Alex Dewez, a partner at 20VC, has released the highly anticipated State of the French Tech Ecosystem report, providing a granular view on French startups. The report's findings offer a mixed bag of insights, with artificial intelligence (AI) emerging as a significant driver of venture funding growth amidst an overall slowdown.

In the context of European tech, the report follows Atomico's State of European Tech report, which revealed that European startups raised $45 billion in 2024, a 50%+ drop compared to 2022 numbers. In France, the overarching themes are similar, with €7.1 billion in venture funding in 2024, slightly up compared to 2023 (€6.8 billion). However, this figure is significantly down from 2022, when French startups raised as much as €11.8 billion.

Data on private companies can vary, and according to EY, venture funding is slightly down in 2024 compared to 2023 (€7.8 billion vs. €8.3 billion). Despite this, AI represents a growing chunk of the total funding amount, with AI startups raising 82% more money in 2024 compared to 2023. Non-AI funding, on the other hand, is down 11% year over year.

Two perspectives emerge from these findings. On one hand, the pessimistic view suggests that without AI, the startup funding landscape would be experiencing a slowdown. On the other hand, the optimistic take is that AI represents the next big opportunity for startups, with many investors focusing on this vertical. It's possible that some AI founders would have started non-AI startups in a different environment, given the tech industry's porous verticals and investors' opportunistic approaches.

Despite the mixed trends, France remains the third-largest tech ecosystem in Europe, behind the U.K. and Germany based on total funding amounts. Paris is the second European city, ahead of Berlin and behind London. The report also highlights the growth of unicorns in France, with 45 companies now holding this status, although some may not maintain it for long. Three new startups joined the group in 2024: accounting software startup Pennylane, business planning platform Pigment, and AI-powered software dev tool Poolside.

The report also notes that 2024 has been a year of large-scale bankruptcies, with companies like Ynsect, Cubyn, Masteos, Luko, and Cityscoot struggling. The changing macroeconomic landscape has made it harder to raise growth rounds without strong financial performance to justify the investment.

In addition to Poolside, other promising AI startups based in France include foundation model maker Mistral AI, AI-based drug discovery companies Owkin and Aqemia, as well as AI applications PhotoRoom and Dust. Dewez believes that a handful of late-stage companies could be ready to go public, citing companies like Back Market, Dataiku, Doctolib, Qonto, and Content Square, which generate more than $300 million in annual recurring revenue, grow by 20 to 30% year over year, and are profitable or about to become profitable.

However, France remains a tepid market when it comes to IPOs, with most French tech companies likely to consider listing their companies in the U.S. This could be a challenging task for companies without existing U.S. customers. The report also notes that while the total number of exits is down 14% year over year, the total exit amount has remained stable for the past three years, hovering around €12 billion.

A final interesting trend to watch is the decline in U.K. funds investing in French startups. This could have wider implications for the overall health of the French tech ecosystem in the coming years.

In conclusion, the State of the French Tech Ecosystem report provides a nuanced view of the country's startup landscape, highlighting the growth of AI-driven venture funding amidst slowing overall growth. As the tech industry continues to evolve, it will be important to monitor these trends and their implications for the French tech ecosystem.