Financially support a young company in the seed phase, participate in a human and entrepreneurial adventure, believe in a project and promote its development … this is the credo of business angels.
Also known as “angel investors”, these men and women often networked voluntarily devote a portion of their personal wealth to the capital of innovative companies. With, deep inside them, the hope to see these start-ups take off, allowing them at the same time to achieve a beautiful financial operation. “Of course we do everything to have the best return on investment possible, but that’s not our primary motivation. To become a business angel, you must first and foremost have a passion for entrepreneurship, and especially the desire to advance technologies that will build the world or the health of tomorrow, “says Alain Pujol, a member of Angels Santé’s office, specialized network dedicated to life sciences and new technologies applied to health.
Because, in addition to their money, it is also time that these individuals make available to entrepreneurs to whom they bring their trust. “We offer them our experience, help them step back and ask the right questions at the strategic committees we are part of, and we open up our own networks of relationships and professionals,” says Florence Richardson, co-chair of the network. Women Business Angels, the first female network of Business Angels in Europe. And this, “without ever taking control of society,” she says.
It is certainly rewarding for these investors, who not only find a way to support companies in the making, but also diversify their wealth strategy, but the adventure is not risk free. Which are proving even higher as the investment tickets vary between 10,000 and 200,000 euros. “We intervene at the start of the company when its first financing needs are important and where there is still no real visibility on its development,” says Alain Pujol. Hence random gains, or rarely to go. “Unless you come across a real nugget, there is no assurance of performance. In general, out of 100 supported companies, 20 to 25 do not survive the first five years, between 65 and 70 vivotent and 10 to 15 allow honorable outflows by doubling or sometimes 20 the initial investment, “says Tanguy de La Fouchardière, President of France Angels, a French federation of 75 business angel networks representing around 5,000 active private investors.
Low tax incentive
Another black point of this investment: its illiquidity. “There is indeed no secondary market that can sell its shares or shares at any time. To recover your money, you have to wait for an exit window, for example with the entry of a new investor, the sale of the company, or even an IPO, according to a timing that we do not control, “warns Florence Richardson.
And useless today to hope a tax boost to limit this risk taking. Reason? With the transformation of the solidarity tax on wealth (ISF) into property tax (IFI), the tax deduction for the ISF-SME business angels had until now disappeared. “If, a few months ago, this device could be a buffer to the various risks associated with this type of investment, it is finished,” notes Florence Richardson. “We must now forget the idea that it can be realized for the sake of tax optimization. ”
Little consolation, the reduction to the income tax conditionally granted for the subscription in cash to the capital of small and medium unlisted companies is maintained. Better still, it was raised exceptionally in 2018, from 18% of the annual amount of sums committed to 25%. But the actual increase of this rate was subordinated to the publication of a decree related to the necessity to notify this measure to the European Commission … which has not yet been published. It is therefore possible that investors in 2018 must settle for a rate of 18%. An amendment to the draft budget law for 2019, which shifts by one year this increase to 25% of the Madelin device, was adopted by the Finance Committee and will be presented to the Assembly.
Finally, warns Tanguy La Fouchardière, “this advantage enters the calculation of the cap of tax loopholes which sets at 10,000 euros per year the maximum threshold of deductions and tax credit allowed for the same household tax. Which therefore reduces by extension the incentive effect of this gesture of Bercy paradoxically supposed to encourage this type of investment in the real economy.
The choice of the network
Hence the importance for a business angel to select the company to which he wishes to contribute his funds. And this often starts with choosing the network or networks to become a member because of this decision arise the requests for financing of companies to which it will have access. “All networks are different in nature,” confirms Tanguy de La Fouchardière. “When some focus on a specific region, others are specialized in a particular sector of activity such as health or the maritime world, for example, or are reserved for alumni of grandes écoles such as Polytechnique. ”
This first step made, remains to sort through the various projects presented. While some differences may exist depending on the networks, in general, a first skimming is performed each month by a selection committee. Only four or five files are then retained and the project holders concerned are invited to explain their plan to all members of the network. “If everyone then decides individually on their investment at the end of an instruction conducted by some members interested in the file and then shared within the network, all take part in the discussions and can give their opinion,” says Alain Pujol .
Personality of the management team, innovative nature of the project, market opportunities … are therefore all criteria to be taken into account when choosing whether or not to provide financial support to a young company. While keeping in mind, concludes Florence Richardson, “that in light of the risks taken, the amount invested should be only a small part of its assets”.
Banking on private equity
At a rate of 6.3% average annual performance between 2008 and 2017 according to the latest study by France Invest, an association of investors for growth, French private equity outperforms other large asset classes in the long term. In comparison, over the same period, the CAC 40 yielded on average only 3.2% per year, real estate 4.5% and hedge funds, 2.7%. What to push investors to take an interest in this type of investment.
Better known as “private equity”, it consists of entering the capital of unlisted companies via funds or even funds of funds. Goal ? Diversify its wealth while financing the development and expansion of private companies whose valuation is weakly correlated to the stock markets. Accessible from around 400,000 euros (50 to 100,000 euros for funds of funds), this type of investment involves a long-term horizon and increased vigilance regarding the management team to entrust its money.