FRANCE Trends and Developments Contributed by: Nicolas Karmin and Anthony Magagnin, Sullivan & Cromwell LLP
valuations than previously create certain spe - cific challenges and complexities. In particular, VC investors are generally granted downround protections through warrants ( “BSA ratchets” ). Therefore, existing investors can exercise their protective warrants at the time of a downround and gain from accretion, thus making the trans - action more costly for founders from a dilution perspective. Sectoral Shifts Most VC deal activity in France has been con - centrated in the software industry, with some EUR3 billion of funds raised in 2024, marking a sharp increase (about 46%) compared to 2023, despite a steady deal count. This increase was mainly driven by strong trends around AI. As reported during the AI summit of February 2025, France had approximately 1,000 AI start- ups in 2024 (compared with 502 in 2021) that raised EUR1.9 billion over the course of the year, with certain prominent deals such as Mistral AI (EUR468 million raised) or Poolside AI (EUR453 million raised). AI will most likely remain a key industry for VC deal activity in 2025. In this respect, President Macron recently announced EUR109 billion of private French and foreign investments in AI development projects for the next few years, which could boost the VC deal activity in the sector. On the other hand, greentech, life science and internet services, which used to be among the most dynamic sub-industries in the VC market, fell in terms of amount of funds raised in 2024 by 29%, 17% and 38%, respectively, year over year. In 2025, start-ups operating in industries with applications in the defence industry could also see a boost in deal activity, since recent ini - tiatives announced by the French government
are aimed at raising funds for this sector. For instance, in March 2025, Bpifrance announced a future fund for retail investors ( “Bpifrance Defense” ) the purpose of which is to create a link between retail investors’ savings and invest - ments in companies active in cybersecurity and defence, including start-ups. Profitability Over Growth Scarcity of start-up funding has led some com - mentators to refer to “French tech fire sale” as companies come to terms with unsustainable business models. While there are examples of companies being bought out for far less than their previous valu - ations, French start-ups and their VC investors are mostly adopting “wait and see” approach. There has been a substantial shift in focus, from “growth” and “potential” to profitability, which continued in 2024. In 2021 and 202 “growth” was the watchword, and significant cash burn a standard. With financing relatively easy to come by, start-ups significantly expanded their work - forces, acquired impressive offices and extend - ed their operations internationally. The conver - sation has shifted. VC funds and their investors, confronted with the likelihood that their invest - ments would not reach the same valuations in today’s market, are focusing on portfolio com - panies achieving profitability. Start-up leaders – particularly at France’s unicorns – are echoing the message, emphasising financial health and close-range profitability targets. For some start-ups, this shift has occurred too late. Insolvency proceedings targeting small and medium-sized French companies significantly increased in 2023, with the trend continuing in 2024 and so far in 2025, the new feature being that a much higher number of start-ups – such as
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