Despite the current gloomy economic climate, job cuts in the technology sector and recovery from the COVID-19 pandemic, French start-ups are optimistic about the future, a new survey shows.
Almost 40 per cent of French start-up CEOs believe their revenue will at least double this year, according to the study, conducted by EY and France Digitale released on Tuesday.
French tech start-ups have long been a force to be reckoned with and come up just behind the United Kingdom and Germany in terms of funding. France also has 26 unicorns, companies valued at more than €1 billion, and aims to have 100 of them by 2030.
While French start-ups are showing much promise in these uncertain economic times, the study shows there are warning signs that may slow down growth.
What did the study find?
The survey questioned almost 600 French start-ups about their ecosystem over the last 10 years and their expectations for the future.
French tech showed its resilience after the COVID-19 pandemic. Between 2021 and 2020, companies said their revenue increased by 23 per cent, reaching €8 billion.
Fundraising, meanwhile, grew significantly in 2021, to €32 million compared to €18 million the year before.
“Basically, we have hyper-growth – the more we grow, the more we have growth. So that is an element that is very important in this part,” Franck Sebag, partner at EY France who is also on the France Digitale advisory board, told Euronews Next.
However, the study noted that the proportion of revenue generated abroad dipped slightly this year, to 31 per cent compared to 36 per cent last year.
One reason for this optimistic outlook, said Sebag, is because there is a trend toward start-ups becoming more targeted to the needs of consumers, in fields such as education or health tech.
There are “companies which can give answers both to purchasing power and also to a different consumption which is also respectful of the planet,” he said.
Going forward, the sectors he expects to thrive are: software as a service, deep tech, FinTech, blockchain and companies that are good for the planet.
Alongside being more targeted to consumer needs, start-ups may also be more optimistic because they are founded by young entrepreneurs.
“I think start-ups face the reality of the economy like any other business. It’s all of society today asking questions and wondering what will happen in the coming months,” Maya Noel, director of France Digitale, an association for French start-ups, told Euronews Next.
“The figures perhaps prove that we are faced with companies that are for the most part younger and correspond to the current needs of customers and consumers”.
Fears of a cash crunch
However, the future is not entirely bright. The study showed 71 per cent of respondents considered getting financing through bank loans.
It also demonstrated that multiple economic factors such as material price hikes and inflation highly impacted the start-ups’ cash runway, how long a company can last before it runs out of cash.
Just over 62 per cent of the start-ups declared their cash runway is shorter or equal to 12 months. This mainly concerns startups that generated less than €5 million in revenue.
What are the challenges for start-ups?
The study highlighted that once again, the main challenge is recruitment within France.
Around 75 per cent of French start-ups employ foreigners. However, among the more than 6,000 jobs created by the survey’s respondents, 87 per cent were hired in France.
Noel said recruitment is key for French start-ups to continue on their upward trajectory. To do so, she said training is crucial.
“You have to train people, even students from a young age from primary school or secondary and also continuing education for retraining for older citizens,” she said.
“What France can do and in Europe, in particular, is to allow the creation of these trainings and allow them to be created quickly”.
The second point, she added, is that start-ups need to be able to still be able to hire talent from abroad more easily, especially from the EU.
“Standardising in Europe is one of the challenges today for a developing company which decides to recruit from other European countries. The different administration is a real headache, which makes attracting talent harder”.
The survey showed that 2022 is going to create new opportunities for employees as 98 per cent of respondents planned to recruit within the coming year.
The most wanted profiles are sales, marketing and customer success roles, according to 44 per cent of respondents. The most difficult to find are the programmers and developers, according to 58 per cent of the respondents.
Weak points: diversity and cybersecurity
Gender diversity is a key focus area of improvement for start-ups, though there was a slight improvement as 14 per cent of CEOs questioned in the survey this year were women, compared to 11 per cent last year.
Additionally, 31 per cent of respondents said they are employing people aged over 55, and 21 per cent said they were employing people with a disability.
One of the technical challenges for start-ups that developed last year was cybersecurity.
Almost 40 per cent of the start-ups surveyed suffered from cyber attacks last year, a massive rise from 13 per cent in 2020.
Since then, about a third of the companies have implemented new cyber security protocols since the war in Ukraine started at the end of February.