By Christophe Rouvière | Les Echos.fr
The opportunity to create new industrial sectors centered on green technologies depends largely on the proper financing of our industrial start-ups.
For term in office after term in office, our political leaders have been calling for reindustrialisation in France, or the investment in public research which is deemed necessary. When doing so, they ought to take a closer look at the actual amount of capital invested in the start-ups which are truly capable of developing new industries.
Although large corporations invest massively in research and development, they rarely focus on coming up with designs that disrupt existing products or economic models. It turns out start-ups are much more determined to shake up the established order and move at a rate which fits with the speedy demands of international competition.
In 2015, France came 5th among OECD countries in terms of its spending on public research and development, and 0.86 % of GDP is no small feat to be proud of. However, in the* 2018 world innovation index which is published every year by the OMPI, Cornell University and INSEAD, France dropped a rung, falling into 16th place. Meanwhile, the leading trio remains unchanged (Switzerland, Holland and Sweden). The aptly entitled 2018 edition « Innovation, a worldwide energy source », also highlighted the need to deepen innovation in environmentally-friendly green technology sectors, against a backdrop of growing energy demands.
Insufficient and ill-adapted funding
France boasts highly reputed large scale research laboratories which are global pack leaders in the energy and automotive sectors, the environment, chemistry…, and quality agriculture. So the country already has the essential talent it needs to hatch new industries and create the employment opportunities that go with them, especially in ecology and energy transition. Nonetheless, a major obstacle stands in the way of these new industries and prosperity : the money devoted to them is pitifully insufficient.
Many say that there has never been so much available money on the market, and that having hold of a good project is itself enough to find backing. This popular belief is an utter misconception. One must first distinguish the funding available for listed companies (a superabundance of capital) and the rest. According to the 2017 annual study conducted by France Invest and the Grant Thornton company,14.3 billion EUR were invested in 2142 unlisted French companies. However in the venture capital segment for innovation, which concerns companies which aren’t yet profitable or don’t have any turnover, 847 companies received 1.2 million EUR, which is 1.5 million EUR on average.
This average amount may be enough to start a small capital company in the digital or IT sectors, but it equates to underfunding for an industrial demonstrator. Likewise, the average holding period for a capital-innovation fund is 5 years, which is enough for a digital enterprise, but not an industrial one. It can easily take 6 to 8 years for an industrial product to move from the design stage to sale of product (demonstrator, prototyping, pre-production runs, client testing…) and more than 20 years for a new kind of chemical battery.
In a nutshell, venture capital investments, which are well adapted to short cycle innovation, are missing the boat when it comes to industries which need to build factories. It is thus not surprising that our industrial start-ups are often bought out or financed by foreign investors, that it takes almost two years to raise funds, or that many of them conk out due to lack of treasury!
In the ecology and energy transition sectors, the amount of innovation capital available to invest in our future national champions in highly insufficient.
According to figures for 2018 communicated by the Cleantech Group, 168 million euros were invested in French seed level and series A start-ups in cleantech with a hardware or industrial component, 55 million of which were solely attributed to InnovaFeed… compared to 1700 billion EUR attributed to life insurance! That’s 1700 billion EUR invested in debt or outdated professions, which is 0,01 %! France, is this how you carve out your future?
If this amount is not exponentially increased, our industrial entrepreneurs will not be able to create new routes for facing the economic, social and environmental challenges we must actively prepare for.
Mr President, « Stronger, faster, further », those were the words you spoke to a schoolboy on the 7th of March of this year about ecology, but it will only be possible if you urgently address the funding question looming over our industrial start-ups. The industrial future of France and Europe are at stake.