Posted by Tom Foremski - December 10, 2009
The quality of the French startups we have been meeting with all week, has been very good.
It seems as if the French can once again claim back 'entrepreneur' instead of it being sometimes derisively labelled as an oxymoron in the French context.
But it seems to be a fairly recent phenomenon and one that relies on a compelling mix of government programs and tax breaks. While many countries have tried to encourage the formation of startups through various incentives, the French appear to have gotten the mix just right.
It wouldn't surprise me if in the near future, some US startups might choose Paris as a headquarters because of some of the advantages they can gain here, compared with an indifferent US government.
Kemal El Moujahid, CEO and Founder of Paris-based Teacheo, which provides a platform for online tutoring and collaborative tools, is a good example of a top quality French startup, of a type that we've (Traveling Geeks) I've been meeting with over the past three days.
Mr El Moujahid was born in Morocco, studied Information Technology in Paris, and has an MBA from Stanford university. He says that the French government has done a lot over the past few years to encourage entrepreneurs.
"There are a lot of programs that help startups raise funding, find office space, help hire people, and also fund research and development," he says.
About four years ago the French government began a series of programs to encourage innovation.
Here are some of the things it did:
- There is a French tax that is levied on wealthy individuals based on their net wealth, it is separate from tax on income. However, if they invest in a startup, they will receive a 75% tax credit. "That means that an investment of 100,000 euros costs them just 25,000 euros," says Mr El Moujahid. Because there is very little VC activity in France, this has become the main source of funds for startups.
- There are many government and city-run incubators. We visited the Paris Reunion Incubator, which specializes in digital media companies. It has 20,000 square feet of space housing 25 startups, fully wired with lots of shared office support services.
Startups pay just 500 euros per month for a 4-year lease. (I have a video interview with Martin Geurin, the manager (Chef de Projet) of the Reunion Incubator that I will post later.)
- France has the best research tax credit in Europe. Companies receive a 50% tax credit in their first year, and 40% in their second year.
- It is very easy to start a company. There is an 'auto entrepreneur' web site, and an almost one-click process that handles the paperwork and issues tax id numbers, etc.
- There are many government agencies that provide a variety of services to startups, such as HR.
But there are still some archaic obstacles in various sectors that seem to punish online companies, says Mr El Moujahid. For example, there is a 50% tax credit offered to parents that hire a tutor for their children but this does not apply to online tutors.
Also, there are cultural issues that can make it difficult to hire people, says Mr El Moujahid. He explained some of the issues:
- Top graduates tend to want to find a job with a large company rather than a startup. There is considerably less status in working for a startup. This is changing to some degree especially because of the slow economy.
- Hiring can be tough. Some candidates want to be paid considerably more than they would be paid at an equivalent job at a large company because of the risk in working at a startup, and they don't see much value in stock options. "Those candidates eliminate themselves," says Mr El Moujahid.
- Firing people is near impossible. They can sue their employer and always win a favorable judgement. "The best way is to negotiate a departure. You can tell them they have permission to apply for jobs while still working for you." This also works both ways, it is difficult to leave an employer in the lurch and take IP with them to a competitor, he says.
- Being fired from a job can be a good thing for an entrepreneur because they can receive two to three years unemployment at almost full salary and they are allowed to build a business during that time.
- Identifying yourself as an 'entrepreneur' doesn't have a great standing in some circles. But that is changing and the poor economy is creating new entrepreneurs across all age groups as conventional jobs dry up.
Mr El Moujahid says that he misses the 'can-do' attitude of SIlicon Valley. "Every US startup wants to takeover the world and they tend to be much more optimistic than in France. Sometimes that optimism is misplaced, they want to fight Godzilla with a plastic spoon - but the enthusiasm is great. In France, people are less ambitious and they focus on more modest goals."
He adds that sometimes there is distrust of the ambitions of entrepreneurs, a pursuit of money is viewed with suspicion.
Also, there isn't much room for failure. Unlike in the US, where entrepreneurs can fail many times and be concerned better for the lessons learned, French society is much less forgiving.
Is it easier to build a startup in the US?
"This is a question I often discuss with my American and French friends. I'm not sure. There are a lot of government programs and tax credits that make things easier here. But the US offers a larger market, access to capital, and a much more supportive culture for entrepreneurs."
"I think that learning how to build a startup is what's important and that that experience can be applied anywhere. At some point I know I will return to the US and apply what I have learned here."
[I'm in Paris all this week as part of the Traveling Geeks, a collection of journalists, bloggers, and PR people meeting with French startups and also attending LeWeb, France's premier Web 2.0 developer and business conference.]