September 26, 2023

Who's winning the tech tussle between Germany and France?

France and Germany are both vying to be the startup hotspot of choice for founders and VCs — but who's winning?

When France leapfrogged Germany last year to become Europe’s second best-funded tech ecosystem, it was the first time in years the country had sat above its neighbour. 

As the two biggest ecosystems outside of the UK, the countries have a history of sparring for second place. They also have similar aims to make their respective countries the startup hub of Europe.

But on the face of it, that’s where they differ. Founders and investors say Germany’s ambitions are being held back by slow government action and bureaucracy. In France, meanwhile, the government is seemingly hellbent on pursuing top spot. 


“In the last few years, the French ecosystem has redoubled its efforts to catch up,” says Bruno Raillard, cofounder of French VC firm Frst VC. “We came a very, very long way, but today we have nothing to envy of other historical hubs in Europe.”

So how do the two ecosystems actually stack up against each other?

Government support

The growth of the French tech ecosystem is in part a story of government action. Just a few months after he was elected in 2017, French president Emmanuel Macron was already talking about making France the next “startup nation” and addressing the need to ease the fiscal and administrative barriers to entrepreneurship. 

There are now 13k startups in France — up nearly 40% compared to 2016 — and the country is in a very different place from 10 years ago.

Since then, the country’s public sector investment bank Bpifrance has pumped billions into the tech sector. In 2022 alone, the bank poured €1.6bn into French tech startups and venture funds.

The government also launched “France 2030”, a €54bn national investment plan to support the climate and technology transitions — much of which is dedicated to supporting the growth of innovative companies.

“Macron made himself the president of French tech, and it worked,” says Alexis du Peloux, a partner at Franco-German VC XAnge.

Investors too are getting support. In 2020, the government launched the Tibi Initiative, which coordinated a €6bn envelope gathered from institutional investors to support investment funds. Tibi 2 followed this year with an additional €7bn.

Like everywhere else in Europe, startups in France are feeling the hit of the current downturn. But the consensus among VCs and founders is that government support has been successful in creating a resilient startup ecosystem

In Germany, the government hasn’t always been on the front foot when it comes to supporting startups, though changes are being made — slowly. 

Last summer, economics minister Robert Habeck unveiled 130 startup projects the government wanted to complete by this year, which included: 

  • Making the process of founding a company easier and more digitalised
  • Easing immigration rules to make attracting overseas talent easier 
  • Reforming legislation around stock options (as of now, Germany has Europe’s worst setup for employee stock options, according to an analysis by VC firm Index Ventures in February this year) 

But a recent report shows that, so far, just 45% of the measures have been put into action. 

Germany is, however, putting its money where its mouth is. In July 2022, it pledged to mobilise €30bn by 2030 to foster its startup scene. It also launched a €1bn deeptech and climate tech fund in February this year that has made three investments so far. 

Some founders and investors, however, believe progress is too slow. “Overall, we need more speed in the interests of our country's innovation and future viability,” says Christian Miele, general partner at VC firm Headline. 

“The federal government must give startup issues more priority — the next 12 months are crucial for implementing the startup strategy.”

VC investment

French startups raised €15.2bn in 2022, compared with €11.6bn raised by those in Germany. 

This year is no different. So far, €6.5bn has been plugged into French startups, compared to €6.3bn into German startups, according to Dealroom. France has seen more deals too — 648, compared to 579 in Germany.

“Historically, Germany has been a bigger ecosystem than France,” says French angel investor Alexandre Berriche. “We’ll see if this trend continues, but the current mindset is inevitably enthusiastic in France.”

Startups in both countries are attracting megabucks, though France has bagged the biggest funding rounds this year. Verkor, a low-carbon battery manufacturer, raised €850m in a Series C funding round in September — a record for a French startup. The round is also set to be topped up by an additional €600m loan from the European Investment Bank and €650m worth of government subsidies — primarily from the France 2030 plan. The additional funding is still awaiting final approval. 

In Germany, the biggest round so far this year was bagged by solar panel company 1KOMMA5º, which raised a €430m Series B in June, according to Dealroom data. The startup says it’s aiming to IPO in 2025.

Non-domestic cash

Hefty growth-stage cheques in Germany have traditionally been topped up by investors from the US and Asia — in 2017, more than two-thirds of German VC funding came from abroad. In the same year, 71% of funding in France was domestic, according to data from Dealroom. 

Five years later, that’s still happening in Germany — domestic funding has dropped to 25% — but the trend has also found its way across the border. More than half of investments in France now come from abroad, according to Dealroom data. 

“Germany started much earlier,” says du Peloux. “Whereas in France, it’s been crazy for the last three to four years, with funds like Lightspeed, Sequoia or a16z all taking interest.” 

Notable deals in the country — like Mistral AI’s $113m or Dust’s $5m seed rounds, for example — were backed by US-based investors.

Racing for AI

Those two deals are indicative of France’s desire to position itself as a leader in AI. Last year, as part of the government’s strategy on artificial intelligence, more than €2bn was put aside to support the development of AI technologies. Another €500m was announced last June to fund AI “champions”. And Paris is fast becoming a top hub for AI talent.

Although London still has three times the number of AI experts than Paris, according to research from Sequoia, the French strategy is bearing fruit. AI companies Dust, Nabla and Mistral AI — all founded by French engineers who have returned from the US, where they worked for big tech companies like Facebook or OpenAI — all call the French capital home

US startup Poolside AI also recently moved its HQ to the French capital after a $126m seed round led by French billionaire Xavier Niel and US VC Felicis, in a strong signal that France is becoming attractive even to foreign entrepreneurs.

Germany is also already home to some of the most prominent European AI companies, such as defence tech Helsing, which recently raised €209m in Series B financing, and Aleph Alpha, a competitor of America’s OpenAI. 

The government has also said that it plans to double public spending on AI to $1bn and create 150 new university labs for AI research, in a bid to keep pace with the US and China. 

Adrian Locher, cofounder of Berlin-based AI campus Merantix, says that Germany and France are equally good places to found an AI startup, given that they both have top universities with great talent and a strong base of local deeptech investors — as well as good ties to investors from the UK and the US.

Though France, he says, has historically been “a bit more technophile” and “faster in jumping on innovations”. 

“Is that enough to ‘win’ the AI race?” asks Locher. “I honestly don’t know.” 

It seems both countries have more in common than not — and for founders, opportunities exist in both markets. Rather than be locked in competition, some investors think both ecosystems should be seen as complementary. 

“What makes the strength of a startup is its market,” says du Peloux. “If you want to be a big player in Europe today, you have to target both France and Germany.”

Daphné Leprince-Ringuet

Daphné Leprince-Ringuet is a reporter for Sifted based in Paris and covering French tech. You can find her on X and LinkedIn

Miriam Partington

Miriam Partington is a reporter at Sifted. She covers the DACH region and the future of work, and coauthors Startup Life , a weekly newsletter on what it takes to build a startup. Follow her on X and LinkedIn