French VC Activity Down 36.4% in Q1-2025

Internal political turmoil took a heavy toll on the French economy as its Venture Capital (VC) activity registered its worst first quarter in 2025 for VC investment in five years. This is the country’s lowest quarterly total since Q2 2020.

According to PitchBook’s Q1 of 2025 France Market Snapshot, only $1.58 billion was invested in French start-ups in the first three months of the year, a 36.4% drop from the same period last year. Even the deal count was also lower than historical norms as a total of 227 rounds closed in Q1 of this year, compared with 330 for corresponding period in 2024.

Only one mega-deal, defined as $113.01 million or more, closed during the quarter. Quantum computing startup Alice & Bob raised $113.01 million Series B in January, led by Future French Champions, AVP and Bpifrance.

France’s economy as a whole has been significantly impacted by the political fallout from President Emmanuel Macron’s decision to dissolve Parliament last June and hold early elections, which resulted in his party losing the majority.

The appointment of Michel Barnier, who was Prime Minister between September and December 2024, failed to stabilise the government, and a historic no-confidence vote ousted him in December. Much of the conflict surrounding the government came from its proposed budget, which sought to save $67.81 billion through spending cuts and tax rises.

Concerns from the start-up community mounted as the proposal suggested scrapping the “Jeune Enterprise Innovante” tax break that exempts early-stage companies from paying mandatory employer contributions on the salaries of R&D staff.

The final budget for 2025, presented by new Prime Minister Francois Bayrou, softened some of the measures proposed by Barnier but still introduced notable constraints for startups. The JEI tax exemption was preserved, but now requires startups to spend at least 20% of their costs on R&D instead of the previous 15%.

Funding through the France 2030 program, which offers financial support for start-ups, was reduced by 30% compared to 2024. The criteria for R&D tax credits were also narrowed, making it harder for the start-ups to qualify.

While the budget offered clarity for France’s startup ecosystem, several months of the government’s inability to pass key legislation or offer clear long-term policy direction dampened the enthusiasm of the investors.

Further uncertainty from the proposed US tariffs on the EU has also increased volatility for the region as a whole, including France, PitchBook said.

Aritifical Intelligence (AI) still remains a bright spot for France’s VC market, led by unicorns such as LLM developer Mistral and coding AI startup Poolside. The sector recorded $192.35 million in funding in Q1, up nearly 35% y-o-y, the PitchBook data showed.

European Fundraising

In Q1 2025, Europe’s venture funding stayed at $12.6 billion, showing no change from the previous quarter and y-o-y comparisons. Funding levels in the region have remained between $10 billion and $16 billion per quarter since the 2022 downturn, with recent quarters on the lower end.

European venture activity remains stronger than in pre-pandemic years, with 2023 and 2024 both outperforming 2020 and earlier. In Q1 of 2025, Europe accounted for 11% of global venture capital, down from 16% in 2024.