Startup Republic: How France reinvented itself for the 21st century by wooing entrepreneurs to Paris

This article was originally published as a TechRepublic cover story.

The elegant Hôtel de Ville--the center of politics in Paris for nearly 700 years--has witnessed plenty of fancy receptions. But tonight's event is among the more unusual that the opulent Renaissance city hall has hosted.

In its main gallery, a gloriously over-the-top gilded replica of the Hall of Mirrors at Versailles, robots whizz past offering energy drinks. Above soars a ceiling crammed with gilt decoration and paintings, separated by the words liberté, égalité, fraternité, plus half a dozen blazing chandeliers. The crowd--with as many dressed in hoodies and trainers as there are in suits and ties--are munching on crickets along with more standard canapés.

The event is the kickoff for a big tech conference happening in Paris, and the high point of the city's ongoing attempt to attract startups to the French capital. It's the must-have ticket if you're involved in tech in Paris, and it's crammed full.

Anne Hidalgo, the mayor of Paris, tells the crowd that they should think of Paris as a "real, living lab," a place where companies big and small can try out new ideas.

As such, the reception is, in microcosm, a vision of what Paris wants to do: take the historic city and remake it, from within, using technology. And if that weren't enough, its leaders are already talking about rethinking the way the whole country operates in the same way. But, whether France can truly become the startup heart of Europe remains an open question.

Changing course

France has long been seen as rather inward-looking and contemptuous of the broader technology scene. This is the country that has its own word for email--courrier électronique--and developed its own version of the web, Minitel, which was only retired in 2012.

However, in recent years it has been attempting to change course, trying to persuade international startups to think of Paris when setting up international offices, and also to dissuade French entrepreneurs from moving to London or San Francisco.

As a result, in the courtyards behind Baron Haussmann's elegant grey stone boulevards there is a revolution taking place, as startup incubators and maker spaces appear across the city and fill with eager young companies.

Boosters of the French scene point to some impressive stats. There are now around 9,400 startups in the country, while venture capital investment increased to over €2.2bn in 2016, putting France behind only the UK in terms of the European startup scene.

France argues it has plenty of the ingredients necessary for the startup alchemy to take place. There are more than 120 venture capitalists operating out of Paris, while 38,000 engineers graduate in France every year--and they're cheap too. Software engineering salaries can be half of those in Silicon Valley (which is, of course, why so many French coders head to the US).

The government has also gone out of its way to offer research tax credits, covering up to 30 percent of R&D expenditure (up to €100m). And it could be that momentum is building behind the French tech scene at the right time, just as France starts to look outwards.

Across the English Channel, the UK--the traditional tech startup epicenter of Europe--is preparing to leave the European Union (EU), potentially giving Paris an opportunity to persuade at least some startups to choose an office by the Seine over views of the Thames. Paris is 75 minutes to London and 100 minutes to Berlin, so a neat middle point for some.

One example of French efforts to woo tech entrepreneurs is a joint tech industry and government program called WonderLeon, a reference to an old French TV ad for pasta that it hopes expats will recall from their childhood. Its goal is to persuade tech workers overseas to return and work in France.

"What I'm seeing right now is that France is starting to look like what I saw in London 10 or 12 years ago. There's a lot of evolution. We're on a good path," said Jean-Michel Petit, CEO of food startup VizEat, when speaking at the launch of the WonderLeon effort, which TechRepublic attended in Paris in 2017.

"People have in mind that in France things should be driven by the government, [but] we're no longer in the 1970s," said Petit. "It's about an ecosystem and taking initiative."

Long-time French entrepreneurs agree that change is in the air. Later in the day, speaking in the company's luxurious showroom surrounded by its high-end Phantom speakers, Quentin Sannié, CEO of Devialet, said when the company was set up 10 years ago, the atmosphere was very different.

"The environment, the way entrepreneurs are considered in Paris, the way entrepreneurs are working together to develop the global business, are really more efficient and more exciting than in the past," said Sannié. "What we're doing is also demonstrating to the market that it's possible to build this kind of business in France, and you can be the leader of an industry coming from France."

