What should we expect from FT120, Next 40’s little brother?

By - 13 January 2020

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In a week’s time, we will find out which startups have made it in the French Tech 120. This index complements the Next 40 and will offer a selection of startups personalised support from government services.

The choice of selection criteria raises questions about the shape this pool of promising startups will take and its objective: does it aim to propel high-potential startups by giving them the benefit of significant media exposure? Or does it aim to build a dynamic index like the SB120, that classifies high calibre startups that are already established, based on financial criteria?

Much like the Next 40, the government has presented the FT120 as an index. A stock market index is defined as an indicator of the general change in the value of securities listed on a specific stock exchange. If we are indeed talking about an index for the Next 40 and for the FT120, then companies would have to enter and exit based on the values that have been determined, in this case their turnover, and this list would not be static.

Furthermore, if the FT120 is designed as an index, it should include companies of comparable sizes, maturity stages and levels of independence. Yet, we are already familiar with the French Tech “métropoles” competition to select startups from all territories, including overseas, meant to respond to the criticism of an overly Parisian Next 40.

With regards to the selection criteria for future French Tech champions, the government has chosen to focus on funds raised and hypergrowth. The first half of the spots in the index will be allocated based on the startup’s turnover, and the rest will be based on the amount of funds raised: at least €20 million in equity over the last two years.

This choice effectively renders fast-paced growth a reference model. Yet, some startups have managed to implement a robust strategy to achieve profitability quickly, at the expense of faster growth. When profitability remains a distant hypothesis and hypergrowth has no clear economic foundation, it can come to an abrupt halt.

Furthermore, by setting a minimum amount of funds raised, the index automatically excludes companies that have not required significant fundraising. Although mega-financing attracts the attention of the media and investors, why include these startups in a programme that aims to give more visibility to the selected companies? The success of a startup does not depend solely on its ability to raise large amounts of money – the bankruptcy of the delivery startup Take Eat Easy and the turbulence encountered by WeWork in recent weeks are proof of this.

The question that ensues is therefore how to determine the right benchmark for French Tech. Can we measure the value of our ecosystem through the amount of funds raised and companies’ growth rate? By selecting these criteria, we choose to focus on the cash flowing into the ecosystem and not on the cash flowing out. The difference is stark: French exits do not match the valuations given to startups yet. The latter do not succeed in reaching IPOs or in generating enough national buyouts to start a virtuous circle of ecosystem financing.

Ultimately, there are many issues at stake in setting up the FT120, as the startup ecosystem is such a key source of jobs and growth. Faced with fierce competition from the United States and China, France has many assets to highlight: high-level academic research, major R&D investments, and highly qualified engineering and scientific profiles. Rather than take part in the unicorn race, this index offers an opportunity to support tricolour gems which, thanks to their innovation, can meet this sovereignty challenge.

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