Transcript Funding the Growth II, CCFGB EP Capital 7 Nov 2011 Europe needs SMEs… M.

Funding the Growth II, CCFGB
EP Capital
7 Nov 2011
Europe needs SMEs…
M. Zuckerberg (30 Oct 2011, Y Combinator)
“We never went into this wanting to build a company. But a company is the best vehicle in the
world to align a lot of people to achieve a mission”.
In a mature market, is there any other way to achieve economic growth and create jobs through
other means than innovation/entrepreneurship?
... and despite its history, its skilled workforce, France lags behind!
Firms of 250+ employees in several EU countries
# firms
4 168
4 195
4 646
10 021
10 428
# employees
796
768
735
994
989
Average
revenue (€M)
205
217
206
418
368
Source : Ernst&Young et ESCP-EAP, Grandir en Europe : hasard ou état d’esprit, 2008.
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… and financing is key
 The probability of success of a SME is
highly correlated to its access to
financing.
Evolution of average capital in €K
for French and UK SMEs
 Seven years after launch, a UK SME
has on average 5x more capital than
its French equivalent and creates 4x
more jobs.
Survival rate after 3 years for firms created in 2006
depending on invested amount at launch
Note : average capital of companies founded in year n, with an initial capital superior
to €100K
Source : Institut Français pour la Recherche sur les Administrations Publiques
(IFRAP), 2008
Evolution of jobs created by French and UK SMEs
Note : Jobs created in SMEs created in year n with an initial capital superior to €100K
Source : Institut Français pour la Recherche sur les Administrations Publiques
(IFRAP), 2008
Source : Insee, enquête Sine, interrogations 2006 et 2009.
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The startup financing cycle should be
Equity, Equity, Equity… then Debt
 The “Valley of Death “ is not - and cannot - be financed through traditional banking services….even for tangible asset intensive SMEs
which are increasingly less in the “start up blocks”.
 By definition, traditional loans are not adequate for non-mature businesses: expose lenders to all the downside but only limited upside!
 Only equity – or convertible loans (if valuation is really un-definable) are adequate.
 Who better than ex-entrepreneurs/corp. execs to allocate capital efficiently to new SMEs?
 Besides finance, business angels may provide intangible capital (advice, contacts etc...).
Early stage: business angels,
small VC funds, (grants)
Seed stage: savings, FFF, (grants)
Fiscal incentives are crucial to encourage direct
investment into SMEs… and the UK has understood it!
 One of the main measures undertaken during the last UK
Budget (announced on 23 march2011) has been the
clear strengthening of the fiscal incentives (EIS) in
favour of business angels investing in UK SMEs.
 The UK government therefore chose to acknowledge the
value added of business angels in the financing of SMEs
and the important risk inherent to this asset class (long
holding period, lack of liquidity, uncertainty).
 The survey undertaken by NESTA et BBAA(a) shows that in
the UK, 80% of investors use the EIS and 53% state they
would be doing less investment without this fiscal
incentive (and naturally these statistics should further
increase following this strengthening of the EIS
programme).
 Via an important ‘PR effect’ these fiscal incentives
encourage citizens to discover business angel investing
and thus bring the overall population closer to
SMEs/innovation.
 The maximum annual relief for a French business angel
is €45k, vs £300k (i.e. €340k) in the UK.
 As of today, the maximum loss that a UK business angel
(taxed at 50% level) may incur is 35% of invested
capital.
(a) Sources: BBAA, May 2009, Business angel investing – promising outcomes
and effective strategies
EIS(1)
Réduction IR
(Madelin)
Réduction ISF
(TEPA)(2)
Launch date
1994
1994
2008
% Tax relief on
invested amount
30%
22%
50%
Max investable amount
£1 M(3)
€20k (3)
or €50k (3)
for seed (JEI)
€90 k
Min Holding period
3 years
5 years
5 years
NO
(unless classified as Jeune Entreprise
Innovante)
Tax relief if capital loss?
YES
Inheritance tax ?
NO
Other
Ongoing consultation in the UK to possibly
remove remittance tax for those repatriating
funds to invest in UK SMEs (EIS eligible)
Number of business angels
50k
8k
Average amount by business
angel and by project
€16k
£77k
YES
YES
Source s: BBAA, PBA, Centre d’Analyse Stratégique, Sept 2011
(1)EIS
post budget 23 March 2001;
(2)
TEPA post « loi de finances 2011 »;
(3)
Twice as much for a couple
Examples of entrepreneurs turned ‘Super Angels’
An efficient re-allocation of savings
Jon Moulton, Better Capital, Alchemy
100+ investments
Stake in Ashmore Plc, for example, initially an angel investment, is worth ~ £70m and he admits that “he
has made more money as an angel than through working”.
However, keen to stress the risk: “lost at least a third of the cash put into angel deals, while a handful of
investments have made over a thousand times the money”.
Xavier Niel, Free, through Kima Ventures
‘The Most Active Angel Investor In The World’
‘100 tech startups each year, every year. Forever. In any country in the world.’
Reid Hoffman, Cofounder of LinkedIn; former exec at PayPal
80+ investments
‘After five minutes of a pitch, I know if I’m not going to invest, and after 30 minutes to an hour, I generally
know if I will.
And hundreds of other entrepreneurs turned full-time business angels in the Silicon Valley: Peter Thiel, Jeff
Clavier, Dave McClure......
EP Capital: UK/France venture syndicate
Benefit from
full tax relief
UK: 30% on day 1 + no CGT +
deductibility on any loss
+ inheritance tax relief
Access to an
attractive asset class
Average 22% IRR(a)
on UK angel deals
Premium EP offering
Focused screening and facilitated
investment process
Build a diversified
portfolio of SME investments
Widely regarded as the winning
strategy
(a) As shown by May 2009 study
published by Nesta and BBAA,
surveying 158 UK-based angel
investors who have invested
£134m
into
1,080
angel
investments between them.
Tax-free capital gains
Limited and fair transaction costs
Benefit from network’s expertise
and credibility
Proactive investors focused on
nurturing tomorrow’s leaders
You only ‘lock-in’
what you invest
No committed funds, therefore
low opportunity cost of capital
www.entrepreneurspartners.com
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