Defense Tech in France | EDTH in Paris & Copenhagen

October 31, 2024

Welcome 🇪🇺

This week we are happy to have Nikolai Fomm writing about the broader defence tech ecosystem in France and the current ripple effects as an example for the European case.

He is a Co-Founder of Corma, an IT startup based in Paris. Before that, Nikolai worked in different German tech companies. Before launching his own startup, he was a researcher at IntraXperience, an incubation program of the Bundeswehr University Munich, bringing startup methodologies into the German Armed Forces.

EDTH is launching their second hackathon, this time at two different locations. The link to sign up can be found below

Yours,
Uwe, Jack and Jannic

​Accelerating European Defense Innovation 🇫🇷/🇩🇰 

The EDTH is launching the second round of their hackathon (after the excellent first in Munich), this time at two simultaneous locations with different partners! Join them either in Paris or at the event in Copenhagen to focus on hands-on solutions with the support of the amazing teams of Helsing, Delian and Brave1.

The application for the Copenhagen edition can be found here, the Paris event can be accessed here.

Diving into the French Defense Tech ecosystem

The rise of La French tech

Over the past years, France has steadily worked its global way up with its startup and entrepreneurship ecosystem. While some initiatives were launched in the previous administration, the French startup ecosystem took off under the presidency of Emmanuel Macron. The establishment of a national startup and tech strategy fit in with the overall goals of re-industrialisation, digitisation and sustainable growth. Part of it was the Initiative La French Tech 2030 which set ambitious goals underlined by significant reforms and government investments in the billions. France reported over 30 unicorns in 2022 (the goal was initially for 2030) and total startup fundraises of $6,7 billion. A special emphasis is laid on AI and deep tech. Since the start, defence and dual-use startups have been considered part of the strategy.

The becoming of the French Startup system

The French ecosystem profited from three factors. Firstly, the infrastructure in which France heavily invested. The self-claimed largest startup campus in Paris Station F is the flagship project. With 1000 incubated startups at any moment it dominates the ecosystem but all over the country incubators and accelerators were formed with universities also trying to produce more entrepreneurs. Secondly, a vivid community helps to boost entrepreneurship with experienced founders and managers that return from abroad especially from the US, like Arthur Mensch who returned from the States to found Mistral in Paris. The French university system has a reputation for producing strong STEM talent. In the past many of them would move to the US. Today, this talent starts to return or increasingly decides to stay in France or Europe to start their ventures.

Thirdly, the government played a key part in shaping the ecosystem. France is known for having a government that takes an active part in driving the economy, for the better or the worse. But in the case of the startup ecosystem, governmental support played a positive role and the French government seems to have (mostly) done its homework. France has the reputation of an over-regulated, inflexible and semi-socialist system which can only stifle innovation. It is probably time to reconsider some of those assumptions. While still a country of strong labour laws and bureaucracy, regulations were removed or kept steady to make life easier for startups. Positive examples are maybe most notably the French tech visa, an entryway for non-EU migration into tech jobs that brings a work permit within weeks with comparatively very manageable paperwork. Paperwork overall becomes increasingly manageable due to the progress of digitisation. Almost all processes are digitised and the central structure of the state allows data sharing between government bodies which removes hassle for founders and companies. Speaking of money, the government actively invests in startups in different stages through different government bodies like the public investment bank BPI or ministerial bodies like the DefInvest Fund, a state-backed venture fund investing in defence startups. National strategies are also backed with significant investment sums like the quantum computing strategy (1,8 bln €) or the creation of AI clusters (500 mln €). To be fair, despite being significant sums from a government perspective, compared to what companies in the US can raise from private investors, those numbers seem somewhat limited.

Defence inside the startup ecosystem

France has traditionally a strong commitment to autonomy and self-reliance. This goes beyond defence but this applies especially in that domain. France aims to enhance its strategic autonomy through a robust domestic innovation ecosystem in defence. While large industrial players like Thales, Dassault and Safran play a traditional role in it, the startup world is seen as a key component to it.

