France’s Unique Opportunity

European Straits #21

Dear all,

After ten days on the US West Coast and a few more back home in London, I just had a full day of discussions and meetings in Paris, where the excitement is clearly palpable. President Emmanuel Macron now has a firm grip on the French government. His new party, “République En Marche”, is poised to win a large parliamentary majority in next Sunday’s general election. And while Donald Trump is turning the US into a (very bad) global joke, Britain is slowly sinking into Brexit chaos. This, I think, is a major opportunity for France to emerge as a key global tech hub, provided it tackles three challenges.

The first concerns the regulatory environment. Too many French startups have been thwarted in the past because of toxic regulatory frameworks. Some startups can’t grow because they don’t fit in the box of existing rules. In other cases, the rules are changed under the pressure of incumbents who want to avoid competition from entrepreneurs. This situation explains why France hasn’t yet been able to grow successful tech companies in highly regulated industries such as health care, finance, agriculture or energy—precisely those that present the most opportunities waiting to be seized in the Entrepreneurial Age.

I’m certain that the Macron administration will side with entrepreneurs more often in the future and help them as much as possible when they face regulatory obstacles. But kind words and benevolent meetings with ministers won’t be enough for entrepreneurs to succeed. Indeed what we need is a radically new approach to designing and implementing rules in the Entrepreneurial Age. You can read the piece I wrote last year on that topic: Regulating the Trial-and-Error Economy.

The second challenge is related to financing entrepreneurship, which requires a radical overhaul of the French financial system. It is not the first time France has been confronted with this challenge. Back in 1985, the unification of European financial markets required breaking with a legacy system dominated by bank credit and embracing a new system in which businesses would raise more capital on equity and bond markets. It took the raw determination of a few elected officials and civil servants, including then-finance minister Pierre Bérégovoy and his chief of staff Jean-Charles Naouri (now the CEO of Casino), to undertake this ambitious reform—all based on a blueprint known as the “Naouri Report”.

Now is the time for yet another overhaul, one which would see our financial system migrate from bank credit and public markets to a system more influenced by private equity, in its various forms—notably venture capital. This kind of financing is the best designed to serve the needs of innovative companies in an economy driven by technology and increasing returns at scale. But it can only flourish if we impose many changes on the financial system, from banking regulations to tax law to corporate law.

France had the opportunity to take the initiative back in 2010-2011. But at that time it was ultimately David Cameron’s government that did what it took to attract large venture capital firms in London and radically improve the financing of UK-based tech startups.

The reason why France has another chance is that Theresa May, Cameron’s successor, has unexpectedly turned her back on financiers and entrepreneurs and is prepared to discredit London as a rising tech hub by closing the borders and embracing a backward-looking approach in regulating the Internet. In this context, I’m convinced the Macron administration should undertake another “Naouri Report” to once again overhaul the French financial system, better serve the needs of today’s businesses, and establish Paris as the European capital of private equity and venture capital in the Entrepreneurial Age. If you’re interested in the topic, you can also read a paper I wrote on the subject: A Brief History of the World (of Venture Capital).

As for the third challenge, designing a new social compact for the Entrepreneurial Age, it’s the subject of my coming book ‘HEDGE’ and has already been covered in many past issues of this newsletter! Obviously, I’ll share more related ideas in the coming weeks and months. In the meantime, let me recommend this inspiring article by Tim O’Reilly: Do More! What Amazon Teaches Us About AI and the “Jobless Future”.

Warm regards,

Nicolas