Become a business angel | the echoes

Posted on 6 Dec. 2018 at 19:06Updated Dec 7th. 2018 at 9:48

These men and women, also known as ‘angel investors’, often brought together in a network, voluntarily devote part of their personal wealth to the capital of innovative companies. Deep within them is the hope of seeing these start-ups flourish and at the same time be able to realize a great financial operation. “Of course we do everything we can to achieve the highest 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 will to advance technologies that will build the world or the health of tomorrow.acknowledges Alain Pujol, member of the board of directors of Angels Santé, a specialized network dedicated to life sciences and new technologies applied to health.

invest time

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, help them step back and ask themselves the right questions during the strategic committees in which we participate and we open our own relational and professional networks to them”, explains Florence Richardson, co-chair of the Women Business Angels network, the first female Business Angels network in Europe. And this, “without ever taking control of society”she assures.

While rewarding for these investors who find a way not only to guide companies in the making, but also to diversify their patrimonial strategy, the adventure is not exempt from risk. These turn out to be all the higher since the investment tickets vary between 10,000 and 200,000 euros. “We intervene at the start of the company when the first financing needs are large and there is no real view of its development yet”, emphasizes Alain Pujol. Hence random wins, even rarely at the rendezvous. “Unless you come across a real nugget of gold, there is no guarantee of performance. In general, 20 to 25 of 100 supported companies do not survive the first five years, between 65 and 70 survive and allow 10 to 15 honorable exits by multiplying the initial investment by two or sometimes 20.states Tanguy de La Fouchardière, president of France Angels, a French federation bringing together 75 networks of business angels representing about 5,000 active private investors.

Low tax incentive

Another black point of this investment: its illiquidity. “Indeed, there is no secondary market where you can sell your units or your shares at any time. In order to get your money back, you 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 is beyond our control.warns Florence Richardson.

And today there is no need to hope for a tax hike to limit this risk-taking. Cartridge ? With the conversion of the Solidarity Tax on Assets (ISF) to IFI: what are the deductible debts? the tax deductions under the ISF-PME that previously benefited business angels have indeed disappeared. “If only 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 this is possible for the sake of tax optimisation. †

Small consolation, the tax exemption: the disappointment about the conditional investment in the capital of SMEs for the cash subscription of the capital of small and medium-sized unlisted companies, in turn, remains. In fact, it was exceptionally increased in 2018 from 18% of the annual amount of the committed amounts to 25%. But the actual increase of this rate was subject to 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 Financing Act for 2019, shifting this increase by one year to 25% of the Madelin system, was approved by the Finance Committee and will be presented to the assembly during the meeting.

Finally, Tanguy de La Fouchardière warns, “This advantage is included in the calculation of the ceiling for tax loopholes, whereby the maximum threshold for deductions and tax reductions that are allowed for the same tax household is set at 10,000 euros per year. This thus by extension reduces the incentive effect of this gesture by Bercy, which would paradoxically encourage this type of investment in the real economy.

The choice of network

Hence the importance for a business angel to carefully select the company to which he wants to contribute his money. And this often starts with choosing the network or networks to join, because from this decision comes the funding applications from companies that it will have access to. “All networks are different by nature”confirms Tanguy de La Fouchardiere. “While some focus on a specific region, others specialize in a particular sector of activities such as health or the maritime world for example, or are reserved for former students of large schools such as Polytechnique. †

This first step has yet to be sorted between the different projects presented. If there are differences between networks, an initial skimming is generally performed every month by a selection committee. Only four or five files are then kept and the project leaders involved are invited to explain their plan to all members of the network. “If everyone then decides on their investment individually after a survey conducted by some members who are interested in the file and then shared within the network, they all participate in the discussions and can thus express their opinion”points out Alain Pujol.

Personality of the management team, innovative character of the project, markets… are all criteria that must be taken into account when deciding whether or not to provide financial support to a young company. Taking into account, Florence Richardson concludes, “that, in view of the risks taken, the amount invested should only represent a small part of his 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, over the same period, the CAC 40 only reported an average of 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. More commonly known as “private equity”, it consists of injecting capital from privately held companies through funds, or even funds of funds. Goal ? Diversify your wealth while financing the development and expansion of private companies whose valuation is weakly correlated with the stock markets. Available from around 400,000 euros (50 to 100,000 euros for units of funds of funds), this type of investment requires a long-term horizon and increased vigilance with the management team to whom it should entrust its money.

To remember

Entering SME capital Investment: from 10,000 euros Risk level: very high

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