French Tech Struggling to Increase Revenue

Is the French tech industry in need of saving? On May 23rd, Pierre Pelouzet, Mediator of Enterprises, presented the report of the Observatory of relations between large companies and start-ups to Marina Ferrari, the Minister in charge of digital affairs at Bercy, during the VivaTech salon in Paris, dedicated to tech companies. The main finding of the study was an “increase in purchases from start-ups”, which affects both the private and public sectors, albeit in different ways. In 2022, the public sector spent a total of 1.75 billion euros on services and products from start-ups (including 296 million euros from ministries). On the other hand, the private sector spent significantly more, with 4.28 billion euros in 2022.

However, the study also noted a “significant catch-up by public actors in terms of using start-ups”. In recent years, there has been a doubling of growth in revenue, from 10% to 20% per year. Nevertheless, the growth trend is undeniably stronger in the private sector (averaging 35% per year since 2019). The report concludes that “start-ups have established themselves in the economic landscape”.

According to a survey conducted as part of the study, 41% of respondents who made purchases have already used services from start-ups, and 14% are planning to do so in the next 12 months. This shift is attributed to a change in mentality, with start-ups being seen as more normalized and less risky by decision-makers. Over half of companies believe that collaborating with a start-up carries relatively low risk. Only 15% of respondents identified the sustainability of young companies as a concern. In summary, start-ups are no longer viewed as economically risky solutions or only for highly innovative organizations.

Despite these changes, relationships between start-ups and large companies and the public sector remain limited. In 2022, purchases from these companies accounted for about 2% of public procurement and 2.4% of private procurement. Among the top five private companies that are the best clients of start-ups, the proportion rises to 9.9%. However, communication and understanding between these two worlds continue to be challenging. Over 70% of large companies that have used start-ups complain about the lack of responses to their bids, while around a third of those who have not yet worked with start-ups cite a lack of knowledge about their offerings.

For start-ups, challenges include lengthy sales cycles (68% for the public sector and 69% for the private sector) and difficulty in making contacts and meeting prospects (63% for the public sector and 66% for the private sector). The stakes are high for tech companies, as 2023 saw an increase in bankruptcies in the sector in France, with around 40 cases, two-thirds of which were bankruptcies and one-third insolvency proceedings. This trend has continued from 2022, with the sector being weakened by reduced funding due to rising interest rates. The traditional economic model of these companies, based on successive fundraising rounds rather than revenue, is being challenged.

To support the French Tech industry, Bercy launched the “I Choose French Tech” program in June 2023. The program aims to double public procurement and purchases from large companies from start-ups, in hopes of revitalizing the industry.