French retail fundraising down for fourth year in row

While the year-on-year dip remains moderate, FCPI and FIP vehicles have been struggling since the onset of the financial crisis: the amounts raised in 2012 are down by 43% compared to the 2008 vintage (€1.13bn) following four consecutive year-on-year drops, according to figures released yesterday by French trade body AFIC.

It is not a case of people committing less capital to these funds; contributions averaged €7,560 last year, a figure on par with that seen in 2008 and higher than the 2009 and 2010 vintages. The issue lies with the investor base for these retail vehicles, which has been consistently eroding from 145,000 in 2008 to 83,000 last year.

FCPI and FIP funds are closed-ended vehicles open to retail investors, offering tax incentives in order to promote long-term investment in start-ups and SMEs. These funds can either offer a rebate on income tax or on France's wealth tax. These incentives have, however, been progressively lowered in the wake of fiscal austerity measures.

AFIC blames these dwindling incentives for lacklustre fundraising figures. "In the absence of a stable and attractive fiscal framework, FIP and FCPI vehicles are slowly but surely being stifled," says AFIC chairman Louis Godron. "We are once again asking the authorities to reinstate attractive tax incentives for these funds, which represent 50% of the resources available for venture capital in France. It is a matter of survival for the funding of innovation."

The association may have a point: the income tax rebate was brought down to 18% of the amounts invested in 2012, following a cut from 25% to 22% in the previous year. Wealth tax rebates are due to share a similar fate, with a €10,000 cap to be implemented from 2013 onwards.

The fact that nearly half of the French venture industry is relying on retail funds may be a more pressing issue in the long term though. Struggling public finances mean that lavish tax incentives are unlikely to return soon. But replacing this dwindling source of capital with institutional money could prove tricky. After all, many French GPs further up the private equity food chain are also struggling to attract commitments, according to a recent AFIC study, and European venture as a whole has yet to see LP appetite returning on a large scale.

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