While more traditional fields like consumer, enterprise tech or more recently impact heavily feature in the French startup ecosystem, defence and dual-use are part of it and partially receive specific recognition from the state. This shift is influenced by geopolitical tensions and the need for advanced defence capabilities in areas such as cybersecurity and autonomous systems. The French defence startup ecosystem has been gaining momentum.

To set a focus, the French Ministry of Armed Forces publishes a yearly document on its innovation priorities. Key in it plays the DGA (Direction Générale de l’Armement), the central government body for defence procurement. The DGA has the reputation of having engineers in charge who make smart procurement choices in close coordination with the industry. In 2018 it launched the “Defence Innovation Agency” (AID) to coordinate innovation in defence technologies. The AID acts as a catalyst for innovation, integrating civilian advancements into military applications. It has its own budget and pays startups upfront to test their kit based on processes and milestones. This is a simple but effective twist to how many procurement agencies work where companies need to pass often long and tedious testing processes before any payment is made. This allows especially early-stage startups to first revenue and reduces the risk of passing through the government system. 

Direct investments come from the DefInvest Fund, controlled by the Ministry of Armed Forces and the public investment bank. It is a 50m€ venture fund that (co-)invests between 500k€ and 5m€ tickets in defence startups. It is important to note that driving innovation is not the only goal here. The French government is very active in managing the economy and the creation of employment and industrial production inside France is as important as the creation of innovation. This mix of goals can be risky as will be seen see later.

Beyond direct investments, government accelerators like the incubation program “Defence Lab” foster collaboration between startups and the military by enhancing experimentation and rapid deployment of new technologies. France is also trying to build, finance and grow tech clusters. Some of these are natural like focusing on Aerospace in Toulouse (the headquarters of Airbus) while others like the cybersecurity hub in the area of Rennes might also have something to do with economic policy.

Successes of defence tech

France aims to build a strong defence industry in key areas and already has some players to show that the strategy works. 

In Artificial Intelligence startups, Preligens uses AI for intelligence and surveillance. The Series A company was sold to the French enterprise Safran for 220m€ in 2024. While it is an open question how innovative (or independent) the company will stay inside the massive industry player like Safran, it was an important example of a successful exit which is still a challenge in the field in France and Europe alike.

In hardware, Exail Technologies is a leader in autonomous robotics for maritime and underwater applications. The company recently won a significant contract to develop autonomous underwater vehicles (AUV) for the French Navy. Exail's technologies are used in over 80 countries, and they've seen substantial growth, with revenues exceeding €180 million in 2023.

While not a startup per se, France is investing heavily in quantum technologies through various initiatives. The government has committed €1.8 billion to quantum research and development over five years. Several startups and research institutions are working on quantum cryptography and secure communications, though specific company details are limited in the provided information.

Going beyond pure defence-tech and dual-use startups, the French ecosystem overall managed to progress in the area of deep tech. The number of deep tech startups in France increased by more than 50% between 2019 and 2021, from 165 to 250 annually. There are now approximately 2,500 deep tech startups in France, representing 8% of all French startups which raised 28% of the total amount raised by French startups in 2022.

Conclusion: La French Tech under pressure

Large parts of French Tech in general and for the defence setting read like a success story. Indeed, France produces players that compete on the global stage producing regularly significant processes. Nevertheless, there are old problems and new problems that put pressure on the system and create challenges.

While France took steps to remove regulatory constraints, they still exist. The military is still the military and red tape is still often found. Navigating bureaucracy can slow down innovation processes within the sector. While direct investments are made to defence startups and they can receive first revenues early on, they will still compete with the large established players. While this is the case for every country, in France companies like Thales or Dassault are traditionally very closely, maybe too closely linked to the government. While those established companies also try to link themselves to startups (Thales for example has its incubation program at Station F), they will still try to win government contracts for themselves.

