Legal Uncertainty Hampering French Business Angel Investments

By October 22, 2014
France Angels

Business Angels investment activity has been showing sustained growth for the past few months, in spite of the legal issues which mean that the sums provided by early stage investors remain much smaller than venture capital investments.

The twice-yearly Business Angels Barometer published by BFM Business and France Angels provides key figures on ‘early stage’ investments made in young businesses in France. Although this type of investment has been showing some growth, it remains rather weak, at 4% during 2012 and 2013. The ‘Angels’ interviewed by the research team indicate that what is holding back growth in the amounts injected into fledgling companies by Business Angels is mainly regulatory uncertainty, which came out on top of the list of obstacles, way ahead of tax optimisation and the gloomy general sentiment in the economy at large. The majority of Angels polled during the survey estimate that the amounts they invest could rise by more than 50% if the current regulatory uncertainties were lifted. Meanwhile this relative inertia on the investors’ side has done nothing to dampen the demand for funds among innovative startups, which is rising year-on-year. 

Business Angel investments triple over eight years

The figures show that in 2013 there were 82 independent networks affiliated to the France Angels organisation, with a total of 4,292 individual investors listed, 4% more than 2012 and 160% up on the 2005 figure. Last year, out of a total of close to 10,000 French startups applying for funding just 370 firms received early stage capital through this channel, a rate of investment which – at 4% of total applications – remains the same as that in 2005. However the actual amounts involved have almost tripled, rising from €16 million in 2005 to €40 million in 2013, with a slight rise in capital volume between 2012 and 2013.  To put these figures in perspective, total funds raised in the first half of 2014 from traditional capital providers – Index Ventures, Accel Partners and others – came to €84 million. But while it is clear that Business Angels do not have as wide an impact on business development as traditional venture capital firms they are nevertheless often more intimately connected to the fledgling companies and have their finger on the pulse of the dynamic startup ecosystem in France. 

Pessimistic tone in 2014 

The Business Angels survey focuses hard on the actual figures for second-half 2013 and the projections for the year 2014.  The Angels’ tone is on the whole rather gloomy, with a majority seeing a deteriorating situation for the funding of new business projects. The two main figures highlighted in the Barometer are the number of new businesses financed and the amounts injected. The Barometer’s indicators are positive on both these counts but many Business Angels polled are rather pessimistic, 27% of them predicting a drop during the current year.  Meanwhile half of all the investor groups responding to the survey report an increase in the number of applications from young firms for capital. Moreover, the respondents foresee an increase in the number of people joining the ranks of Business Angels during 2014. Business Angels’ forecasts are in fact extremely important as they operate at the cutting edge of business dynamism in France.  They have a crucial role to play, above and beyond the funds they provide – on average €132K per startup funded during 2013 – as they send out a positive signal which serves to help startups to obtain co-financing from local banks or matched funds from traditional investors. 

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