Written 6 Dec. 2018 at 19:06Updated 7 Dec. 2018 at 9:48 am
Also known as “angel investors”, these men and women, often gathered in a network, voluntarily set aside part of their personal assets for the capital of innovative companies. With, deep within them, 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 will build the world or the health of the future.acknowledges Alain Pujol, member of the board 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 that these people make available to the entrepreneurs in whom they have their trust. “We offer them our experience, help them step back and ask themselves the right questions in the strategic committees we participate in, and we open our own relational and professional networks to them.”, explains Florence Richardson, co-president of the Women Business Angels network, the first female network of Business Angels in Europe. And this, “without ever taking control of society”she assures.
Admittedly rewarding for these investors, who find a means not only to accompany emerging companies but also to diversify their patrimonial strategy, the adventure is not without its risks. Which turns out to be all the higher as the investment tickets vary between 10,000 and 200,000 euros. “We intervene at the start of the business, when its first financing needs are significant and when there is no real visibility of its development yet.”, emphasizes Alain Pujol. Therefore, random winnings, even rarely at the meeting. “Unless you hit a real nugget, there is no guarantee of performance. Generally, 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 doubling or sometimes 20 the original investment.states Tanguy de La Fouchardière, president of France Angels, a French association which 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. “There is actually no secondary market that can give you the opportunity to sell your units or your shares at any time. To get your money back, you will therefore 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) to IFI: what is the deductible debt?, the tax deduction under ISF-PME that business angels enjoyed until then has effectively disappeared. “If a few months ago this system could provide a shock absorber for the various risks associated with this type of investment, it is over”, 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 with investments in SME capital, given under conditions of cash subscriptions of small and medium-sized unlisted company 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%. But the actual increase in this rate was conditional on the publication of a decree related to the need to notify this measure to the European Commission… which has still not been published. It is therefore possible that in 2018 investors will have to settle for a rate of 18%. An amendment to the 2019 Finance Bill, which moves this increase to 25% of the Madelin system by one year, was passed by the Finance Committee and will be presented in session to the Assembly.
Finally, Tanguy de La Fouchardière warns, “This benefit is included in the calculation of the ceiling for tax loopholes, which sets the maximum threshold of deductions and tax deductions allowed for the same tax household at 10,000 euros per year. This therefore, by extension, reduces the incentive effect of this gesture by Bercy , which paradoxically should encourage this type of investment in the real economy..
The choice of network
It is therefore important that a business angel carefully selects the company to which he wishes to contribute his funds. And it often begins with choosing the network or networks you want to join, because this decision creates requests for funding from companies to which you want access. “All networks are different by nature”confirms Tanguy de La Fouchardière. “While some focus on a specific region, others are specialized in a certain activity sector, such as health or the maritime world, or are reserved for former students from larger schools such as Polytechnique. »
This first step, done, remains to be sorted among the various projects presented. If there may be some differences depending on the networks, a first skimming is done every month by a selection committee. Only four or five files are then kept and the project managers concerned are invited to explain their plan to all members of the network. “If everyone then individually decides on their investment after a survey by a few members who are interested in the file and then shared in the network, everyone participates in the discussions and thus can give their opinion.”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, “that, considering the risks taken, the amount invested should represent only a small part of its assets”.
Betting 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 outperforms the other major asset classes over the long term. In comparison, during the same period, the CAC 40 reported an average of only 3.2% per year, 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 via funds or even funds of funds. Goals? Diversify your assets while financing the development and expansion of private companies whose valuations are weakly correlated to the stock markets. Available from approx. 400,000 euros (50 to 100,000 euros for fund certificates), this type of investment requires a long-term horizon and increased vigilance regarding the management team to whom to entrust one’s money.
Entering the capital of SMEs Investment: from 10,000 euros Risk level: very high