Article originally published on December 3, 2021
From its launch, the report from Pulse (SOS Group) and France Angels sets the tone: “ impact entrepreneurship in France is largely underfunded in the start-up phase and the demand for funding fails to meet the supply” . For example, impact companies would annually lack 30 million euros in debt and 80 million euros in capital to finance themselves. That does not mean that impact companies are not funded. According to iiLab, limpact investing represents more than 4 billion euros of assets invested in France. ” The capital is there, but the impact project leaders can’t capture it.” analyzes Gaspard Lefèvre, director of the impact startup accelerator La Ruche.
A lack of knowledge of the impact sector
The difficulties are especially visible at the time of seeding and upscaling. It’s the snake biting its tail, as investment funds admit to prefer financing 4 or 5 year projects with high scale-up capability. In addition to these first two factors, there are others: lack of knowledge of the sector, of the projects and of the instruments to measure the impact, but also the duration of the investments. Few impact projects have seen such rapid growth as that of a SaaS B2B startup in FinTech.
The funds remain anchored in what they know: the financing of a primarily technological innovation. ” There are few financial solutions aimed at forms of social innovation that do not have a technological character and are, on the contrary, based on innovation models of use, business models or organizations whose social usefulness has yet to be proven. Nevertheless, financiers such as Bpifrance are moving more and more towards financing innovation with environmental and social impact.”, the report recalls.
Business angels and family offices can be a game-changer
The needs of impact companies also include strategic support to help them scale. Business angels can offer a concrete solution in this context, because they are usually very involved next to the entrepreneurs they finance at the start of their adventure. Family offices also play a unique role in the development of impact investing, according to the report, primarily because of the size of the amounts that can be mobilized (more than €2.8 billion in equity investments). ) but also the relative freedom of mobilization of these amounts by families, who determine their own investment strategies.
Unfortunately, business angels are not so easily committed to influencing projects. When asked about their understanding of impact, only 15% of business angels indicated they have a good understanding of impact entrepreneurship and 20% are familiar with the issues of the Pacte Act. Yet almost three quarters of them show interest in this type of investment. Nearly 35% want more than 30% of their investments to have an impact.
Despite this encouraging view, the report reveals a consistently negative overall picture of the risk associated with investing in impact entrepreneurship, primarily on profitability, but also on entry valuation, scaling, project viability and exit liquidity.
The report makes 10 proposals to push business angles to impact companies:
- Make business angels more visible and democratize their activities.
- Promote the accessibility of business angels.
- Offer more favorable investment conditions for impact entrepreneurship. Today there is no interim tax between a conventional investment – which will benefit from IR, PEA/PEA-PME or contribution transfer schemes – and a gift – which will be 66% tax free. The report therefore proposes easing the restrictions on existing tax systems when it comes to an impact project.
- Structuring a positioning of business angels on the legal forms of the SSE through two initiatives. Make business angels aware of the financial instruments specific to the SSE so that they can generate a return on investment and study financial engineering specific to business angels’ investments in the SSE.
- Promote the diversity of business angel profiles by improving equality, attracting younger profiles and moving out of the Paris to Paris financing paradigm
- Raising awareness and training business angels in the specifics of impact entrepreneurship.
- Raising awareness and training impact entrepreneurs in interactions with business angels
- A better design of the financing chain to strengthen the involvement of Family Offices in impact entrepreneurship and to better articulate cooperation and co-financing between business angels and philanthropists.
- Better cooperation between European investors to collect best practices from other countries.
- Setting up a network of impact business angels, member of the France Angels federation, connected to the ecosystem of impact financiers, focusing on 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 forms of impact.
The latter proposal is now becoming a reality with the creation of Impact Business Angels, a member network of France Angels and the National Federation of Business Angels, supported in its creation by the European Union and 50 Partners Impact and Business France Angels.