France eyes corporate venture boost

While recent changes to France's corporate venture rules do not represent a ground-breaking change, they are reflective of the general progress corporate venture has made in the country in recent times.

Voted on as part of the 2013 budget and recently implemented following approval from the European Commission, the new legislation states that businesses investing in SMEs will be able to amortise their investment over five years. In other words, those companies will be able to deduct the amounts invested in SMEs from taxes due the following year, enabling them to consistently amortise their investments.

Those investments should, however, represent no more than 1% of their total assets; businesses should also hold no more than 20% of the target company in the case of direct investments, or no more than 70% in the case of investments via dedicated funds. The SMEs in which they can invest are defined as EU-based companies with less than 250 employees and whose turnover amounts to a maximum of €50m.

This measure should encourage businesses that are not yet involved in corporate venture to take the step, and make those who are part of it increase their stakes" – Jérôme Faul, Afic and Innovacom

Jérôme Faul, Afic board member and managing director at venture firm Innovacom, says the benefits for corporate investors are threefold: first, these players will need less cash at the time of investment; second, they will pay tax on their benefits later than they used to, after five years; and finally, if there is no capital gain from their investment, they will not have to pay any tax, in which case the government takes responsibility for part of their loss.

"Essentially, this measure should encourage businesses that are not yet involved in corporate venture to take the step, and make those who are part of it increase their stakes," says Faul. "We welcome this move, as we think French businesses have both the money and the will to invest in rising startups at present."

Venturing out
A recent report published by Deloitte entitled Corporate venture – an opportunity for scaling up shows that corporate venture has made significant inroads in France. According to the study, France had 37 groups active within the corporate venture space as of 2015, directly or via dedicated funds. Of those groups, 16 were listed entities. Several corporate venture funds were notably launched in 2015, including Safran Ventures, Orange Digital Ventures, Engie New Ventures and SNCF Digital Ventures.

In 2012, Orange and Publicis Groupe led the way and partnered with Iris Capital to create a common investment vehicle, the Orange-Publicis Groupe venture fund. The firms contributed a combined €150m to the initiative. This, added to funding commitments from third-party investors including the European Investment Fund and French public investors such as CDC Entreprises, resulted in a €300m total investment capacity.

According to Afic, industrial firms are increasingly inclined to take part in corporate venture. Investment levels have now exceeded pre-crisis levels, with €263m committed between 2012-15 compared with €248m between 2006-08, which represents a 6% increase. Notable examples this year included the participation of Orange and Nokia Growth Partners in two of 2016's largest venture rounds to date: in January, Orange took part in the €100m funding round for Spotify competitor Deezer alongside Access Industries, while in April, Nokia contributed to the €31m round for car rental service Drivy, alongside BPI France, Index Ventures and Cathay.

France was late compared to other EU countries, especially Germany, but it is now catching up. I think this has less to do with the government's push, than with the fact that industrial [companies] realised they had to take part in the open innovation model" – Antoine Garrigues, Iris Capital

Antoine Garrigues, managing partner at Iris Capital, sees all this as a logical development. He argues France has been slower than its European neighbours in understanding the opportunity that corporate venture represents, but the picture is now changing.

"A strong movement started five years ago as Orange and Publicis started investing massively, gradually followed by others on a smaller scale," he says. According to Garrigues, France's two biggest corporate venture groups – Orange and Publicis – mostly provide equity tickets above the €75m mark, while for other smaller players these usually amount to around €10m.

"France was late compared to other EU countries, especially Germany, but it is now catching up," says Garrigues. "I think this has less to do with the government's push, than with the fact that industrials realised they had to take part in the open innovation model, and that corporate venture was one of the tools they could use for that. One can only wish for it to develop more, as it is beneficial for EU-based companies and feeds their ability to innovate and re-invent themselves."

Tellingly, while 5% of the financing provided to French SMEs came from corporate venture in 2013, according to the aforementioned Deloitte report, this is still a far cry from the US landscape, where the figure stood at 16% in the same year.

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• Topics
• Regulation
• France
• France
• AFIC
• Corporate Venture