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France wants to boost angel investment by copying UK’s investment schemes

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As part of France’s budget for 2024, which was passed last week by the French government without a vote, France plans to create a new tax relief system for angel investments in tech startups. In many ways, France is drawing inspiration from the British tech ecosystem for this change.

If you’re an angel investor in the U.K., chances are you’re already quite familiar with the acronyms SEIS and EIS, which mean Seed Enterprise Investment Scheme and Enterprise Investment Scheme. These two tax relief schemes have fostered angel investments in small private businesses — generally tech startups — since 1994.

In the U.K., if you invest in an early stage startup, your investment is eligible to a 50% tax break on your income tax, with a limit of £200,000 in investments per year. You may wonder, but what is an early stage startup after all? Criteria change every now and then, but right now, an SEIS-compatible company is a British company that is less than three years old, has less than 25 employees and less than £350,000 in gross assets.

“I benefitted from SEIS both as a founder and an investor. SEIS funding de-risks angel investing, and allows startups to close their rounds much faster,” Reedsy co-founder and CEO Emmanuel Nataf told me. “The fact that any tax payer — and not just the wealthiest — can benefit from the tax breaks makes it a real enabler for the tech ecosystem in the U.K.”

As for the Enterprise Investment Scheme and as the name suggests, more businesses are eligible. But, in that case, individual investors only get a 30% tax break on their income tax. EIS-compatible businesses are less than seven years old, have less than 250 employees — and their gross assets should remain below £15 million.

Interestingly, deep tech businesses have a bit more leeway as they are still eligible if they have been around for up to 10 years. Individuals can invest as much as £1 million per year to get the tax credit (or £2 million for deep tech investments).

And it’s been working incredible well. In 2021, according to a report from Paul Midy, a member of the National Assembly representing Emmanuel Macron’s party that has been working on that topic, a total of £175 million and £1.6 billion have been invested in private businesses via the SEIS and EIS respectively (that’s $213 million and $1.95 billion at today’s exchange rate respectively).

“Angel investors taking advantage of the schemes also bring significant support to the founders, which might be harder to get from institutional funds,” Nataf added.

Importing the SEIS and EIS schemes

Now that you understand how it works, France is basically copying these schemes with a different set of criteria. Starting in 2024, individuals who invest in businesses with the JEI label (jeunes entreprises innovantes) will get a 30% income tax break.

Starting in 2025, there will be two new categories, JEIC and JEIR — C for croissance and R for rupture. These acronyms are a bit jargony, but the bottom line is that investors in deep tech startups will get a 50% tax break for investments up to €100,000 per year. Investors in other startups will get a 30% tax break for investments up to €150,000 per year.

“This scheme for so-called ‘young businesses’ is designed to help thousands of young innovative businesses to hire, to raise capital, to improve cash flow and to gain access to public contracts,” Paul Midy said in a video on X (formerly Twitter). “It should enable half a billion euros in additional fundraising every year for our startups, specifically at the early stage.”

It’s going to take a bit of time before the French tech ecosystem can feel the effects of this regulatory change. But it’s a welcome change as France — like many tech ecosystems around the world — is experiencing a slowdown in traditional VC investment.

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