Could France Lead the EU’s Digital Comeback?

After starting the year at a five-year low, France appears poised to lead venture investment in the EU out of its slump. The country has emerged as a rising star in Europe’s vibrant financial technology (FinTech) sector, attracting a surge of venture capital that is driving the growth of startups aiming to disrupt traditional banking.

A significant boost came with Microsoft’s $4 billion investment announced on May 14. Coupled with a series of public-private partnerships and investment-friendly regulations, France has become a formidable FinTech destination after years of lagging behind. Noted economist David Evans, writing for PYMNTS on April 18, highlighted Europe’s struggle in producing leading digital businesses over the past three decades. He noted that of the 69 digital businesses worth $10 billion or more as of December 2023, Europe, which accounts for 21% of global GDP, had only five: Spotify, Adyen, Revolut, Adevinta, and Checkout.com. None of these are based in Germany, France, Spain, or Italy, the four largest EU economies.

In 2023, the French FinTech sector saw a notable shift in deal activity and funding. The year recorded 147 deals, a 12% decrease compared to 2022, which is relatively strong compared to the European average, which saw a 43% drop. French FinTech companies secured $1 billion in funding, reflecting a significant 79% decline from the previous year. Despite this, the average deal size in France remained substantial at $6.8 million, though it represents a 77% reduction, indicating fewer large deals.

Ledger, a company providing security and infrastructure solutions for digital assets, was the largest French FinTech deal in 2023, raising $108 million to extend their Series C funding round, maintaining the company’s valuation at €1.3 billion. Led by Chairman and CEO Pascal Gauthier, Ledger is a global platform for digital assets and Web3, with over 6 million devices sold to consumers in 200 countries, securing 20% of the world’s crypto assets.

This FinTech surge aligns with efforts by President Emmanuel Macron’s government to enhance the startup scene and attract tech talent and capital. Since launching the La French Tech initiative in 2013, France has aimed to cut red tape, encourage entrepreneurship, and promote itself as a business-friendly hub.

According to Le Monde, the French government reported benefiting from 1,815 international investment projects in 2023, which are expected to maintain 1,391 jobs and create 57,863 new positions over the next three years, surpassing 2022 figures. Reforms to reduce labor costs, cut corporate tax, and introduce a “green industry tax credit” are likely attracting investors.

Microsoft’s largest-ever investment in France, announced on May 14, involves €4 billion to expand its cloud and AI infrastructure, adding up to 25,000 advanced GPUs by 2025. Microsoft will expand its data center footprint in Paris, Marseille, and build a new campus in Mulhouse Alsace Agglomération.

“With this major project, the Grand Est region is making Alsace a benchmark region for artificial intelligence in France and Europe,” said Franck Leroy, President of the Conseil régional du Grand-Est. Microsoft also commits to upskilling 1 million people in AI by 2027, partnering with various institutions to launch training programs aimed at building AI fluency and supporting business transformation.

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Additionally, Microsoft aims to accelerate 2,500 French startups with AI support through its new Microsoft GenAI Studio program. This initiative offers AI expertise, cloud credits, and collaboration opportunities, including a tailored 4-month program at STATION F and a nationwide tour to connect with regional players.

In 2019, France implemented significant regulatory changes for digital assets and initial coin offerings (ICOs), including defining tokens as digital representations of securities and introducing a framework for a secondary market with digital asset service providers. These regulations reflect France’s commitment to fostering a comprehensive regulatory environment for digital assets and ICOs.

Brexit has also played to France’s advantage, prompting some FinTech firms and talent to shift from London. Bruno Le Maire, the Minister of the Economy, stated his objective to leverage Brexit’s momentum to attract more jobs and investment inflows. Since 2021, Paris has seen over 5,500 new positions in banking and finance, with major financial institutions establishing eurozone operations in the French capital. Stéphane Boujnah, CEO of Euronext, noted that while Paris may not yet rival London, its growth is notable compared to its previous status.

One high-profile success is Lydia, a payments app popular among French Gen Z and millennials. Backed by Accel and Tencent, Lydia is investing €100 million to expand its digital banking services through a new app, Sumeria. Despite this investment, cofounder Cyril Chiche expects the company to achieve profitability in 2023.

Other notable French FinTech deals include Qonto’s €486 million raise in 2022, valuing the neobank at €4.4 billion, along with significant rounds for Spendesk, Bleckwen, and Fintecture.

Source: pymnts.com