And Rafi Haladjian, CEO of smart sensor company Sen.se, also sees the change. "I have created more than a dozen startups in France since the '80s, before the word 'startup' was used in France," he said.

"We used to be very few, making startups in France. Since the mid-2000s, we have seen a new generation of entrepreneurs. It is really a generational thing with youngsters coming out of school and not willing to go the regular way, of going into big companies and big corporations and starting things," said Haladjian.

"It's a big change in mindset, and I'm not sure what triggered that in the first place but I believe the storytelling and myths of startups that came from Silicon Valley created a new startup romanticism."

SEE: How the 'PayPal Mafia' redefined success in Silicon Valley (TechRepublic cover story)

But while the founders might be motivated by romantic visions, France is also turning to startups out of necessity. While the French generally have a good standard of living, youth unemployment remains stubbornly high, in part thanks to strong labour laws that make it relatively hard and expensive to dismiss staff, leaving some companies reluctant to take on new workers, all of which hurts growth.

Meanwhile, young people who do manage to get a job often find themselves stuck in low-level roles in extremely hierarchical organizations with little prospect of advancement or of making a significant difference. Several startup entrepreneurs mentioned their frustration with a lack of career options in big businesses as among their reasons for striking out alone.

France's reputation for having a stultifying bureaucracy and high taxes has also made it hard for companies to attract outside talent. In one survey, 80 percent of companies said it was hard to recruit overseas workers with pay rates, laws, and government policies all getting the blame.

A new wave of fast-growing, young companies willing to take risks and hire young people could provide a much-needed shot in the arm for the country, and give some of those stuffy corporations a bit of competition.

Plus, there is a recognition that the government can no longer create new jobs.

As a result, local and central government, venture capitalists, and even wealthy individuals are each trying to fix different parts of the tech ecosystem in France.

École 42

In one Paris suburb north of the city, there's a new college that aims to use unconventional learning methods to create the next generation of coders.

The concrete walls covered in street art make you think you are in an art school until you see the rows of gleaming PCs and servers.

Although it is a private school, not state-run, it doesn't charge any fees. It also doesn't have any teachers, nor does it hand out certificates at the end of the course. It is open to its 3,000 students 24 hours a day, and is usually busiest after midnight.

The team behind the school, École 42, argues that most education is out of sync with what is actually happening in society and in the workplace.

SEE: Why free university '42' breaks all the rules for educating engineers, and is coming to the US (TechRepublic)

"Companies ask for collaboration and diversity, and unfortunately schools are still trying to clone students. We think that's not relevant anymore," said Olivier Crouzet, head of pedagogy at École 42.

Wearing its geek credentials with pride, the school chose a name that is a reference to the answer to the life, the universe, and everything from Douglas Adams' The Hitchhiker's Guide to the Galaxy.

The school's creators say drastic measures are necessary, with Europe short of one million IT professionals.

Students (the school only takes those aged up to 30 years) who pass the first wave of online tests are asked to come to the school for a rigorous first month, known as la piscine--the swimming pool--because they are thrown in at the deep end. Some have never coded before they arrive.

The École 42 curriculum is based around peer learning. There are no lectures. Instead, students follow a path through software development projects and challenges at their own pace. It frames study as a series of quests and achievements, deliberately using the language of gaming so they don't feel too disheartened if they fail the first few times--a particular problem in France, where students suffer from "failure stigmatization," said Crouzet. If students see their studies as a video game, it's natural to try a level and then try again.

Traditional teaching and learning is irrelevant today, said Crouzet, so the school works to develop what it considers to be more important skills like searching for information, filtering it, and using it to create projects with other students. This is a different model, Crouzet argues, because the students need to engage with other students to solve the problems (and get their grades, as projects are peer reviewed).

"It's a huge change for students because collaboration in public education is called cheating, so it's very new for them," he joked.

