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French startups see stable funding as AI drives growth

France's startup funding remains stable in 2024, with AI driving 27% of investments despite challenges like lower U.K. investments and bankruptcies.

France’s tech ecosystem is resilient despite global challenges, with venture funding maintaining stability. Artificial intelligence (AI) startups primarily drive this. Alex Dewez, a partner at 20VC, has just released the much-anticipated State of the French Tech Ecosystem report, which provides an in-depth look at the country’s startup landscape.

This report follows Atomicoโ€™s State of European Tech, highlighting a slight drop in European startup funding from US$47 billion in 2023 to US$45 billion in 2024. While the decline seems minimal, itโ€™s a significant drop compared to the US$100 billion raised in 2022.

AI dominates French tech funding

In France, startups secured โ‚ฌ7.1 billion in venture funding in 2024, up slightly from โ‚ฌ6.8 billion in 2023 but far below the โ‚ฌ11.8 billion raised in 2022. According to alternative data from EY, venture funding in France may have dropped slightly year-on-year (โ‚ฌ7.8 billion in 2023 to โ‚ฌ7.6 billion in 2024). Despite these discrepancies, the overall message remains the same: the sector is steady, largely thanks to AI.

AI now represents 27% of all funding in French startups, with investment in the sector surging by 82% compared to 2023. This growth has offset an 11% decline in the financing for non-AI ventures. Startups like Poolside, which develops AI-powered software tools, and foundation model creator Mistral AI are among the key players driving this boom. Other notable AI firms include drug discovery companies Owkin and Aqemia and application developers PhotoRoom and Dust.

Paris ranks high, IPO market lags

By funding, France remains Europeโ€™s third-largest tech ecosystem, trailing the U.K. and Germany. Paris, however, secures its spot as the continentโ€™s second tech city, ahead of Berlin but behind London. The French capital is also home to 45 unicorns, including three newcomers in 2024: accounting platform Pennylane, business planning tool Pigment, and Poolside.

While several late-stage companies, such as Back Market, Dataiku, Doctolib, Qonto, and Content Square, are reportedly ready for IPOs, France remains hesitant about public listings. Most tech firms are considering listing in the U.S., though companies without an American customer base may struggle with this transition.

Challenges and future outlook

2024 has seen several high-profile bankruptcies, including Ynsect, Cubyn, Masteos, Luko, and Cityscoot, reflecting the more challenging macroeconomic environment. Despite these setbacks, the total exit value for French startups has held steady at around โ‚ฌ12 billion annually for the past three years, even as the number of exits dropped by 14% year-on-year.

However, declining U.K. investment in French startups could pose challenges for future growth. With fewer British funds participating, the long-term health of France’s startup ecosystem may face new tests.

Franceโ€™s tech landscape highlights both opportunities and challenges. AI is emerging as the star sector, driving growth and capturing the attention of global investors. Yet, economic pressures and reduced funding in other verticals suggest that diversification and adaptability will be crucial for the next wave of French startups.

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