Message to French Presidential Candidates: Do More To Support Start-ups

The eighth annual “Truffle 100” index, the benchmark ranking of France’s top 100 software companies compiled by Truffle Capital with support from Eric Besson, the French Minister for Industry, Energy and the Digital Economy, and in partnership with analysts at the CXP Centre for Software Evaluation, ought to be of great concern to the leading candidates in the French presidential race.

The combined turnover of all 100 French software makers was just 7.7 billion euros (about $10 billion), three and a half times less than that of just one American software giant, Oracle, which reported 2011 revenues of $35.62 billion.

The leading company on the list, Dassault Systemes, accounts for 34.2% of the total turnover of all 100 companies.  And, the other four of the top five, account for another 20%.  All five of the top companies are at least 10 years old. Murex, the number two, has been around for 25 years.

If nothing changes, the chances of the Next Big Thing coming from France – or from Europe for that matter- are pretty slim. European software companies grow to a certain size but have trouble scaling and are eventually sold by foreign, typically U.S. companies, leaving Europe with a dearth of global champions in a sector that is at the very heart of the IT sector.

The reasons for this are many. But a key one is lack of an industrial policy to support SMEs. Small and medium sized companies – those with less than 250 employees that earn under 50 million euros in annual revenues – make up some 70% of Europe’s GDP and are responsible for the creation of the majority of jobs. Yet, Europe’s SMEs are at a great disadvantage.   SMEs in the U.S. have benefited, since 1953, from the Small Business Act , which requires that 20% of public procurement contracts be reserved for SMES.

 “Implementing a French version of the Small Business Act is still acclaimed as the key measure that would promote the development of innovative software SMEs,” says Bernard-Louis Roques, Truffle Capital’s co-founder and its managing partner for information technologies.

 French President Nicholas Sarkozy, who is running for re-election and Socialist candidate Francois Hollande are both promising  to embrace the Small Business Act.  But France’s software sector needs actions not words.

Sarkozy’s government tried, and failed, to get Europe as a whole to adopt a Small Business Act.

During the French presidency of the European Commission the  French government attempted to have a Small Business Act passed Europe-wide. Some countries objected to government intervention, others argued that a Small Business Act would contradict an agreement on public procement concluded between the EU and 27 other countries which commits government to opening up their public tenders to foreign companies.

Faced with defeat at the European-level, France passed a national decree in 2009 that encouraged – but did not mandate—that government agencies set aside up to 15% of its contracts for small businesses.   The decree lacked teeth and has not been effective.

“In France someone in charge of public tenders for an administration always chooses a big company over a small vendor because there is less risk,” says Roques. But, he says, in an economy that has stopped growing a Small Business Act with teeth could both help administrations decrease their expenses and help small companies create more jobs.  “Unfortunately  I don’t think high tech and software are a priority for European governments and particularly for the French government,” he says.

Roques applauded the fact that  the Fonds Strategique d’Investissement, a government wealth fund, has just invested in Viadeo, a LinkedIn competitor. But the some 2.5 billion euros worth of investments in French technology  companies made by the FSI to date is not enough, argues Roques.

“It is a good thing that they are investing in a couple of companies,”  Roques says. But the whole ecosystem has to be strengthened. Government administrations need to be forced to buy from small companies and the public needs more incentive to invest in start-ups.  “It is more interesting for taxpayers in France to invest in yachts in Guadalupe than it is for them to invest in innovative companies that create jobs in France,” he says.

France’s next president should not wait for a rising tide to lift all boats.  He will needs to forge an industrial policy that clearly benefits SMEs.  After all,the creation and success of innovative new start-ups  are key to improving the overall economy and to both France and Europe’s future.

 

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