France plans UK-inspired tax relief for early stage investors in technology start-ups

04 Jul 2023 | News

France is short of business angels. Now, a new report is suggesting there should be UK-style tax breaks for private investors, in a bid to raise €3B and bridge the investment gap in advanced technology start-ups

French MP Paul Midy (right) holding his report on supporting start-ups, alongside entrepreneur Gilles Babinet . Photo: Paul Midy / @midy_paul / Twitter

Imitation is the sincerest form of flattery, and to increase private funding for its tech sector France is proposing to create the equivalent of the UK’s Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS), which it regards as the most effective investment strategy in Europe.

On the back of the two schemes, set up in 2012 and subject to a number of revisions since then, there are almost 37,000 business angels in the UK. That compares to 5,500 in France.

The proposal is one of a series of suggestions in a  report by Paul Midy MP, which was commissioned by the government to find ways to boost the high-tech sectors, creating jobs and reducing the unemployment rate to below 5% by 2027.

Midy is proposing that France’s Young Innovative Companies scheme is remodelled to create two new categories: Young Companies for Innovation and Growth (JEIC) and Young Companies for Innovation and Rupture (JEIR), which would apply to deep tech startups with disruptive technologies – and offering investors tax reductions of 30% to 50% for investments worth up to €500,000 per person per year.

They would be allowed to invest at these preferential rates in companies up to eight to 12 years old. Current regulations offer tax breaks worth 18% on investments up to €50,000.

Now, French technology companies are calling on the government to implement the Midy proposal, which are meant stimulate an additional €3 billion of funding per year.

President Emmanuel Macron wants France to become Europe’s leading digital ecosystem, fostering development of 100 French ‘unicorns’ and creating 500 deep tech start-ups per year by 2030. He has previously described deep tech development as “a matter of sovereignty” for Europe if it wants to avoid having the technology of the future dictated by US and Chinese companies.

France’s startup fundraising reached €13.5 billion in 2022, overtaking Germany at €10 billion, at the top of the EU leader board. But this was just under half the amount raised by UK firms. The EU is also far behind the US when it comes to private R&D investment in new technologies, spending €40 billion in 2020 compared to €200 billion, according to the Midy report.

Jean-Luc Beylat, chairman of the Systematic Paris-Region cluster, which is dedicated to deep tech, said the proposals have come at the right time. A new approach is required to move the sector beyond investments in apps for food deliveries or media streaming services. “Now we have a very strong pull for deep tech, in quantum computing, photonics. The investment is more complex, and we need more money,” he said.


The first €1,000 invested in a JEIC or JEIR would open the door to a €500 tax credit, in a bid to attract people who are the least used to this type of investment, and to aid the development of crowdfunding. In addition, JEIC and JEIRs would be able to get R&D tax credits a year in advance of expenditure.

Marianne Tordeux, director of public affairs at France Digitale, a network of over 2,000 start-ups and investors, welcomed the proposals, saying tax deductions for investment in start-ups are crucial for increasing the number of business angels, as well as widening the base of investors through indirect investment.

However, Tordeux warned against making the regulations overly complex. “With the JEIC and JEIR, I understand the diagnosis, that deep tech companies will need more help for a greater length of time, but the goal is to direct French people’s savings towards businesses. To do that, it has to be as simple as possible, to create a desire and transparency.”

There is also some doubt over whether Brussels would authorise tax breaks of up to 50% even if they were approved by the French parliament. “Creating an English-style SEIS/EIS is currently impossible according to EU law. Post-COVID, Margrethe Vestager has authorised member states to go up to a 30% tax deduction. Before, it was limited to 18%,” Tordeux said.

Opening up pension funds

Other proposals in the report look at ways to enable life insurance and employee savings plans to invest in innovative SMEs.

As the Midy report notes, “In France, private savings are very significant, but they are also focused on risk-free assets, create few jobs and do little for innovation.”

Beylat said the proposal could help unlock new investment for deep tech companies. Other countries, allow pension funds to invest in start-ups, but France does not. “We need to have an evolution to allow a few percent which is more at risk because it represents investment in new companies,” he said.

The challenge, Tordeux said, is to encourage French people to take a risk and invest in unit-linked insurance plans rather than the safer euro funds. “It is also to motivate insurers to include start-ups in these investment pools.”

Corporate venture capital

The French government recently announced the launch of the Tibi 2 programme to help fund late-stage and early-stage start-ups, with priority given to decarbonisation. So far, 28 institutional investors have pledged €7 billion.

The first Tibi Initiative, named after the economist whose report the policy was based on, led to €6 billion of investment between 2020 and 2022, and stimulated total investment worth €30 billion.

The Midy report also wants to encourage technology transfer by creating ten new university funds linked to France’s best science schools, and to increase the amount of investment in France coming from the European Investment Fund.

Never miss an update from Science|Business:   Newsletter sign-up