Emmanuel Macron’s bid to create Silicon Valley on the Seine

Digital Politics is a column about the global intersection of technology and the world of politics.

France is banking on a secret weapon to take on Silicon Valley’s big beasts — its government.

From state-backed venture capital funding to an overhaul of the country’s notoriously complicated labor laws, France wants to turn all the punchlines you’ve heard about doing business in France (as well as those over-used — and false — clichés of wine-filled lunches and months-long summer vacations) into an asset for the country’s tech industry.

Here’s the thing: It’s starting to work.

So far this year, French venture funds raised more cash (€2 billion and counting) compared to their British or German counterparts. The likes of Facebook and Cisco also plowed money into local research teams focused on complex areas like artificial intelligence. And Emmanuel Macron, the country’s 39-year-old president, won plaudits for promoting startups — in English! — as a solution to the country’s sluggish economic growth and double-digital rates of youth unemployment.

Central to France’s digital resurgence is money — lots and lots of state-backed money.

“It’s the first time in our history that a president has focused on startups,” said Nicolas Brusson, co-founder of BlaBlaCar, a Paris-based long-distance car-sharing service with operations in almost 20 countries worldwide and whose €1.4 billion valuation makes it one of France’s largest — and globally focused — startups.

“Macron has this aura globally,” he added. “Compared to Brexit or Trump, it’s a breath of fresh air.”

To the avid free-market and self-reliant crowd that still dominates much of the global tech world, this close state involvement sounds like high treason.

No government can match what the private sector can offer, many of the digital great-and-the-good claim. And hasn’t France learned from its costly past mistakes (Case in point: Quaero, the failed Franco-German attempt to create a European rival to Google.) when trying to harness the power of the state to combat the rising tide of American tech giants?

This blind deference to the invisible hand of the market, though, is misguided, and assumes that all tech hubs from Paris to Prague must follow the same playbook that made Silicon Valley the de facto global capital for all things digital.

With few local pension funds and other cash-rich investors willing to write big checks to fund startups, it’s not surprising that France, in part, turned to its own coffers to fill the void where private capital was lacking. Only French lawmakers — not hoodie-wearing entrepreneurs — can even contemplate fixing the country’s decades-old labor issues that still make it around 50 percent more expensive, on average, to hire programmers in France than in Britain.

Many U.S. techies readily scoff at France’s top-down strategy to build the country’s tech sector. But they also are quick to admire, begrudgingly, how China harnesses its own government-backed programs (along with tight restrictions on how foreign tech companies can operate) to foster local startups that are now some of the world’s largest digital players. Others conveniently forget the founding role that the U.S. government played in the birth of America’s own dominant tech industry, including the creation of the internet.

“I thought it would take a generation to change the French mentality,” said Romain Lavault, a partner at Partech Ventures, a Paris-based investment fund. “But people’s state of mind about tech has changed beyond recognition.”

Central to France’s digital resurgence is money — lots and lots of state-backed money.

Since 2013, the largest investor in both direct startup investments and funding for local venture funds has been BPI France, a government-owned investment bank that spent more than €4 billion over the last four years to jumpstart the country’s tech community. That’s roughly 20 percent of the entire venture market in France, according to CBInsights, a data provider.

Paul-François Fournier, head of BPI’s tech investment unit, said the goal wasn’t about creating French solutions for French problems.

Along with investing in local startups and funds, he said, the state-backed bank also poured money into pan-European and U.S. venture capital firms, partly to gain know-how about how the wider tech world operates and to entice such funders to try their hand in France. The average size of French venture funds that BPI now backs has also doubled to €160 million since 2013 so that these local investors can compete on a worldwide stage.

So-called unicorns, or digital startups valued at more than $1 billion, still remain a rare commodity in the French tech ecosystem.

“Three years ago, a startup was seen as successful if it was big in France,” Fournier said. “Now, we want globally successful startups.”

Other government initiatives also are starting to take root.

A new visa program for techies contrasts with the mounting difficulty in securing so-called H-1B visas in the U.S. French labor reforms that start January 1 will make it easier to hire and fire workers. And entrepreneurs and venture capitalists alike welcomed a proposed flat-rate 30 percent tax on capital gains that will reduce how much they hand over to the state if tech bets eventually pay off.

Still, there are some bumps in the road before Paris becomes Silicon Valley on the Seine.

Macron is eager to court the country’s newly confident tech community. But he is also leading an EU-wide charge to force digital companies to pay more tax across the bloc. These efforts are aimed at West Coast tech giants (known locally as GAFA, or Google, Amazon, Facebook and Apple), but any tax increases will likely affect smaller startups too.

Macron speaks to University Institute of Technology high school students during his presidential campaign | Bertrand Langlois/AFP via Getty Images

The government’s central role in tech also could quickly morph into market interference — never a good idea when the online world changes faster than you can swipe right on a smartphone. A prime example: The French government blocked the sale of DailyMotion, a French video-streaming startup, in 2013 to Yahoo, only to then allow Vivendi, the French media giant, to buy it two years later, for a lower price.

All of the recent state-sponsored support for French tech will also be for naught if local startups and venture capitalists cannot do the one thing that’s required of them: create successful global tech companies.

So-called unicorns, or digital startups valued at more than $1 billion, still remain a rare commodity in the French tech ecosystem. And returns for French funds’ investing in startups — figures that average roughly 6.3 percent over the last three years, according to a local trade association — are still about half of those for their British counterparts over the same period, based on figures from a U.K. industry group.

That’s where the rubber will have to meet the road for France’s government-led take on tech. State-backed programs and funding can only take you so far when fighting for position in the global digital race. At some point, the private sector must also play its part.

Mark Scott is chief technology correspondent at POLITICO.

Source: Politico