France pledged to take on the role of world tech capital last week, as it hosted one of the EU's biggest startup events, Vivatech in Paris.
The country's president Emmanuel Macron made several announcements in a bid to secure the position of the country's startup ecosystem and to boost artificial intelligence (AI) investment in particular.
However, it might be an uphill battle, sector advisors said. The Cour des Comptes (Court of Accounts), France's supreme audit institution, said in April that the country ranked tenth out of more than 47 countries when it comes to AI and that public funding in the area is inefficient.
The main issue for the sector is that Meta |NASDAQ: META] and Nvidia’s [NASDAQ: NVDA] campuses in the Greater Paris have attracted many local engineers, making life harder for local entrepreneurs. “France benefits from the fact that it has a lot of technical experts in the space, which did not go unnoticed by American leaders,” according to Pierre Entremont, co-founder and partner at French venture capital (VC) firm Frst.
The brain drain means that France punches under its weight when it comes to AI. “The number of AI experts does not match the country’s potential," Entremont said, adding that local and international investors are looking at AI startups across France.
Paris-based artificial intelligence expert Mistral AI was able to secure USD 113m earlier this month – an impressive result for a month-old startup.
Meanwhile, Enchanted Tools, a manufacturer of AI-powered humanoid, has already secured around 75% of the EUR 50m targeted for its upcoming Series A, CEO and founder Jérôme Monceaux said on the sidelines of the Vivatech event in Paris, as reported.
Among the announcements at last week’s event, President Macron confirmed that France secured EUR 7bn from institutional investors as a first commitment on the path to raising up to EUR 40bn by 2026, primarily for deeptech and energy startups.
On the other hand, EUR 500m has been earmarked in order to spur the development of AI in France by establishing five to ten AI clusters in France. This is a relatively meagre sum, sector advisors said.
Although the investment in French AI is undeniably growing, the country has still a large gap to fill compared to large economies such as the US, China or the UK. In 2023, French AI startups received EUR 186m in investment in the year to date (YTD), more than twice the figure for YTD22, according to Mergermarket data.
However, during the same time period, EUR 3.67bn has been invested in the sector in the US, along with EUR 450m in China - a staggering gap France would struggle to close.
French AI entrepreneurs tend to turn towards American investors to fund their businesses. Mistral AI’s round was led by Silicon Valley VC Lightspeed Venture Partners, alongside local players, such as Bpifrance, the state-owned venture investment fund which injected EUR 50m.
AI businesses are particularly capex intensive and needing large funding amounts to finance the acquisition or rental of increasingly expensive and scarce graphics cards, pushes entrepreneurs to get in touch with international funds, Entremont said.
In addition to Mistral AI, two of the main players in the French AI market data science software platform Dataiku and healthcare start-up Owkin, Entremont said. Both companies have a strong foothold in the US, with Dataiku installing its headquarters in New York.
Dataiku has a score of six, according to Dealogic’s Likely VC Exit predictive algorithm.* Meanwhile, Owkin’s executive experience and IPO plans gives it a higher score of 26.
by Myriam Mariotte and Arezki Yaïche in Paris, with analytics by Santosh Shetty
*Based on a number of key industry, holding behaviour, and dealflow criteria, Dealogic’s next-generation platform assigns a Likely VC Exit score to each exit opportunity, with a higher score corresponding to a higher likelihood for a future transaction.
