Posted 6 Dec. 2018 at 19:06Updated on Dec 7. 2018 at 9:48
Also known as “angel investors”, these men and women, often gathered in a network, voluntarily dedicate part of their personal assets to the capital of innovative companies. With, deep down, the hope of seeing these start-ups take off, while allowing them to carry out a large financial operation. “Of course, we go to great lengths to get the best possible return on investment, but that’s not our main motivation. To become a business angel you must above all have a passion for entrepreneurship and above all the desire to advance the technologies that will build the world or the health of tomorrow.acknowledges Alain Pujol, board member of Angels Santé, a specialized network dedicated to life sciences and new technologies applied to health.
Because, in addition to their money, it is also time for these individuals to make available to the entrepreneurs in whom they place their trust. “We offer them our experience, we help them to take a step back and ask themselves the right questions during the strategic committees we participate in and we open our relational and professional networks to them”explains Florence Richardson, co-president of the Women Business Angels network, the first female Business Angels network in Europe. And this, “Without ever taking control of the company”ensures.
Certainly gratifying for these investors who find there not only a means to accompany companies in the making, but also to diversify their capital strategy, the adventure is not without risks. Which turn out to be much 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 significant and when there is still no real visibility on its development”, Alain Pujol points out. Hence random earnings, even rarely at the date. “Except for stumbling upon a real nugget, there is no guarantee of performance. In general, out of 100 supported companies, 20 to 25 do not survive in the first five years, between 65 and 70 survive and 10 to 15 allow honorable exits by multiplying the initial investment by two or sometimes 20.indicates Tanguy de La Fouchardière, president of France Angels, a French federation that brings together 75 networks of business angels representing approximately 5,000 active private investors.
Low tax incentive
Another black point of this investment: its illiquidity. “In fact, there is no secondary market that can allow you to sell your shares or shares at any time. To recover your money you must therefore wait for an exit window, with for example the entry of a new investor, the sale of the company, or even an IPO, according to a timing that we do not control.Florence Richardson warns.
And today there is no need to hope for a tax increase to limit this risk-taking. Template ? With the transformation of the solidarity tax on assets (ISF) into IFI: what are the deductible debts?the tax deduction in the context of the ISF-PME which until then the business angels benefited from has effectively disappeared. “If, a few months ago, this system could represent a cushion for the various risks associated with this type of investment, it’s over”, observes Florence Richardson. “Now we have to forget the idea that this can be done for the sake of tax optimization. “
Small consolation, the Tax exemption: disappointment for investments in the capital of SMEs it is kept conditionally granted for the subscription in cash of the capital of small and medium-sized unlisted companies. Better yet, it was exceptionally raised in 2018, from 18% of the annual amount of committed sums to 25%. But the actual increase in this rate was subject to the publication of a decree linked to the need to notify this provision to the European Commission… Which has not yet been published. It is therefore possible that investors in 2018 will have to settle for a rate of 18%. An amendment to the budget bill for 2019, which moves this increase to 25% of the Madelin system by one year, has been adopted by the Finance Committee and will be presented in session to the Assembly.
Finally, warns Tanguy de La Fouchardière, “This advantage is included in the calculation of the tax loophole ceiling which sets the maximum threshold of deductions and tax credits authorized for the same fiscal family unit at 10,000 euros per year. This therefore reduces by extension the incentive effect of this gesture by Bercy, which paradoxically should favor this type of investment in the real economy..
The choice of the network
Hence the importance for a business angel to carefully select the company to which he wishes to contribute his funds. And this often begins with the choice of the network or networks to join because this decision gives rise to the requests for financing of the companies to which it will have access. “All networks are different by nature”confirms Tanguy de La Fouchardière. “While some focus on a specific region, others specialize in a particular sector of activity such as health or the maritime world, or are reserved for alumni of large schools such as Polytechnique. “
After this first step, it remains to order among the various projects presented. If there may be differences between networks, generally, a first screening is carried out every month by a selection committee. Only four or five files are then kept and interested project managers are invited to explain their plan to all members of the network. “Then, if everyone individually decides their investment following a survey conducted by some members interested in the practice and then shared within the network, everyone takes part in the discussions and can thus express their opinion”Alain Pujol points out.
Personality of the management team, innovative nature of the project, market outlets… are therefore all criteria to be taken into account when deciding whether or not to provide financial support to a young company. Bearing in mind, concludes Florence Richardson, “that in consideration of the risks assumed, the amount invested should constitute only a small part of its assets”.
Private Equity Betting
At a 6.3% average annual performance rate between 2008 and 2017, according to the latest study by France Invest, the association of investors for growth, French private equity outperforms other major asset classes over the long term. term. By way of comparison, over the same period, the CAC 40 averaged only 3.2% per annum, the real estate sector 4.5% and hedge funds 2.7%. Enough to encourage investors to take an interest in this type of investment, better known as “private equity”, consists in entering the capital of unlisted companies through funds, or even funds of funds. Objective ? Diversify your assets while financing the development and expansion of private companies whose valuation is weakly correlated with equity markets. Accessible from around € 400,000 (€ 50 to € 100,000 for fund-of-funds units), this type of investment requires a long-term horizon and greater vigilance by the management team to entrust your money to.
Enter the capital of SMEs Investment: from € 10,000 Level of risk: very high