Invest in a Start-up = Reduce your Taxes

Yes, that’s right my friends; while Silicon Valley was over there spreading rumors that it’s impossible to score VC money in France, the French government got a little creative.

Since 2007, French tax payers can lower their wealth tax (ISF) by investing in a company.

French taxpayers can now reduce their wealth tax by up to 75% via making an investment of €50,000.

In the beginning, it wasn’t obvious if any magic had been made; were French tax payers going to go knocking directly on the doors of companies they wanted to invest in? And how were emerging start-ups to sniff out the money?

Et voilà, le VC: what’s mine is yours, what’s yours is mine.

That’s right, who better to play the intermediary than a VC.

And now for a little name-dropping.

One example of a company that was recently funded this way is Proxi-Business.com, a French e-commerce solutions platform, which scored €1.15 million (I might cry if I convert this to dollars) at the beginning of this week from a company called Audacia.

Audacia has also funded companies like French organic e-commerce site, Brindilles.fr, IT security company, ASP 64, and a few more.

And they’re not alone. France’s darling start-ups DailyMotion and Deezer – which both scored funding in October 2009 – have received funding from AGF Private Equity, who raised over €35 million in June 2009 through an ISF campaign. Not too shabby if you ask me.

So who is laughing now?

Ok, ok. Maybe this scheme hasn’t dramatically changed the investment practices of local VCs (yet!). But it certainly looks like VCs aren’t agnostic with regards to this new resource (here is a non-exhaustive list of French companies that received VC funding in 2009).

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2 thoughts on “Invest in a Start-up = Reduce your Taxes

  1. This is a big deal! And could have a big impact if used wisely.

    With the right efforts this could create more business angels investing in more smart companies. With the wrong efforts it could lead to people blindly cutting checks to the wrong companies just to avoid taxes.

    Would be interesting to see if there’s a way to channel this in as smart money rather than dumb money mucking up valuations/ term sheets and potentially hurting entrepreneurs.

  2. I’m beginning to find some companies that have gone the ISF route. Seems somewhat promising…

    Many VCs, however, tend to shy away from raising funds through the ISF (which would cut out the pb of “bad angel money”) bc max contributions are €50,000/person and the money needs to be invested within a year. Most VC funds don’t want to go through the trouble of raising with a large number of individuals only to find that they have to invest quickly.

    But otherwise, there are “angel training groups” that help new angels invest, which could also help the problem.

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