Despite the lack of teaching staff, École 42 is a hive of studious activity. There seems to be little of the lounging around that you might associate with student life. Everyone here looks to be working extremely hard on their projects. We visited early in the day (at least for students) around 11:00 am, so there were only about 200 working. That number swelled to 500 or more later as the night owls arrived.

Some students take three years to work through the curriculum, some do it in half that time, while some take five years. So far the school seems to be showing results, with each student getting an average of two job or internship offers, and the École 42 model has also been exported to other countries and even Silicon Valley.

The school is funded by French entrepreneur Xavier Niel. It cost around €20m to set up and another €5m to €7m to run per year.

"The goal was to help my country," he said simply when asked about his motivation. "You need something else?"

Station F

École 42 is not Niel's only investment aimed at boosting the French tech ecosystem. On the other side of town is an even bigger project, Station F.

Over the sounds of drills and saws in the last few days before it opened in the summer of 2017, we were given a tour of the vast building, a 1929 rail freight station connected to Gare d'Austerlitz a few minutes away.

Niel bought the station in 2014 with the intention of building the biggest startup campus in the world. It's a vast, vaulted concrete space of 34,000 square meters with room for 3,000 desks, restaurants, meeting rooms, and more.

Rachel Vanier, communications director at Station F, said Europe has a ton of startups, a ton of incubators, and a ton of VCs.

"But unfortunately the ecosystem is pretty scattered, so [Niel] wanted to build this huge place where all of the ecosystem could be gathered," said Vanier, "and that would be a big symbol to the rest of the world that here in Paris we have startups from everywhere. It's a very rich and dynamic entrepreneurial ecosystem."

The idea is that Station F is to resemble a US university campus with everything from office and event spaces to a fabrication lab for building prototypes.

There are also plans for a three-tower 100-apartment housing extension, so that up to 600 entrepreneurs can live within 10 minutes of Station F itself. As well as early-stage companies, the site will house startup programmes and accelerators to help small companies gain access to additional funding and advice. Station F also has its own in-house programme called Founders Programme with room for 200 startups.

The entire project has cost €250m, and is intended to only break even. Startups are charged a (reasonable for Paris) €195 per desk per month and only have to stay three months. Station F said it has attracted interest from international startups keen to have a toehold in the EU.

"This is the biggest startup campus in the world," said Vanier. "There is no other place where you can find 1,000 startups, a whole startup ecosystem, under the same roof--a very big roof in a historical monument, that is 100 percent privately funded."

SEE: Will Brexit let Paris overtake London as Europe's Silicon Valley? (ZDNet)

Marwan Elfitesse, startup relations director at Station F, said the idea is startups will mentor each other.

"It will rely a lot on collective intelligence. When you gather 200 startups on the same spot, early stage, all in tech, it will be a great way to push a lot of synergies," said Elfitesse. "So let's say you are a 3D printing startup; you can meet an AI startup or a biotech startup, and you can have a lot to learn from each other. Ninety percent of entrepreneurs' challenges can be solved by other entrepreneurs."

Download this article as a PDF (free registration required).

The big money

When French startups get past that first stage of life with just two or three founders, the red tape begins to wrap itself around them.

For example, small companies looking for office space often have to sign a three-year contract--a big ask for an early-stage business that might not survive more than a few months, or may grow rapidly beyond the space they have committed to.

What often happens as a result is that small companies end up taking on a much bigger office space than needed and then subleasing to smaller startups, a headache that they don't especially need. Meanwhile, other startups rent small spaces and then don't have enough space to grow.

To overcome this challenge, venture capital investor Partech Ventures opened its own startup space called Partech Shaker in the north of Paris, in the former head office of classic French newspaper Le Figaro, with 270 desks and 500 square metres of shared space for early-stage businesses.

It doesn't hurt that the seven-story building, complete with a tiny lift that is apparently standard in all older French offices, also has a roof terrace with a stunning view over the city.