On a more business level, France is facing similar challenges as the rest of the European continent. The exit market and growth investments in later stages remain a challenge. This is overall a problem for startups, but especially defence startups might hesitate to work with the typical growth investors from abroad given the sensitive nature of their business. 

More recently the stability of the French political system became more prominent. Beyond the political and macroeconomic consequences of a government without a majority and a difficult political climate, this might bring real consequences to the startup ecosystem. The new government (consisting of the right and some centre ministers of Macron’s party and more or less tolerated by the extreme right under Marine Le Pen) is faced by a budget crisis. So far the French economic development has been positive over the last few years, but the budget deficit will now force the French government to increase taxes or cut the budget. Increasing taxes could be detrimental to economic growth. Cutting expenses can always spark social unrest if it touches the social sector so the government might look for other parts of the budget. So far investments in the Entrepreneurship sector are not up to debate. But additional investments are becoming unlikely and if the situation deteriorates, the tech sector might face cuts in the future.

The outlook for France's defence startup tech sector is cautiously optimistic but faces notable challenges ahead. While the ecosystem has made more than significant strides, particularly in fostering dual-use technologies and advanced technologies, sustaining this momentum will be crucial. Budgetary pressures from the French government, coupled with potential political instability, may limit future investments and create uncertainty for defence startups relying on state funding and support. Additionally, navigating entrenched competition from established players like Thales and Dassault, which are closely linked to the government, could slow down innovation. France's ability to maintain a balance between fostering innovation in defence startups, ensuring strategic autonomy, and managing fiscal constraints will be key in determining the sector's future success. Besides country-specific problems, many challenges that other European ecosystems face are very similar. Navigating these challenges will determine not only the future of France’s defence startups but also their contribution to Europe's broader goal of building a resilient and autonomous defence tech landscape.

News That Caught Our Attention 👀

  • US Armed Forces procure more outside of existing frameworks - Austine Gray

  • Battle of precise mass - Foreign Affairs

  • Inside a U.S. Military Shift to Deny China ‘Big, Juicy’ Targets - WSJ

  • White House pushes for a fast adoption of AI in DoD & intelligence agencies - DefenseScoop

Every week we feature a list of interesting roles in European DefenceTech start-ups and scale-ups for readers seeking their next challenge in their careers.

If you are a founder and would like to promote your open roles, please get in touch with us!

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European Resilience Tech Newsletter Team

Uwe Horstmann co-founded Project A Ventures in 2012 as General Partner and has built Project A to be a leading European early-stage investor with over $1bn USD under management and having backed 100+ founders. In addition to Project A, Uwe serves as Reserve Officer in the German armed forces and advises the German Ministry of Defence in digital transformation issues.

Jack Wang is a software engineer turned product-driven tech investor and joined Project A in 2021 to lead the firm’s deep tech investing, which has grown to include DefenceTech. Prior to joining Project A, Jack worked in a variety of organisations such as Amazon and Macquarie Group across Australia, US and UK / Europe. Jack holds a MBA from London Business School and Bachelors of Engineering (Bioinformatics, 1st) from UNSW, Australia.

Jannic Meyer joined Project A initially contributing to what is now known as the Project A Studio, partnering with founders at the pre-idea stage, where he covered a variety of topics ranging from energy infrastructure to dual-use robotics and led our investment in ARX Robotics. He is now part of the investment team at Project A covering all things resilience.

Project A Ventures is one of the leading early-stage tech investors in Europe with offices in Berlin and London. In addition to 1 billion USD assets under management, Project A supports its 100+ portfolio companies with a platform team over 140 functional experts in key areas such as software and product development, business intelligence, brand, design, marketing, sales and recruiting. Project A have backed founders of Trade Republic, WorldRemit, Sennder, KRY, Spryker, Catawiki, Unmind and Voi as well as founders building in European Resilience: