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The thing that holds back French startups? Not the 35-hour work week

Rob Pegoraro
A startup space in Paris, France.

PARIS—Any place trying to present itself as a tech-startup hub has a difficult job, but that sales pitch only gets harder when outsiders define its business climate with the phrase “35-hour work week.”

Nor can it help when the country in question has a history of passing dubious tech-policy laws and, with its neighbors, has taken to sparring with US tech giants. Last week, for instance, a Paris government official called Amazon’s new one-hour delivery in that city “a form of unfair competition.”

And it really can’t aid matters when this marketing effort steps up just as nationwide labor unrest leaves people challenged to put gas in their cars.

But with its economy growing only .6% in the first quarter and unemployment stuck at around 10%, France can’t count on its traditional enterprises pulling it out of the ditch. The country’s small but growing tech sector might help, though.

This potential source of economic growth has led the French government to embark on a development effort marked by generous incentives, modest ambitions, and maybe even a lesson or two for the US. However, France's burgeoning tech sector is getting a slow start though because of one non-obvious obstacle: lax investment.

Good examples, but few big ones

I’ve long since lost count of the places vying to become a “Silicon [fill in the blank],” but France is not crazy for putting in its bid.

The country made online services a mass-market phenomenon before the US did, putting pre-World Wide Web online portals called Minitel terminals in 5 million French homes by 1990. Today, Paris-based Parrot has become a household name in drones since its 1994 founding. The ride-sharing firm BlaBlaCar is not as well-known in the US, but its late 2015 funding round pushed its valuation to $1.6 billion.

And French gadget startups filled a quarter of the “Eureka Park” exhibit at CES in 2015 and made enough of an impression for my former colleague Jason Gilbert to crown France as “the winner of CES.”

“France has real strengths in hard engineering areas like IoT and devices,” observed Evan Burfield, co-CEO of 1776, a Washington-based incubator that runs a global startup competition. “Lots of well-educated talent with engineers available at a lot less than you’d pay in NYC or the Valley.”

I met quite a few other interesting startups during a week in Paris at the end of May. Qarnot Computing distributes data-center servers into fiber-connected apartment buildings and offices, where the heat they generate can provide climate control and warm water. Lendix routes small businesses around the latency of European banks by connecting them with private investors. Delair-Tech makes lightweight, long-range drones that such clients as France’s SNCF railways use for remote inspection.

(Disclosure: I moderated a panel at the Connected Conference, an Internet-of-Things gathering here. Most of my travel expenses, as well as those of a group of visiting journalists and analysts attending the conference, were covered by Business France, the government’s economic-development bureau.)

A startup space under construction in Paris

Regulations

The founders I spoke to during and after the trip complained less than I expected about the 35-hour work week and other rules in the “Code du Travail,” the labor laws that President François Hollande is pushing to reform against fierce union opposition.

“Knowledge workers typically have a contract that involves a number of days per year with no restriction of number of hours per week, except: disconnecting for 11 hours per night, and 35 hours per weekend,” e-mailed Yann Lechelle, chief operating officer of the privacy-optimized artificial-intelligence firm Snips.

(If you’d read that France outlawed after-hours work e-mail, that’s not exactly true.)

But Lechelle, a co-founder of the tech group France Digitale, added that outside the tech sector, labor laws often lead subpar staff to burrow in.

“They don’t want to quit the comfort of the daily job, they are not incentivized to leave, they fear not finding another job down the line,” he wrote. “Reversely, companies fear hiring people even when market conditions are optimistic.”

The overall culture is one of asking permission more than forgiveness, which may help to explain Uber’s hostile reception here. Summed up Lendix chief operating officer Patrick de Nonneville (who works in London, not Paris): “France is the country of the rules. One of the rules is if something is not permitted, then it’s not allowed.”

There is, however, one exception to this pattern: drones. Once an unmanned aerial vehicle is licensed for commercial use — even beyond the operator’s line of sight, something still banned in the US after last week's release of more liberal rules — companies don’t need a special authorization to use it.

“The certification lasts forever,” said Delair-Tech co-founder Benjamin Benharrosh.

At the Connected Conference, organizers announced that Paris will feature a drone race over part of the Champs-Élysées in September — the equivalent of staging one down Pennsylvania Avenue, except we’ll probably see pigs fly over America’s Main Street first.

Inadequate investment

Nobody I spoke to in Paris had anything great to say about the investment climate, especially for startups that have gotten past their earliest stages.

“A lot of French startups end up heading to London or the US to raise later stage capital,” said 1776’s Burfield. (Of course, the recent UK's recent vote to leave the European Union may influence startups' decision to raise money in London.)

For example, 90% of BlaBlaCar’s €310 million ($351 million) in funding came from the US — even though that ride-sharing firm has no intention of expanding to the States — and none has come from French funds since its first round.

France legalized equity crowdfunding in 2014, also ahead of the US, but the French haven’t quite rushed to support local startups through that mechanism.

“We had roughly 20% of French contributors to our Indiegogo campaign,” said Matthieu Ventelon, business developer with Akoustic Arts, a Paris startup making highly directional speakers.

The government tries to even things out with tax credits and subsidized first-round investments through the state-backed investment firm Bpifrance. That venture-capital organization invests for longer terms than private investors, said chief external relations officer Antoine Boulay — meaning a seven- to 10-year term instead of four to six years.

Bpifrance was the No. 1 tech investor in France last year ... but despite that state-backed thumb on the scale, France's €960 million total in venture-capital funds raised trailed far behind Germany’s €2.7 billion and the UK’s €3.3 billion and barely beat Sweden’s €900 million.

Of course, the Brexit may end up impacting those numbers this year and in the years to come.

Initiatives

Beyond literally throwing money at the problem, the French government is banking on digital infrastructure. It’s also stepping up its own marketing to remedy a perceived gap between the country’s know-how and its ability to make itself known.

Or as minister of digital affairs Axelle Lemaire put it in a meeting with journalists, "We have a lot of savoir-faire, but we are so crap at faire-savoir.”

The infrastructure part hinges on a public-private national-broadband plan that will see €20 billion spent — more than €3 billion coming from the national government — to bring 100-Mbps fiber connections to most of the country.

"This is the biggest infrastructure plan that we've launched in the last decade,” Lemaire said.

National and local governments have also been backing the construction of startup incubators. One 366,000-square-foot facility under construction in a former railroad yard in Paris — largely financed by telecom entrepreneur Xavier Niel, who got started selling services on Minitel — will be the largest in the world when it opens next year.

The marketing effort revolves around La French Tech, an initiative that includes a conference in New York this month and a program called the French Tech Ticket that offers foreign startups funding, office space, a residence permit, mentoring and other assistance if they move their companies to France.

(One could imagine the US doing something like that ... or one could have, before the entire subject of immigration became hopelessly politicized well in advance of this election season.)

“We wanted to send a strong signal to the startup world,” said French Tech Ticket manager Adrien Cabo at Le Cargo, a startup incubator in Paris that hosts some of the 23 startups to win a home in France in the program’s first year. The Ticket just began taking applications for its second season, with about three times as many spots open.

But the French remain strikingly humble in their overall ambitions for these tech efforts, a distinct contrast with Silicon Valley’s techno-utopianism.

Said Cabo: “The long-term goal is to have one — one very successful company to come out of this program.”

Lemaire made a similar point as she noted that forecasts called for France’s digital sector to grow by 2.6% this year — barely half of the 4.7% growth seen for the US information-technology sector by the trade group CompTIA.

"It could be better," she said. "It's enough to create jobs."

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Email Rob at rob@robpegoraro.com; follow him on Twitter at @robpegoraro.