.
"The tide has been turning in our favour for about year now," Dufourcq said in an interview ahead the opening of the French capital's second technology conference, dubbed Viva Tech, on Thursday.
"It is as if the French Tech's boss had been elected as the new president," he said, referring to an initiative led by the former government to promote new online and data-driven French companies.
Since 2012, notable investments by Bpifrance in venture capital have included biopharmaceutical company DBV Technologies, online and mobile booking platform Doctolib, the developer of a wireless low-energy network for connected objects Sigfox, and the maker of high-tech audio devices Devialet.
Foreign investors began considering France as potentially lucrative new turf for disruptive companies about a year ago, Dufourcq and industry specialists say, even before independent centrist politician Macron made his candidacy official.
Generous tax incentives for companies' research and development spending, renowned engineering and mathematical schools and private initiatives, such as the upcoming mega-campus for startups, Station F in Paris, funded by billionaire Xavier Niel, are some elements that explaining the trend.
"Whether it be Britain, Germany or Nordic countries, there's a clear interest for France," said Martin Mignot, a partner at Index Ventures, which invested in two of the most successful former startups, Europe's biggest car-sharing company Blablacar and Nasdaq-listed Criteo which provides web advertising services.
"All funds are starting to have one or two French or Francophile people that spend their time reviewing the French market. And that's clearly new," he said.
Estimates differ between research companies, but all show that France is catching up with Germany and Britain, the two leading startup havens in Europe, in number of deals and total amounts invested.
Venture capitalists invested in 590 French startups in 2016, putting the country ahead of Britain (520 deals) and Germany (380), according to research firm Tech.eu.
It was a record year with a total of 874 million euros invested in the venture capital in France, up 15 percent from 2015, according to the industry lobby Afic. This remains below Germany, with investments of 937 million.
Still, over the first three months of this year, Paris saw 41 venture capital deals for a total value of 235 million euros, compared with 39 deals totalling 210 million euros, according to PitchBook, a data provider.
The gap between the two countries highlights the relatively smaller size of investment tickets in France, underscoring the need for larger venture capital funds to help promising startups going international, Dufourcq said.
For instance, London-based Vitruvian Partners invested 58 million euros in January in French luxury resale store Vestiaire Collective to support its growth.
Private-equity funds such as Partech, Isai have developed their own growth equity funds with larger investment tickets.
New venture capital funds were created lately in France, such as Korelya Capital, founded by former digital economy minister Fleur Pellerin, and Daphni.
Over the last few years, energy companies Total and Engie as well as insurer AXA have all created their own venture vehicles.
The new French government, which polls predict will win a large majority in the final round of the parliamentary elections on Sunday, is likely to push reforms that may further support spending on startups.
Macron's manifesto included pro-business measures such as cutting corporate tax to 25 percent from 33.3 percent, shifting the wealth tax to property only, which would exempt the ownership of company stakes, and introducing a flat 30 percent tax on capital gains, from up to 50 percent currently.
The new president also said before he won the presidency on May 7 that he wanted privatisations to help fund a 10 billion euro government drive to boost industry and innovation.
"People need to know that if they come to France, they can make a fortune and won't get fleeced," Dufourcq said.
But tax reforms alone may not be enough for Paris to beat London on its turf.
"We shouldn't delude ourselves, London still has a considerable advantage," Mignot said, citing its cosmopolitan culture and tax credits for investing in startups.
"But this advantage was built over 15 years. There's no reason Paris can't achieve it."
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(Additional reporting by MichelRose; editing by Clive McKeef)