In 2025, funding for startups in France decreased by 5% as the focus on AI intensified.

      French startups secured €6.7 billion in 2025, marking a 5% decline from the previous year, even as the US experienced a 38% increase and Europe overall grew by 12%. A significant 25% of the total capital raised was attributed to Mistral. AI funding represented 43% of the total, while the defence tech sector saw a remarkable 148% surge. However, exits fell to a five-year low at €5.3 billion.

      A recently published report by Alexandre Dewez, a partner at venture capital firm 20VC, outlines a French tech ecosystem increasingly reliant on a few AI firms, while other sectors face stagnation. In 2025, French startups engaged in 411 funding rounds, reflecting a 5% decrease in capital and a 21% drop in the number of deals compared to the prior year. This contrasts sharply with the US’s 38% annual growth in startup funding and Europe’s overall 12% rise.

      The report, which includes around 100 slides of data on funding, exits, unicorns, and sector trends, highlights that while France produced its first decacorn, it is struggling to develop a wide range of successful startups indicative of a maturing ecosystem. Mistral’s Series C raised at an €11.7 billion valuation was a standout milestone for 2025, yet without Mistral, the landscape appears significantly weaker.

      AI is thriving, yet France lacks key category leaders

      In 2025, AI emerged as the primary growth driver for the French ecosystem, with 23% of funding rounds compared to 13% in 2024, and accounting for 43% of total capital raised, up from 27% the previous year. Notable mega seed rounds included H at €212 million, Genesis at €97 million, Gradium at €64 million, and Bioptimus at €32 million.

      However, the report highlights a critical issue: unlike other European nations, France lacks prominent category leaders in the most commercially lucrative areas of AI. The UK boasts ElevenLabs in voice technology, Sweden has Lovable in vibe-coding, and Germany is home to Parloa in customer success and n8n in AI automation. Even Mistral, regarded as France's leading AI company, struggles to dominate its sector against competitors like OpenAI, Anthropic, Google, and Meta.

      Mistral's European identity enables it to serve companies seeking a sovereign AI solution, which has become its distinguishing feature rather than technical advantage. The firm has lost its initial lead in open-source and now competes in a multi-modal AI environment dominated by larger US and Chinese corporations with more financial resources and computing power.

      Pennylane shines as the top performer

      The report identifies fintech company Pennylane as the top French startup for 2025. This accounting software firm surpassed €100 million in annual recurring revenue, achieving a 130% year-on-year growth, and completed two funding rounds within a single year at valuations of €2 billion and €3.9 billion.

      Pennylane has diversified from exclusively providing accounting software to becoming an ERP and neobank for French small and medium-sized enterprises, and has expanded into Germany. It stands out as a rare French startup achieving scale and metrics that attract leading international investors.

      Defence tech emerges as the second hottest sector after AI

      European defence tech startups raised $1.6 billion in venture funding in 2025, representing a 148% year-on-year increase, making defence the second largest growth category after AI. In France, 18 defence startups raised €228 million, a 25% growth from the previous year.

      A significant development occurred in January 2026 when Harmattan became France’s first defence unicorn after acquiring $200 million in Series B funding led by Dassault Aviation, known for the Rafale fighter jet. Harmattan develops autonomy and mission systems software for defence aircraft, and French President Emmanuel Macron publicly recognized the deal as a victory for the nation’s strategic independence.

      This broader boom in European defence tech is fuelled by geopolitical tensions, with governments across the continent increasing military spending in response to the war in Ukraine and shifting security dynamics. While Germany captures the largest share of European defence tech funding, France is establishing a niche in AI-enabled military technologies.

      US investors dominate French venture capital

      One notable finding from the report is the substantial presence of US capital in French startup funding. American firms participated in funding rounds that represented 55% of the total amount raised in 2025, with a significant portion allocated to AI companies, particularly foundational model developers like Mistral, Genesis, and Gradium.

      At the Series A level, only 30% of the top 20 funding rounds in 2025 were led by French funds, with pan-European firms leading 60% and US funds overseeing 10%. Historically, firms such as Index Ventures, Accel, and Balderton were among the few pan