"We took the lease of the building to basically play Tetris," joked Romain Lavault, a general partner at Partech Ventures. It's a reference to how the startups in the building are shuffled around to make room for new entrants.

One big factor in favour of Paris, he argues, is that it is a hotspot for offices of Fortune 500 companies, many of which are now keen to get involved with the startup ecosystem. For big businesses it's not just about buying companies, it's also about access to the best brains, he argues.

"In my time, most of my class would go to work in banking or consulting and that's it. Now if you are a top student of the class, you want to be an entrepreneur, you want to create your own job, and so that had become a problem for corporates--they can't recruit anymore," said Lavault. "That's also why we see these corporates getting closer and closer to startups, because they realize this is the only way to acquire talent."

And while the UK still has the edge in terms of total VC investment in startups, France is ahead on the number of deals, he said. "This is the momentum that is being built up in the French ecosystem right now," said Lavault.

In particular he points to large French companies being willing to spend serious money to buy startups, whereas in the past only US businesses were prepared to make those big bets.

"There is really something going on with the French ecosystem, and for the first time we see French corporates writing checks of several hundred million euros to acquire startups. That is an early sign of something changing in the M&A market," he said. That scale of investment and confidence is the key to building a startup ecosystem in Paris that has a similar character to Silicon Valley.

One large company that is trying to work more closely with startups is luxury brands specialist LVMH, which has set up an innovation lab inside the headquarters of Moët Hennessy. Over a glass of champagne, Damien Granet, innovation manager at the LVMH Lab 78, explains the approach the wines and spirits company has taken, which is not to build an incubator or accelerator, but to create a way for small businesses to work with the different parts of the business and to be that first, vital, big client.

"We are aiming to cover the whole value chain from the ground to the glass," he said. The lab has already worked with more than 30 startups and reviews 15 to 20 projects a quarter. Projects so far include a robotic cocktail maker, an interactive table, and SmartPixels, a technology which allows the projection of video onto 3D shapes, like a bottle, to showcase different brands.

The drinks company doesn't take equity in the startup but instead will finance a project, and what they develop together is exclusive to Moet Hennessy for a period of between six and 24 months.

"SmartPixels is interesting because it is the startup that has gone down the whole process of the lab [through] to the prototype to the implementation," he said. The technology allows different lifelike images to be displayed on a physical object.

"This is augmented reality in projection," explained Samuel Burlac, head of business development at SmartPixels. "It's the exact same technology as virtual and augmented reality, but you don't need to wear anything or look through a screen." SmartPixels worked with the lab to create a display which projected moving images onto champagne bottles.

"They trusted us. It was our first real project. [And] the lab really collaborated with us," he said.

French Tech Ticket

Another key player is the French government, which has been pouring money into an effort to attract young businesses to France and encouraging investment where it is needed.

One of this drive's goals is creating an environment that will attract startup founders. Paris has worked to encourage different incubators, accelerators, and maker spaces to set up in the city.

"The Paris strategy was to create places that are very differentiated and diverse in terms of innovation strategy," said Paris deputy mayor Jean-Louis Missika.

This strategy, he said, has created a virtuous cycle with private investment following where public money had started. "Now we don't put in one euro," he said. The city is also giving thought to how to protect some of its much-loved features, like its famous boutiques and craftsmanship, by introducing them to ecommerce or connecting them with maker labs.

Quality of life is another consideration. "Paris is Paris, you know. The city is very attractive. I think for the 21st century it is a question of quality of life, not a question of business. The creative classes are interested in how they will live in the city where they are creating their new business," Missika said.

Fighting pollution and opening up the riverside is part of the same strategy. "This is the way we try to make this city friendly to the innovation people," he said.

Certainly the city is filling with options for startups, many of which look very much like the offices you'll find in London's Old Street or San Francisco's SoMa. I even spotted some outdoor workout equipment near the offices of one startup, although old habits die hard and Parisians seemed to be mostly using the apparatus as a handy perch for smoking, rather than for impromptu exercise.

