Original article published on December 3, 2021
From its introduction, the report by Pulse (SOS Group) and France Angels sets the tone: “ impact entrepreneurship in France is largely underfunded in the seed phase and the demand for funding does not manage to meet the supply” . Each year, companies would thus be short of impacting 30 million euros in debt and 80 million euros in capital to finance themselves. That doesn’t mean impact businesses aren’t funded. According to iiLab, IImpact investing represents more than €4 billion in assets invested in France. ” The capital is there but the impact project leaders are unable to capture it”, analyzes Gaspard Lefèvre, director of the impact startup accelerator La Ruche.
A lack of knowledge of the impact sector
The difficulties are particularly visible at the time of seeding and scaling up. It’s the snake biting its tail because investment funds admit that they prefer to finance projects that have been in existence for 4 or 5 years and have a great capacity to scale up. In addition to these first two factors, there are others: lack of knowledge of the sector, projects and impact measurement tools, as well as the duration of investments. Few impact projects experience such rapid growth as that of a SaaS B2B startup in FinTech.
The funds remain anchored on what they know: the financing of a mainly technological innovation. ” There are few financial solutions dedicated to forms of social innovation that do not incorporate a technological character and, on the contrary, are based on innovation models of use, business models or organization whose social utility is yet proven. Nevertheless, funders like Bpifrance are moving more and more towards financing innovation with environmental and social impact.», recalls the report.
Business angels and family offices can be a game-changer
The needs of impact businesses also concern strategic support to help them scale up. In this context, business angels can provide a concrete solution because they are generally very involved with the entrepreneurs they finance at the start of their adventure. Family offices also have a unique role to play in the development of impact investing according to the report, first of all because of the volume of the amounts that can be mobilized (more than 2.8 billion euros of investment in capital- investment in France in 2018) but also the relative freedom of mobilization of these amounts by families, who set their own investment strategies.
Unfortunately, business angels do not commit to impact projects so easily. Asked about their understanding of impact, only 15% of business angels indicated that they had a good understanding of impact entrepreneurship and 20% were familiar with the issues of the Pacte law. Nevertheless, nearly three-quarters of them show an interest in this type of investment. Nearly 35% even want more than 30% of their investments to be impactful.
Despite this encouraged vision, the report reveals a systematically negative overall perception of the risk associated with an investment in impact entrepreneurship, first and foremost on profitability, but also on the valuation at entry, the ability to move scale, project viability and exit liquidity.
The report makes 10 proposals to push business angles towards impact businesses:
- Make business angels more visible and democratize their activity.
- Promote the accessibility of business angels.
- Offer more advantageous investment conditions for impact entrepreneurship. Today, there is no intermediate taxation between a conventional investment – which will benefit from IR, PEA/PEA-PME or contribution-transfer schemes – and a donation – which will be 66% tax-free. The report therefore proposes the alleviation of constraints 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 allowing them to generate a return on investment and to study financial engineering specific to the investment of business angels in the SSE.
- Promote the diversity of business angel profiles by reducing parity, attracting younger profiles and moving out of the Paris to Paris financing paradigm
- Raise awareness and train business angels in the specificities of impact entrepreneurship.
- Raise awareness and train impact entrepreneurs in interactions with business angels
- A better arrangement of the funding chain in order to strengthen the involvement of Family Offices in impact entrepreneurship and better articulate collaboration and co-funding between business angels and philanthropists.
- Better collaboration between European investors to be able to create best practices from other countries.
- The creation of a network of impact business angels, member of the France Angels federation, connected to the ecosystem of impact financiers, targeting 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.
This last proposal is materializing today with the creation of Impact Business Angels, a member network of France Angels and the National Federation of Business Angels which is supported, in its creation by the European Union and 50 Partners Impact and Business France Angels.