January 11, 2024

How French VCs beat the fundraising odds in 2023

Hint: It’s the government

Chris O’Brien

7 min read

Bpifrance Innovation Executive Director Paul-François Fournier (second from left) and Bpifrance CEO Nicolas Dufourcq (second from right) speak at a Deep Tech Tour stop

Despite a difficult fundraising climate that kept LP purse strings tight in 2023, France’s VC industry proved itself one of Europe’s most resilient.

According to Dealroom, of the top 10 largest tech markets in Europe, France was the only country bar Italy where VCs closed more funds in 2023 than in the previous year. French VCs closed 29 new funds, raising a total of $4.7bn in 2023, up from 26 funds of $4.4bn in 2022.

In sharp contrast, the UK — still Europe’s unrivalled startup leader — saw the number of new funds raised drop from 67 of $14.6bn to 46 of $9.9bn. In Germany, the number of new funds raised also fell by nearly half — from 36 to 22.


Observers attribute France’s strength to a VC ecosystem that has expanded dramatically over the past decade, in large part due to the support by the French government and the nation’s state bank Bpifrance.

“Over the last 10 years, the government and Bpi have invested massive amounts of cash,” said Bertrand Diard, a partner at Paris-based venture firm Serena Capital. “It’s just been a massive deployment that has changed everything.”

Flurry of fund closings

As was the case across Europe, 2023 initially saw a sluggish start for French VCs seeking to raise new funds. A crash in private and public tech valuations and a hangover from higher interest rates conspired to make many largest LPs sceptical about placing more money in the sector.

That has changed in recent months, investors say.

Anne Germain, senior investment director for Bpifrance’s Funds of Funds, says the bank had seen a noticeable shift in attitude among LPs over the last six months of 2023.

“The first half of the year was very tough,” Germain says. “I think the first half of the year a lot of institutions didn't do anything. So there was a bit of a catch-up in the second half.”

As a result, during Q4 2023, French VCs announced 11 new fundraisings. Notable closings included Sofinnova's Digital Medicine I fund with €190m and Singular raising a €400m early-stage fund, a surprise coming less than three years after its first €225m fund.

Germain notes that this apparent rebound is still limited to “some” French VCs. “There is a flight to quality,” she says. Adding: “With VC in general, you've got the stars and then the rest. Singular and Sofinnova are some examples of those funds that continue to generate significant interest and investment.”

Government and other LPs

Bpifrance’s Funds of Funds programme committed about €1.6bn in 2022 — up 60% from five years ago — in amounts ranging up to €200m but with an average of €22m. These numbers are expected to hold steady in 2023, and go from investments in small funds that accompany accelerator programmes to late-stage growth equity funds, Germain says.

The goal is to provide a minority stake and money as part of first-time closings to boost the appeal of a fund to private investors. This money comes from both the bank’s balance sheet and managing specific investment programmes created by the French government.

That approach includes allocating about 25% of its money each year to first-time funds. Because Bpifrance is so massive and diversified, Germain says it can take bigger risks on new funds. The bank’s data shows that first-time funds have tended to outperform established funds.

Over the last 10 years, the government and Bpi have invested massive amounts of cash… It’s just been a massive deployment that has changed everything

Germain said the French VC ecosystem has also been boosted by a growing number of family offices willing to invest. In addition, the government launched last summer the second edition of Tibi, a program designed to attract more investments into late-stage funds.

While the government doesn’t offer any incentives for the programme, it facilitates the investments by effectively doing due diligence on funds and then declaring them eligible to receive money committed to the Tibi programme.

Tibi 2 launched this past summer with 28 institutional investors — primarily insurance companies — pledging €7bn. So far the government has approved 60 French funds to potentially receive that cash.

Germain says many institutional investors remained on the sidelines in the first half of 2023 as they waited for Tibi II to be finalised.

As a result of the government’s push, the funds that Bpifrance supports had so-called dry powder of €28bn to invest by mid-2023, up from €10bn just five years ago.

French advantages?

That said, several French VCs say the hometown teams seem to be benefitting from a few specific economic and cultural advantages.

