Posted Dec 6 2018 at 19:06Updated 7 Dec. 2018 at 9:48
Also known as “angel investors”, these men and women, often gathered in a network, voluntarily allocate part of their personal assets to the capital of innovative companies. With, deep down, the hope of seeing these start-ups take off, allowing them to simultaneously carry out a major financial operation. “Of course we do everything to get the best possible return on investment, but that is not our primary motivation. To become a business angel, you must above all have a passion for entrepreneurship, and above all the desire to promote technologies that build the world or the health of the future.Alain Pujol, a member of the board of Angels Santé, recognizes a specialized network dedicated to life sciences and new technologies applied to health.
For in addition to their money, it is also time for these people to make available to the entrepreneurs they trust. “We offer them our experience, help them take a step back and ask themselves the right questions in the strategic committees we participate in, and we open up our own relational and professional networks for 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 society”she assures.
Admittedly rewarding for these investors, who not only find a means to accompany companies under development but also to diversify their patrimonial strategy, the adventure is not exempt from risks. Which turns out to be so much the higher as the investment tickets vary between 10,000 and 200,000 euros. “We intervene in the start-up of the company when its initial financing needs are significant and when there is as yet no real visibility of its development.”, emphasizes Alain Pujol. Hence random gains, even rarely at the meeting. “Unless you encounter a real nugget of gold, there is no guarantee of performance. In general, out of 100 supported companies, 20 to 25 do not survive the first five years, between 65 and 70 survive and 10 to 15 allow honorable exits by multiplying by two or sometimes 20 the initial investment.states Tanguy de La Fouchardière, president of France Angels, a French association that brings together 75 networks of business angels representing around 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 your shares at any time. To get your money back, therefore, you have to 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.warns Florence Richardson.
And today, there is no reason to hope for a tax boost to limit this risk appetite. pattern? With the conversion of the solidarity tax on wealth (ISF) into IFI: what is the deductible debt ?, the tax deduction under ISF-PME, which business angels had hitherto benefited from, has actually disappeared. “If just a few months ago, this system could act as a buffer against the various risks associated with this type of investment, then so be it.” notes Florence Richardson. “We must now forget the idea that it can be done for the sake of tax optimization. »
Small consolation, the tax exemption: disappointment over the investment in SMEs ‘capital granted on condition of cash subscriptions of small and medium-sized companies’ unlisted capital is maintained for its part. Even better, it was extraordinarily raised in 2018, from 18% of the annual amount of the committed amounts to 25%. However, the actual increase in this rate was conditional on the publication of a decree on the need to notify this measure to the European Commission … which has not yet been published. It is therefore possible that investors in 2018 will have to settle for a price of 18%. An amendment to the Finance Act for 2019, which moves this increase to 25% of the Madelin system by one year, was adopted by the Finance Committee and will be presented at the Assembly meeting.
Finally, Tanguy de La Fouchardière warns, “This benefit is included in the calculation of the ceiling for tax loopholes, which sets the maximum threshold for deductions and tax deductions allowed for the same tax household at 10,000 euros per year. This therefore further reduces the incentive effect of this gesture from Bercy , which paradoxically should encourage this type of investment in the real economy..
The choice of network
Therefore, it is important that a business angel carefully selects the company to which he wants to contribute his funds. And it often starts with choosing the network or networks you want to join because this decision raises requests for funding from companies to which you want access. “All networks are different in nature”confirms Tanguy de La Fouchardière. “While some focus on a specific region, others specialize in a specific sector of activity such as health or the maritime world, or is reserved for former students from major schools such as the Polytechnique. »
This first step that has been done needs to be sorted among the various projects presented. If there may be some differences depending on the networks, a first skimming is performed each month by a selection committee. Only four or five files are then stored, and the affected project managers are invited to explain their plan to all network members. “If everyone then individually decides on their investment after a survey conducted by a few members who are interested in the file and then shared in the network, everyone participates in the discussions and can thus make their opinion known.”points out Alain Pujol.
The personality of the management team, the innovative nature of the project, market opportunities … are therefore all criteria that must be taken into account when deciding whether or not to provide financial support to a young company. Remember, Florence Richardson concludes, “given the risks taken, the amount invested should represent only a small part of its assets”.
Bets on private equity
With an average annual performance of 6.3% between 2008 and 2017, according to the latest study by France Invest, the association of investors for growth, French private equity is outperforming the other major asset classes in the long run. By comparison, in the same period, the CAC 40 reported only an average of 3.2% per annum, real estate 4.5% and hedge funds 2.7%. This is enough to encourage investors to take an interest in this type of investment. Better known as “private equity”, it consists of entering the capital of unlisted companies through funds or even funds of funds. Goal? Diversify your assets while financing the development and expansion of private companies whose valuation is weakly correlated to the stock markets. Available from approx. 400,000 euros (50 to 100,000 euros for fund units), this type of investment requires a long-term horizon and increased vigilance with regard to the management team to whom one should entrust his money to.
Entering the capital of SMEs Investment: from 10,000 euros Risk level: very high