Presentation on theme: "7 Nov 2011 EP Capital Funding the Growth II, CCFGB."— Presentation transcript:
7 Nov 2011 EP Capital Funding the Growth II, CCFGB
2 # firms4 1684 1954 64610 02110 428 # employees796768735994989 Average revenue (M) 205217206418368 Firms of 250+ employees in several EU countries Source : Ernst&Young et ESCP-EAP, Grandir en Europe : hasard ou état desprit, 2008. 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!
… and financing is key 3 Evolution of average capital in K for French and UK SMEs 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 Survival rate after 3 years for firms created in 2006 depending on invested amount at launch Source : Insee, enquête Sine, interrogations 2006 et 2009. The probability of success of a SME is highly correlated to its access to financing. Seven years after launch, a UK SME has on average 5x more capital than its French equivalent and creates 4x more jobs.
The startup financing cycle should be Equity, Equity, Equity… then Debt Seed stage: savings, FFF, (grants) Early stage: business angels, small VC funds, (grants) 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...).
Fiscal incentives are crucial to encourage direct investment into SMEs… and the UK has understood it! EIS (1) Réduction IR (Madelin) Réduction ISF (TEPA) (2) Launch date 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 years5 years Tax relief if capital loss? YES NO (unless classified as Jeune Entreprise Innovante) Inheritance tax ? NOYES Other Ongoing consultation in the UK to possibly remove remittance tax for those repatriating funds to invest in UK SMEs (EIS eligible) (1) EIS post budget 23 March 2001; (2) TEPA post « loi de finances 2011 »; (3) Twice as much for a couple 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 Number of business angels 50k8k Average amount by business angel and by project 16k£77k Source s: BBAA, PBA, Centre dAnalyse Stratégique, Sept 2011
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 Im 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......
Benefit from networks expertise and credibility Proactive investors focused on nurturing tomorrows leaders Benefit from full tax relief UK: 30% on day 1 + no CGT + deductibility on any loss + inheritance tax relief Build a diversified portfolio of SME investments Widely regarded as the winning strategy Tax-free capital gains Limited and fair transaction costs Premium EP offering Focused screening and facilitated investment process You only lock-in what you invest No committed funds, therefore low opportunity cost of capital Access to an attractive asset class Average 22% IRR (a) on UK angel deals www.entrepreneurspartners.com 7 (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. EP Capital: UK/France venture syndicate