Perhaps more importantly for startups, the French government is willing to spend money on them.

For example, the French Tech Ticket programme offers startup founding teams of two or three English-speaking foreigners up to €45,000 a year plus 12 months in an incubator if they will set up in France.

Lucas Lovell, managing director of Hopstay, which allows hotels to give visitors personalised tips to help them enjoy their visit more, moved from Australia to be part of the programme. After finding out the team had been accepted into the programme, they had five weeks to get to Paris.

"[That] didn't really leave much time to write 'pros and cons' lists or deliberate for a while. That was tough, but we took a punt and haven't looked back," he said. "The fact that it was the other side of the world in one of the world's most exciting cities is something we loved about it."

The three team members were all 24 to 25 years old, straight out of university, or early on in their careers, so it was easier to make the jump. All of them spoke a bit of French: two had studied it at university, and the other had lived in France when he was young.

"To be honest with you, there was never any real doubt. Of course it was scary and this year hasn't been without its troubles and bouts of homesickness, but it's thrilling," said Lovell. "It was an amazing opportunity to grow both personally and professionally, and we were all on board with that from the start."

The offer from the programme was hard to resist. "It was basically a relocation package on a silver platter. More importantly, Paris is one of the most visited cities in the world," Lovell said. "As a travel tech company, that tourism infrastructure and ecosystem is really attractive. Potential clients, partners, consumers, networks, and tourism-savvy investors on your doorstep is handy. We were also attracted to the Paris&Co Welcome City Lab as a tourism-specific incubation program."

Lovell said he'd been surprised by the willingness of medium and large companies to work with startups, and said the plan is now to commit to Paris long term as the best place to grow the business.

"The government is excited, the investors are excited, and the startups are excited," he said. "Leaders here have realised that a healthy ecosystem collaborates on every level. So many startups are operating at the leading edge of technology. It's made us as a team reposition our business to be slightly ahead of the curve, rather than slightly behind it. That's been a big focus for us this year, and it's a result of so many neighbouring startups being at the forefront."

Download this article as a PDF (free registration required).

The surprise visitor

The ambitions for the French tech scene go beyond increasing the number of entrepreneurs in Paris. The government wants to align itself with this new wave, too. At the VivaTech conference, there were plenty of charming robots to chat to and dodge, autonomous vehicles (both buses and boats), and companies eager to show off their technology. And one unscheduled visitor--the President of France, Emmanuel Macron. His speech showed that the new administration is putting tech front and centre.

The government, Macron said, should facilitate success, not regulate it. "We're at the beginning of a new momentum. We're at the beginning of a new wave, and this is the place to be, to invest. I want France to be a startup nation," he said--a nation that thinks and moves like a startup.

"Because the challenges we face are global, we need to think global. We want the pioneers, the innovators, the entrepreneurs of the whole world to come to France and work with us," said Macron.

SEE: France launches tech visa to bring more billion-dollar companies to the country (TechRepublic)

It's ambitious talk, and it will take much more than that to reshape the French economy. But it's also well timed, as the country's biggest rival in the European tech scene--the UK--gets ready for its Brexit adventure. Indeed, while the French people I spoke to were mostly polite about Brexit, they all see the distractions and complications around the UK's exit from the EU as a major opportunity for the French tech scene to flourish.

There are still challenges ahead for French startups. The ecosystem is undoubtedly small compared to the US, and plans to overhaul the broader economy are far from guaranteed to succeed. But perhaps the work done in Paris so far, to refit the ancient city for the 21st century without removing its heart, will provide a blueprint.

Also see:

• France launches tech visa to bring more billion-dollar companies to the country (TechRepublic)
• Why tech startups are thriving outside Silicon Valley (TechRepublic)
• Will Brexit let Paris overtake London as Europe's Silicon Valley? (ZDNet)
• Why are there so few women in French tech? The causes and the cures (ZDNet)
• Forget Silicon Valley: Building a startup in Romania may make more sense (ZDNet)