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For Startups, the French Government Lags Behind

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France Digitale, an association of entrepreneurs and investors, had two demands for the French government as they began Les Assises de l’Entrepreneuriat, a series of talks about the effect of government policies on entrepreneurship.

First, the capital gains tax had to be on the agenda. And second, Les Pigeons – the grassroots movement to defend entrepreneurs’ interests – had to be allowed to participate.

“We said that we don’t want to speak about entrepreneurship if you maintain a tax scheme that would result in a dramatic decrease of investment in companies, because for startups capital is really like water,” explains Jean-David Chamboredon, a spokesperson for Les Pigeons and a board member of France Digitale. “If you don’t have capital, you die.”

Capital gains

Minister delegate Fleur Pellerin accepted those terms, and the debates began in January. Three months later, French president Francois Hollande got up on stage to announce the new measures that the government would put in place to support entrepreneurs. They included more tax breaks for startups, a startup visa, benefits for student entrepreneurs, and – thankfully – a simplified and lower capital gains tax than originally proposed.

It was a big step for France, but some entrepreneurs believe it must go further. Alice Zagury, cofounder and CEO of TheFamily, got passionate and insistent when she spoke to me about France’s entrepreneurial future, alternating between English and French. When she thought of starting an accelerator, her friends and colleagues told her that the opportunity was elsewhere, outside of France. But she felt like a revolution was coming, and she wanted to be there to take part.

“This is just the beginning,” says Zagury, referring to Hollande’s announcement. “They are a little bit lost in the changes that are happening. I think they just don’t get it, and there is a lack of action and lack of anticipation and a lack of openness. . . The problem is that you still have old guys keeping the doors locked at every stage of the innovation process.”

“This is the fight,” she adds. “It’s to really help entrepreneurs grow from our country, and to be proud of it, and to encourage it, and to help young students to learn how to code, to place value on entrepreneurship.”

“I hope that they put things into play,” says Roxanne Varza, a former TechCrunch France editor who runs Microsoft BizSpark in Paris. “It’s one thing to talk a nice talk, but I really hope that they execute on it.”

Employment laws 

But before they even look to raise funding, startups have to decide who to hire. And that decision can be fraught with worries and complications, thanks to the French droits du travail, or employment rights.

Many American employees are accustomed to “at-will employment,” which basically means that you can get fired for almost any (non-discriminatory) reason – particularly if you’re not performing well. Not so in France, where the laws make it much harder to fire.

If you have to dismiss someone for personal reasons (as opposed to economic ones), you have to have a “real and serious” reason and discuss that reason with the employee in a formal meeting. You must also send them a letter stating that reason. “Just referencing the seriousness of the charges, a loss of confidence, or poor performance is not a sufficient reason,” the government’s website explains. If the employee has worked for you for over two years, you must give them a notice of one or two months.

If you dismiss someone for economic reasons, you’ll have to offer severance pay amounting to 1/5 of their monthly salary times the number of years they’ve been working for you. (For example, if they earn $50,000 and have been working for you for two years, that’s $1,600.) You still have to go through the meeting and letter process, and respect the “order of layoffs.” Even if you’re firing just one person, you must have taken into consideration things like their seniority, age or disability that makes it harder for them to find another job, and family expenses (like those of single parents).

Though these are firing rules, their effects reach all the way back to hiring – and they aren’t particularly good. Laurent Kretz, the organizer of monthly Start In Paris events and cofounder of 365Apps, says that he’s at a point where he might hire three people. But since he’s not sure how long their positions will last – depending on how well his startup does – he decided not to. And he says that even part-time employees come with their own regulations and requirements.

Auto-entrepreneur 

Another government policy that has a direct effect on entrepreneurs is the auto-entrepreneur or sole proprietorship/self-employed status. Entrepreneurs can sign up online in 15 minutes to register as a one-man or one-woman company. As an alternative to forming a full business, it allows you to pay simpler and reduced fees.

But the auto-entrepreneur status is only useful up to a point: now, up to precisely €32,600. Above that, and you have to register as a full business and pay higher and more complicated fees. Not only that, but the government is thinking about reducing that limit.

“They want to lower the cap from €30K to €20K, and you can imagine that with €20K it’s difficult to live,” explains Chamboredon. €20,000 euros is around $26,000.

And while this will only officially affect one-man businesses, in practice it actually affects all startups. Although auto-entrepreneurs are supposed to have multiple contracts (if they’re working for other people), in practice some auto-entrepreneurs basically work as startup employees. But since they technically don’t have employee status, the startups are able to bypass the complicated employment laws. If the government lowers the auto-entrepreneur cap, the pool of attractive startup employees decreases.

Benefits for entrepreneurs 

Of course, the picture is far from grim. The government is also putting its money to work to help entrepreneurs, as best it can.

The flipside of all those onerous employment laws is unemployment benefits. (Since it’s so hard to fire, they can pay more to those who do get fired.) People who are unemployed and want to start businesses are entitled to unemployment insurance that runs the same amount of time they were employed (from four months up to as long as three years).

For example, Wimi president Lionel Roux took advantage of unemployment benefits for a full 16 months. “That alone tremendously reduced my personal risk and critically helped the company cash flow in the early stage,” he says.

Entrepreneurs can also try for a variety of loans or grants. Oseo, for example, is a program that offers loans for innovative companies with no interest and no personal guarantee. It’s administered by Bpifrance, a public holding that reports to two French ministries. Since 2005, they’ve also offered grants and joined private investors in funding startups. Samantha Pastour, the cofounder of Bill’iz, got €30,000 from Oseo and says “it’s easy in Paris to make a startup.”

Inspired by Tech City in London, the government is also working on an initiative called “Quartiers Numeriques,” which translates to something like “Digital Neighborhoods.” The government announced it in October 2012 and has dedicated at least €200 million to the project, which hopes to aggregate support and services for startups in one area of Paris and make the French digital sector more attractive internationally. The government is currently considering proposals.

Finally, France’s research tax credit – or Crédit d’Impôt Recherche - is boasted to be one of the best in Europe, paying small and large companies to do innovative research. But according to Chamboredon, some reasonable applications have been refused and entrepreneurs have been forced to return the money.

“It’s a significant amount of money for startups – it’s probably close to €20-25K per engineer per year. If you don’t know if you will get the money, by definition it’s difficult to hire people, it’s difficult to grow – it’s difficult to manage your business, basically,” he says.

Perhaps this is why some French entrepreneurs would prefer that the government just leave them alone, laissez faire. “I’d like them to do nothing – not help us or not un-help us,” says Kretz.

And perhaps the most entrepreneurial attitude of all comes from Jean-Daniel Guyot, cofounder of Capitaine Train. “For those who succeed, the French state was – as a matter of fact – not an issue. Doing such bashing [of the government] is a good way to do nothing else than bashing,” he says. In other words, as we like to say in the US, just do it.

 

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About the Author

Kira M. Newman is a Tech Cocktail writer interested in entrepreneurship, work-life balance, and positive psychology. Since 2011, she has been traveling around the world interviewing entrepreneurs in Asia, Europe, and North America. Follow her @kiramnewman or contact kira@tech.co.

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