For instance, Partech partner Réza Malekzadeh says French VCs were more conservative when it came to chasing valuations in hot startups. Despite the swing in valuations and a firesale of French startups at rock-bottom prices, Malekzadeh says:

“Generally we've been more disciplined and we've been a little bit more conservative than some of our Anglo-Saxon peers,” he says, adding that every exit of a Partech company over the past two years has been above book value. “I think that just in general, the French are more fiscally responsible. That is coming back to play very much in our favour.”

HCVC Founder and partner Alexis Houssou says the firm set a target of $60m for its second fund. But its strong past performance coupled with an expanded focus persuaded existing LPs to come back with larger cheques and new LPs to join, pushing the final closing to $75m. Its first fund of $50m invested primarily in hardware, whereas the second fund backs companies building what it calls “hardtech”, looking at both hardware and software in areas like climate, defence, AI infrastructure, robotics, biotech and space.

“We figured there are really exciting opportunities in climate, around energy, in AI,” Houssou says. “We started backing these kinds of companies when most VCs were not interested in these topics. So that gives us an advantage now.”

With this expanded focus, HCVC brought aboard the firm’s fourth partner, Alex Flamant, an AI specialist who was previously a VC at Notion Capital in London and worked at IBM Watson.

Diard of Serena echoes that sentiment. The firm announced Serena’s €100m Data Ventures II fund in November. Bpifrance money represented almost 20% of the fund, he notes.

Even more important, Diard says, was his firm’s creation of its Data Ventures fund in 2017, one of the first in Europe to exclusively focus on big data and AI. This allowed them to build a strong track record just as AI has become the hot topic.

“We started this investment thesis in 2017 and it is pretty important because every LP considers you as potentially guys already established in a market with credibility,” Diard says.

Diard of Serena also points to France’s university system and its network of engineering schools, which produce some of the world’s most sought-after talent, particularly in areas like AI. France’s generous tax incentives to R&D create a tax-free environment for product development that makes investing in startups financially attractive.

“If you look at what's happened in Silicon Valley, it's super expensive,” Diard says, referring to startup valuations. “It's roughly 2 to 2.5x more expensive than in Europe.”

Not out of the woods

Despite this progress, the French VC ecosystem remains a work in progress. It still faces shortcomings like a lack of exits, a poor second market and the absence of buyout funds or an IPO market that could improve that situation, Bpifrance’s Germain says.

Also, in the short term, the fundraising success of France’s VC funds last year wasn’t enough to staunch the bleeding of French startups, which saw funding plummet 41.8% in 2023, one of the sharpest drops in Europe, according to Dealroom.

As bankruptcies continue to multiply, a committee of startup financial advisors — French Tech Finance Partners — has called on the government to take more urgent measures to prevent a growing cascade of startup failures, according to a report obtained by French newspaper Les Echos.

The committee recommended the creation of a “bridge” fund using convertible bonds, a €50m emergency investment fund and assorted programmes that could postpone some tax payments while accelerating other tax credits and reimbursements. The idea is to buy extra time for troubled startups to raise money or negotiate a sale while avoiding bankruptcy.

​​”For the French economy and sovereignty, it is certainly preferable for startups in this situation to be merged or acquired by other French startups rather than by foreign groups, particularly when sensitive technologies are at stake,” the document says.

Heading into 2024, Germain says that Bpifrance is working closely with the funds it has supported to manage what overall remains a challenging time. Many have been slow to mark down their portfolios, worried about their reputation with LPs. Bpifrance is continually helping its funds reassess their options when they can’t raise their next fund, in terms of how to find alternative support for managing portfolios — and in some extreme cases shutting down.

“I don't think we've seen all the downrounds, let's put it that way,” Germain says. “People are going to get to the end of the runway and not see how they're going to be able to manage. And liquidity, again, is going to be kind of an issue. I don't think we're quite out of the woods yet.”

Chris O’Brien

Chris O’Brien is a writer for Sifted. He covers French tech, and can be found on X and LinkedIn