Against the Odds, Starting a Tech Business in France

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PARIS -- For a young entrepreneur starting a company in Paris, Fabien Cohen could not have picked a worse time: French businesses are still recovering from the financial crisis and facing potential tax increases, and many with deep pockets have taken flight from the country.

Worst of all for Mr. Cohen, many of his friends -- other "start-uppers" in their 20s -- have packed their bags for the more business-friendly climes of London, San Francisco and even Bangkok or Rio de Janeiro.

"Everyone I know who is in his or her 20s wants to find their own experience, and that is overseas," Mr. Cohen said. "There is a necessity to see elsewhere."

Without the means to make the jump himself, Mr. Cohen, 25, is making do. His smartphone application, Whoozer, which he likens to Circle, an app that notifies people when their friends or contacts are nearby, was set to be introduced in December but hit a technical snag a month earlier. His bank balked at putting up more money, and potential investors decided to wait on the sidelines. He could barely pay his employees last month.

And yet, Mr. Cohen is making it work. He switched banks and secured a new credit line at the last minute. His fledgling company, made up of a dozen or so employees, tinkered with the business strategy and clinched a vital sponsorship to introduce Whoozer exclusively at a top French business school, ESCP Europe, on Monday. In March, they plan to introduce the service in three other business schools.

"The climate is still tricky, but I've jumped in at the deep end," Mr. Cohen said. "Things are still complicated in France, but that doesn't prevent me from doing anything."

France's business ecosystem thrives on contradictions -- the country has some of the highest labor costs in Europe and restrictive regulations, and yet its companies regularly make the Fortune 500 list; it has highly skilled graduates and engineers but struggles to compete globally; it has an alphabet-soup of agencies intended to support fledgling businesses, but they are so lacking in coherence that they remain unheard of to many; there is a vibrant investor community ready to commit funds, but only once an entrepreneur has a proven track record; and the French embrace money, but not bling.

The ambiguities perhaps capture well what some call France's "Raymond Poulidor syndrome," after a former Tour de France cyclist who never won a race but never gave up.

"He was always number two. And the French really love him," said Matthias Berahya-Lazarus, who heads Bonial, a Web service that offers localized shopping catalogs and discounts. "Likewise, the French like entrepreneurs when they remain very discreet and don't transform into a businessman. That's where the evil begins. So they like the number two. They don't like success. They have a problem with wealth and with money."

Aside from the day-to-day headaches and dilemmas familiar to any entrepreneur, French businesses have their wings clipped by onerous social charges paid to the government based on the salary of the employee. Companies need to think twice before hiring and firing, when employees are often due extensive severance benefits. They also need to coax financing from a traditionally risk-averse market and console themselves with the relatively small clout that businesses hold in government.

Mr. Cohen's dogged pursuit, often accompanied with wry humor, reflects the ingenuity of French entrepreneurs in finding ways to wriggle out of predicaments.

"They've lived under constraints for so long they've become quite good at that," said Jean-David Chamboredon, who runs the French Internet entrepreneurs' fund ISAI.

But the web of regulations can also be a blessing, in the form of loopholes.

One young company chief outsmarted the "system" by taking advantage of what he described as a badly coordinated tangle of benefits for job seekers wishing to create companies to pocket enough funds for his start-up.

"France may not be the best place in the world to do business, but there are those who still manage to succeed," said Antoine Angot, 28, a Web consultant in Paris and co-founder of Melty, a news Web portal that had €3 million, or $4.1 million, in revenue last year and has an audience of about 11 million. "We love our country. We accept its qualities and its flaws."

President François Hollande, who famously said he disliked rich people, moved thousands of businesspeople to leave France after introducing plans for tax overhauls aimed at high-income earners and companies in order to fill government coffers.

A plan last year to raise the capital gains tax to 60 percent caused an uproar among entrepreneurs, who responded with an online protest calling themselves "Pigeons," slang for suckers. The government backed down but said it remained committed to Mr. Hollande's election pledge to tax capital as much as labor.

Mr. Chamboredon, of the ISAI fund, also runs the Pigeons movement. He said such a tax rate would cut off vital financing to start-ups. Just the threat of it already has. In the last quarter of 2012, angel investors who provide start-up funding cut their investments nearly 40 percent from a year earlier, an ISAI survey said.

"It's a catastrophe," Mr. Chamboredon said. "We are trying to make the government understand that this hits at the heart of financing, and especially support for the youngest start-ups. If we destroy this foundation, we destroy the ecosystem."

The Institute for Research in Economic and Fiscal Issues estimated that 5,000 entrepreneurs left France in 2012, up from the recent range of 800 to 1,000 a year. There are about 3.4 million companies registered in the country.

A recent survey of 984 students ages 18 to 29 showed that one in four were in favor of going overseas to start their businesses, according to Didaxis, a consulting firm based in Paris.

ApéroEntrepreneurs, a company that organizes monthly meetings for French entrepreneurs in 30 cities around the world, said it had seen an increase in the number of participants in its meetings in London, a primary stepping-stone for Parisians. There were more than 100 participants in December.

"The French generally like to stay home, so when they leave people are like, 'Whoa, what's going on?"' said Loïc Dumas, founder of ApéroEntrepreneurs.

"We're fighting so that entrepreneurs can stay in France," Mr. Chamboredon said. "The majority of entrepreneurs are staying, because they have clients, networks, a market. But they are suffering. It's frustrating that it has to come to this."

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This article originally appeared in The New York Times.


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