25 French unicorns, 25 French unicorns, do I hear 100?

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My home country’s president, Emmanuel Macron, wants to have 100 French unicorns by 2030. Economy minister Bruno Le Maire, 10 homegrown decacorns. But shouldn’t we all dream of centaurs instead? Let’s explore.  —Anna

Moderation brewing

There must be 100 French unicorns by 2030, Macron said at the VivaTech conference in Paris earlier this month. “It is achievable,” he later argued on Twitter. “And because startups have a role to play in the ecological transition, let’s set another goal: 25 green unicorns by 2030!”

It isn’t new for Macron to set unicorn-related goals for the country. He famously already did so in 2019, when he wished for the country to count “25 unicorns by 2025.” And despite some debate around France’s exact unicorn tally, the consensus is that Macron’s goal has actually been reached this year.

French economic newspaper “La Tribune” did the math: For France to be home to 100 unicorns by 2030, it will need to add nine or 10 unicorns a year. According to the newspaper, this makes Macron’s goal “quite realistic, or even unambitious.” Why? Because in 2021, “La French Tech” “generated 11 new unicorns, which is more than the pace predicted by the President’s forecast for the next eight years.” However, that would still be a lot faster than in 2019 or 2020.

Speed aside, France’s goal doesn’t seem terribly aspiring when put into a global perspective. India, for instance, recently crowned its 100th unicorn, Bengaluru-headquartered neobank Open. Sure, France has a population of only 67.39 million, compared to more than 1.38 billion in India. But it’s not just about population size. For France to be on par with the U.S. in terms of unicorns per capita, it should already have 130, BlaBlaCar founder Frédéric Mazzella told Les Échos in an interview.

However, the market has turned on startups in recent months, which doesn’t exactly support overly ambitious goals. France minted a bunch of unicorns in January of this year, but those deals were presumably born out of late 2021 dealmaking, when capital flowed more freely. That euphoria is long gone, and young unicorns are becoming a rare animal once again.

Furthermore, aside from Deezer’s SPAC plans, IPOs seem to be paused in France as much as they are in the U.S. That means that French unicorns are likely to stay private longer, keeping their number artificially high. And with the inertia of them having already raised mega-rounds and needing more cash, those who don’t see their valuations slashed will perhaps become pentacorns or even decacorns.

More than unicorns

Macron’s announcement at VivaTech somewhat eclipsed what his economy minister said at that same conference after celebrating France’s current unicorn stable. The minister also set a goal for the country’s startup market: “I am giving you other goals: Ten decacorns in 2030, five in 2025,” Bruno Le Maire told the audience.

It doesn’t have to be one or the other; France can have 100 private companies worth $1 billion and 10 worth more than $10 billion at the same time. And those two goals may nest in another of Macron’s objectives: that within the next 10 years, Europe should grow 10 “tech giants” worth €100 billion.

The amounts vary, but all of these goals focus on which companies are more valuable. And if there’s anything we have had to relearn in recent weeks, it is that valuations are volatile. This is true for public companies, but it is also true for their private peers. Just ask Instacart, which reduced its valuation from $39 billion to $24 billion last March. Or to European BNPL provider Klarna, which is said to be considering raising a significant down round.

The current downturn is making France’s overemphasis on valuation doubly anachronistic because valuations are fluctuating, but also because attention is shifting back to what makes or breaks a company: revenue.

Ideally, investors would like a scale-up to show both growth and profitability. But if they have to choose, their preference has shifted.

As The Exchange reported, based on the latest cloud report from VC firm Battery, “companies that meet the Rule of 40 even with modest growth are more valuable than startups that are growing quickly and fail the Rule of 40 test.” (The Rule of 40 says that a company’s profitability and growth rate, expressed in percentage, should add up to 40.)

And according to Bessemer Venture Partners’ Mary D’Onofrio and Adam Fisher, the problem with unicorns is that when it comes to revenue, they “can be illusions, often appearing a lot bigger than they are in reality.” What the pair cares about is annual recurring revenue, ARR.

With out-of-control multiples like we have often seen in 2021, a huge valuation isn’t always correlated to really impressive ARR. And what’s really impressive ARR? According to BVP, that’s ARR above $100 million — centaur status, in the firm’s dictionary.

Seeing reactions to Macron’s tweets, most people still don’t know what a unicorn is in startup speak. You can hardly call politicians out of touch for using the term in a speech, rather than an even more recent concept like “centaur.” But with inflation everywhere, it wouldn’t be surprising to see European goals inflate, too. How long before someone calls for a herd of centaurs? We’ll be watching.