France Counter-Attacks to save its companies from the Economic Repercussions of COVID-19

BPI on the front line to support companies facing the Coronavirus crisis.

Thursday, October 1 was a high point in French economic life with the annual BIG forum, one of Europe’s largest events in the field, attended by business leaders. Although this digital edition of the BIG was marked by exceptional circumstances (only 1,000 people in person, compared to 52,000 last year), the atmosphere was one of optimism and confidence with the intervention of the French President Emmanuel Macron, deeply concerned by the themes of entrepreneurship and innovation in France. Confident and willing to reassure, he called on business leaders to hold firm and not give up despite the current situation imposing extreme constraints on some sectors including the restaurant and hotel industries.

“The people who (…) can say ‘we will have a vaccine next March or April’, quite sincerely, are fooling you. (…) We will no doubt live with the virus for a long time (…) but every time we can, we have to go for it, move forward, believe that we are diversifying, investing”.

In particular, he shared his enthusiasm and optimism about France’s future place in the race for innovation:

“We are the European country that creates the most unicorns, these companies valued at more than a billion euros. We want to have 25 of them by 2025. We have already created 13.”

According to him, the digital sector has proven its strength and stability during the pandemic, and the French President intends to continue to support it by investing in strategic companies. These intentions are reflected in the measures put in place as part of the recovery plan to revitalize the French economy. While in 2017, 2.6 billion euros had been invested in the sector and more than 5 billion in 2019, the government is striking hard in this year 2020 by bailing out the budget by 2.7 billion euros.

What about DeepTech in France?

Regarding the highly strategic Deeptech sector: 2.4 billion of the 7 billion provided by the stimulus package to support the digital sector will be devoted specifically to these disruptive technologies such as quantum, cybersecurity or digital health.

Unfortunately, this willingness to increase financing on the side of public institutions is less shared on the side of investors. The fault lies with the specific characteristics of Deeptech such as long development delays which are not always to the liking of VCS or Buiness Angels, more interested in a quick return.

These measures should nevertheless enable France to reduce the gap it has fallen behind in the race for technological innovation by continuing the gradual structuring of its digital ecosystem. It has been reported by a close advisor to the Elysée Palace that the figure of 100 Deeptech startups created per year should rise to 500 by 2025.

Although Bpifrance has decided to lead the dance of the financing dynamic, the State does not seem to have a precise plan to push private investors to weigh in the balance. Their reluctance could allow their foreign colleagues, who are probably more in love with risk, to take the upper hand. If this private funding from abroad were to become too large, the risk for France would be to lose its best assets in the race for technological innovation.

Call for French economic patriotism to boost the national economy

A potential solution was therefore provided by the Minister of Economy, Finance and Recovery Bruno Le Maire who announced the creation of a new financial product for the citizens of France.This €95 million Risk Mutual Fund called “BPI Entreprise 1” is intended exclusively for private individuals wishing to invest in the capital of the 1,500 private SMEs, VSEs and start-ups concerned.

By redirecting French people’s savings towards the real economy, the fund supports companies in times of crisis while allowing French people to invest in potentially high-yield investments (estimated at 5% to 7%).

As a new “patriotic” savings product, this initiative is in line with the government’s desire to strengthen companies’ equity capital while encouraging the French to spend and invest instead of keeping their money in savings books. Indeed, the French have sharply reduced their consumption during the containment imposed by the pandemic (we are talking about nearly 90 billion euros less in the economic circuit), and draining the savings surplus accumulated by these individuals would thus optimize the allocation of the country’s resources to revive the economic machinery.

Launched for a period of 6 years and extendable for an additional year, this Risk Mutual Fund was made up of 140 French private equity funds in which Bpifrance has been investing as part of its fund activity for the past 15 years to support the development of the French economy.

“It’s new, it’s the first time that a European country is offering its compatriots the opportunity to invest in their SMEs,” Bruno Le Maire said.

By allowing a public of non-professional investors to access this portfolio through a minimum entry fee of €5,000 (compared to the €100,000 usually charged for an investment fund of this type), “BPI Entreprises 1” makes Private Equity accessible to the greatest number of French people. These investment opportunities, traditionally reserved for professional investors, would make it possible to diversify the savings vehicles available to French people willing to take the risk.

A risk to be taken?

Investing in the capital of non-listed companies is generally seen as an effective investment strategy in the real economy. Usually reserved for institutional investors who are strongly advised to set up an investment diversification plan, this new financial product and its promises of high returns are naturally accompanied by high risk taking. As a result, private equity is generally out of the reach of the average investor, especially bearing in mind the traditional French aversion to risk-taking in this area.

It is worth noting, however, that the “BPI Entreprise 1” Risk Mutual Fund is a multisectoral and diversified portfolio of 1,500 French SMEs and start-ups, mainly privately owned. To commit €5,000 is therefore equivalent to investing only €3 per company, creating an investment diversification that smoothes and spreads the investment risk somewhat.

So, on the one hand, there is the promise of a targeted annual remuneration of 5 to 7% announced by the fund manager (i.e. 10 to 15 times more than a “Livret A”) and a tax advantage on exit. On the other hand, there are two main disadvantages: firstly, the money invested, between 5,000 and 95,000 euros, will be blocked for five years; secondly, if one or more of the companies in which the funds were invested goes bankrupt, the risk is that all or part of the money invested will be lost.

“It’s not for all savers, let’s be clear. It’s for those who already have quite a bit of money saved,” Bruno Le Maire said.

By way of comparison, the profitability of this fund would definitely be higher than that of a “Livret A” investment, the star investment of the French, which yields 0.5% per year, or life insurance and its 1–2% per year. Furthermore, these two investments present a risk close to nil, which raises the question of the trade-off between a high return and high risk on the one hand, and a low but secure return on the other.

It is also interesting to note the prudence shown by Nicolas Dufourcq, BPI boss, in limiting this fund to 95 million euros, a sum much lower than the billions of euros committed by the bank to support companies in recent months.

“We’re in uncharted territory,” he says, “this kind of thing doesn’t exist anywhere else in the world.”

A call for caution, therefore, which will evolve according to the success of the operation. This is why several questions always arise in order to be able to determine the interest of the investment.

In any case, this would be a nice opportunity to change one’s investment habits and a particularly supportive and patriotic way to support French companies and participate in France’s economic recovery. At Cube, we have made a personal commitment to the recovery, enabling our customers to benefit from the FrenchTech grant awarded by the BPI and the Innovation Tax Credit for startups.