PE & VC key for French economy, says minister Macron

The French minister for the economy, Emmanuel Macron, speaking at the Afic Annual Conference 2016 in Paris in May, pointed to the progress growth capital had made in 2015 – €9.7bn raised, €10.7bn invested, 1,645 businesses in portfolios and 314,000 jobs created, according to Afic data – and highlighted the "healthy" climate French private equity is currently benefiting from. A climate that, in many respects, is reminiscent of the pre-crisis period.

"There isn't innovation without financing; there isn't economic sovereignty without financing; there isn't job creation without financing," said Macron, calling growth investments "key" for the wellbeing of France's economy.

Our fiscal system favours sleeping capital too much, while it should encourage investment capital" – Emmanuel Macron, French minister

Addressing a crowd comprising some of the country's top venture capitalists, the minister made a point of echoing many of their views on the place they occupy in the French economic landscape: "The sector that you represent is very important to our economy, because you believe in French entrepreneurship – in its innovation and its ambition.

"Today more than ever, we need venture capital. Our country has been delayed in adapting to a globalised world, but it is now ready to make those big changes. We have a new generation of entrepreneurs who believe in their country and are ready to invest in it. It is essential that we provide them with all the support we can."

A former investment banker at Rothschild, Macron made it very clear his intention is to keep supporting French private equity players and venture capitalists, outlining some of the main targets the government has set itself for that purpose.

The first issue to address is the failure of the country's tax system to favour and reward risk taking, said Macron, in another clear attempt to break away from the socialist government's image of being at odds with the priorities of the business community. "Our fiscal system favours sleeping capital too much, while it should encourage investment capital," he said, adding that the market "lacks depth" due to complicated and burdensome regulation.

According to Macron, France has historically leaned towards investments in less dynamic sectors, such as real estate, and has always favoured debt over equity – "a system highly unsuited to encouraging innovation and technological progress".

Revitalising pensions
One of the main obstacles is the way pension funds are structured in France, with schemes usually run by insurers and heavily regulated (notably under Solvency II), encouraging them to opt for government bonds and "safe" investments rather than equities. Macron intends to foster the emergence of a new pension funds system in France to address this issue.

The minister is also keen to keep reducing and simplifying the fiscal burden weighing on private investors, which often causes their departure towards other more VC-friendly EU countries. Some key measures in that respect regard the status of business angels; amendments made in the 2014 budget considerably facilitated investments by business angel funds, according to Macron. The creation of the "compte entrepreneur" earlier this year also reduced the amount of tax imposed on business angels investing in young companies.

Macron also stressed the need to aim for larger tickets in growth fundraising. In spite of the improvements made in 2015 – 15 funding rounds in excess of €30m, compared to five in 2014 – Macron said more progress needs to be made. "The key to dominating the market is being able to raise capital very quickly and in large amounts in order to compete on the international level and support the most promising innovations," he said. "This is why we need to move to a financing model dominated by equity financing, and with much more depth to it."

Macron concluded his address by reiterating his support for a stronger and more sizable growth capital market in France: "A few days ago I was talking with Afic president Michel Chabanel, who was telling me your objective was to double the size of the French market. I dare you to! If we all work together, it is absolutely feasible. It matches the needs of our economy, the country's current financial and entrepreneurial dynamic, and investors' target returns."

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