A new finance measure should become effective by mid-2014, under which French companies or French subsidiaries of global companies will be incentivised to make riskier investments in small, innovative businesses.
The drive to free up corporate venturing investment goes on. Only last month, in the UK, the British Venture Capital Association published a 62-page report entitled The Missing Piece, setting out a case for altering the accounting treatment of corporate venturing investments, such that the UK might become a “CVC powerhouse”.
Now, France’s Ministry for the Economy and Finance has put forward a new proposal designed to boost innovation by incentivising corporate venture investment in small companies. The proposal is that any company which invests in cash for a minority shareholding (less than 20%) in a small, innovative, European company, either directly or indirectly (i.e. through a fund), should benefit from a five year, linear amortization of their investment – amounts which effectively can be offset against annual income.
The proposal, developed by the Ministry for the Economy and Finance in consultation with industry experts including AFIC (Association Francaise des Investisseurs pour la Croissance – France’s growth investment association) has been included in the current Loi de Finances (Finance Law). This annual law sets France’s budget for the following year: the current Loi de Finances (setting out France’s 2014 budget) is expected to be passed by the French Parliament before the end of 2013. Because of potential effects on competition within the European Union, the new proposal must be cleared by the European Commission (expected in the first half of 2014), before becoming effective on 1 July 2014.
Antoine Colboc, a director of Innovatys Capital and also President of the Corporate Venture Committee within AFIC, explains the background to the proposal, unveiled earlier in November: “We needed to find ways to increase the attractiveness, to corporations, of venture investment – there are already incentives for private investors. At the moment, companies are discouraged from making risky investments, because if they make an equity investment in a company and lose it, it is not deductible against normal income, only against capital deployed in similar investments.”
The new incentive – introduced as an amortisation allowance rather than a tax rebate, which would have been trickier to constitute – will be accessible to any investing company including, for example, a French subsidiary of a UK company. The definition of a small company follows a European standard – that it should employ fewer than 250 people, have less than €50m turnover and €43m assets on its balance sheet) – while to be classified as innovative it must allocate at least 15% of its expenses in research and development, or be certified as innovative by the OSEO division of public investment bank BPIfrance.
