Venture Capital Market in France

franceThere can be many influencing factors which affect VC investment firms such as Effi Enterprises. These factors are typically unique to various geographic regions due to its past and present economic climate. It takes many pieces working together in unison for the venture capital industry to grow strong. The VC industry can help foster a strong sense of innovative entrepreneurship in a region, but it takes many players to ensure everyone’s success.  France’s troubled economy and poor governmental management have threatened the VC market in the region.

The French Government Starts a VC Fund

Many times a government will invest in VC where they act as limited partners. The premise behind this type of investing is that it can help provide a jump start for the economic system through innovative entrepreneurship. While it does appear to have been effective in Israel, there’s not really a successful track record. The trouble with the French government supplying funds for the VC industry is that they are investing in funds which are already existent. When those have already been underperforming there’s not a lot more VC funds can do to help them out. Many experts agree that if the government really wants to help boost the economy through pumping funds into the venture capital industry, they should put that money into new start-ups rather than what is already apparently not working. However, the French government is just as wary as the next guy who has every reason to refrain from taking a chance in unproven playing fields. What is likely to occur when the government dumps millions of dollars into a failing ecosystem, is that valuations will be exaggerated and resources diverted to projects which have very little value. One thing that they are considering is to put investment funds into technological advancements that are associated with the Internet. This might be their one hope of bailing out their VC industry before there’s another huge bubble to burst.

Stifling Entrepreneurship in France

Another element which is hindering the spirit of innovative entrepreneurship in France is the government’s relentless regulations. According to some of the latest statistics, France already has a very serious unemployment problem. But for the startup who is very successful, the regulations regarding employees can put a huge stop to the whole thing. Many companies can obtain VC funding and find a measure of success but then there is the matter of labor contracts that is being enforced. Even the most successful business owners are facing great difficulty getting these approved by the administration, which can be very disorganized.  Once the effort, time and expense has been put into developing a labor document that the administration will approve, the labor code makes it very difficult for an employer to hire employees. The government defined role of employee-employer is very complex. The sad thing for France’s economic climate is that many entrepreneurs are forced to hire more freelancers rather than employees or they are incorporating the business in another country. When a business is afraid to hire workers due to the red tape and fines they have to endure it can be difficult to convince an entrepreneur to build a successful business.

Too Many Taxes to Breed Success

Another huge problem the venture capital industry is facing in France is the tax structure. The French government is honestly trying to correct their own deficit by raising taxes and one of the taxes is capital gains tax. The point of a VC firm investing in a business is to help provide resources for the business to grow until it is profitable enough to go public or be sold. But in France, when an entrepreneur has spent 10 years of his life and his entire life’s savings to grow a business and create jobs, and he wants to cash out he pays taxes on capital gains which can be as much as 60.5 % for him as well as for his investors. This is expected to virtually kill entrepreneurship and funding for startups unless there are changes which occur soon. Even then, recovery will be difficult at best.

About Efraim Landa

My name is Efraim Landa I am an entrepreneur and an expert in venture capital. I am the co founder of Effi Enterprises, a venture capital firm as well as the co founder and CEO of Gluco Vista, a company that is in the process of developing a non invasive glucose meter for those with diabetes.

Posted on June 22, 2013, in Business Financing, VC Firm, VC investments, Venture Capital, Venture Capital Markets and tagged , , . Bookmark the permalink. Leave a comment.

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