The article was originally published on December 3, 2021
From its introduction, the report by Pulse (SOS Group) and France Angels sets the tone: ” Impact entrepreneurship in France is largely underfunded in the seed stage and the demand for funding fails to meet the supply” . Every year, impact companies would thus lack 30 million euros in debt and 80 million euros in capital to finance themselves. This does not mean that impact companies are not funded. According to iiLab, IImpact investment represents more than 4 billion euros in assets invested in France. ” The capital is there, but the project managers are unable to capture it”, analyzes Gaspard Lefèvre, director of the impact startup accelerator La Ruche.
Lack of knowledge about the effects sector
The difficulties are particularly visible at the time of seeding and scale-up. It is the snake biting its tail because investment funds admit that they prefer to finance projects that have been around for 4 or 5 years and have a large capacity to scale up. In addition to these first two factors, there are others: lack of knowledge about the sector, projects and impact measurement tools, as well as the duration of investments. Few impact projects experience such rapid growth as a SaaS B2B startup in FinTech.
The funds remain rooted in what they know: the financing of a mainly technological innovation. ” There are few economic solutions dedicated to forms of social innovation that do not incorporate a technological character and, on the contrary, are based on innovation use models, business models or organization whose social utility has yet to be proven. Nevertheless, foundations such as Bpifrance are moving more and more towards financing innovation with environmental and social impact.”, recalls the report.
Business angels and family offices can be a game-changer
Impact companies’ needs also relate to strategic support to help them scale up. In that context, business angels can provide a concrete solution because they are generally very involved with the entrepreneurs they finance at the start of their adventure. Family offices also have a unique role to play in the development of impact investing, according to the report, primarily due to the volume of the amounts that can be mobilized (more than 2.8 billion euros in investments in capital investments in France in 2018 ) , but also the relative freedom to mobilize these amounts by families who set their own investment strategies.
Unfortunately, business angels do not undertake to influence projects so easily. Asked about their understanding of impact, only 15% of business angels state that they have a good understanding of impact entrepreneurship, and 20% know about the issues in the Pacte Act. Nevertheless, almost three quarters of them show interest in this type of investment. Almost 35% even want more than 30% of their investments to have an impact.
Despite this encouraging view, the report reveals a consistently negative overall perception of the risk associated with investing in impact entrepreneurship, primarily on profitability, but also on valuation at entry, ability to scale up, project viability and exit liquidity.
The report makes 10 proposals to push business angles towards influencing companies:
- Make business angels more visible and democratize their activity.
- Promote the availability of business angels.
- Offer more favorable investment conditions for impact entrepreneurship. Today there is no intermediate taxation between a conventional investment – which will benefit from IR, PEA/PEA-PME or contribution transfer schemes – and a donation – which will be 66% tax free. The report therefore proposes an easing of restrictions on existing tax systems when it comes to an impact project.
- Structuring a positioning of business angels on the legal forms of SSE through two initiatives. Make business angels aware of the financial instruments specific to the SSE, allowing them to generate a return on investment and study financial engineering specific to investing business angels in the SSE.
- Promote the diversity of business angel profiles by improving parity, attracting younger profiles and moving from Paris to the Paris financing paradigm
- Raise awareness of and train business angels in the special aspects of impact entrepreneurship.
- Raise awareness of and train entrepreneurs in interaction with business angels
- A better arrangement of the financing chain to strengthen the Family Office’s involvement in impact entrepreneurship and better articulate cooperation and co-funding between business angels and philanthropists.
- Better cooperation between European investors to be able to collect best practices from other countries.
- The creation of a network of impact business angels, member of the France Angels federation, connected to the ecosystem of impact financiers, targeting the median profile of ausiness angels (investment capacity between 10 and 100,000 euros per year) and whose investment thesis focuses on social innovation for all types of impact.
This last proposal is being realized today with the creation of Impact Business Angels, a member network of France Angels and the National Federation of Business Angels, which is supported, in its creation, by the European Union and 50 Partners Impact and Business France Angels.