International approach  l  Current VC market  l  Our initiative for EVCT

EVCT : European Venture Capital Trust

The reason

"VC per capita: Europe $7, US $72, Israel $142" Jan Müehlfeit, Microsoft's European chairman, on June 14th 2011 at TechEurope Brussels.

After researching how to foster entrepreneurship in France (final year essay in Dauphine in 1997), have the opportunity to travel intensively across Europe in under provided regions (the least one could say), it came naturally to wonder "how to foster entrepreneurship and VC" across Europe. Despite the fantastic characteristics of the US and Asian markets from a VC point of view, at Akka Venture, we feel passionately European and we believe that there is a lot of room for improvement to develop Entrepreneurship and Venture Capital in Europe. 

Especially in a context of reduction of public expenses, facing pressure to increase taxes, European governments should imperiously put in practice "tax-productive" policies (starting with tax-incentives encouraging investments in SMEs) favorable to the development of Entrepreneurship, the source of value creation, itself the source of taxes. Contrary to appearances, initial tax incentives are not a loss of taxes for the state, as this initial tax incentive starts to return more taxes after a 3 years timeline. 

Instead of only executing deals, we have felt attracted in trying to participate to add a brick in the wall of that endeavour. We have spent considerable amount of time the past few years to act as a lobby with a selection of people in various countries, structure some information, seed ideas and spread the word.

Our lobby in Sweden for "SVCT"

In France about 1b€ used to be collected every year (2007-2010) in FCPI/FIP/loi TEPA to the benefit of entrepreneurs; those funds are allowed to invest across EU. For Akka Venture, bridging the gap from France/the UK where there is the bulk of VC funds, to Sweden, where there is an "equity gap", is a good thing. But it would be even better to have a strong local VC market in Sweden. It would be better that international investors could find it easier to have local investors to co-invest with.

While initiating market entry in Sweden in 2008, we realized how much the entrepreneurial environment needed more VC. We wrote a piece of work and handed it to Marie Reinius, president of the SVCA, suggesting to duplicate the French system of FCPI in Sweden. The stake is simple: while doing so, the volume of VC investments to the profit of entrepreneurs would be multiplied by a twofold factor (minimum) in a timeframe of a couple years; like it did in France when this system was implemented. We are glad to send you this document on request.

The idea was discussed at least beyond the desk of the Swedish ministry of Finance, Anders Borg, also in the parliament as the article says, but the will to foster entrepreneurship and the tax incentives culture in Sweden (where there are only four tax niches) are quite different than in France (where there are about 500 tax niches). Those seeking to escape high tax pressure are numerous in France where this VCT system bears considerable success - to the greatest profit of European entrepreneurs and investors.

Here is above an article dated from March 30th 2009 from Dagens Industry (Johanna Saldert). It says "She wants to follow France". We believe that despite trying hard, the SVCA unfortunately faces a certain absence of political will, if not of a shared vision, about how to foster the entrepreneurial environment in Sweden. After 2006 elections, Fredrik Reinfeldt had already suppressed the wealth tax while in France, Nicolas Sarkozy had kept it but enabled higher-than-average tax reductions for wealth-tax payers, provided that they invest in SMEs. During the 2010 elections in Sweden, offering tax incentives so that they get invested in funds to foster entrepreneurs was not on the agenda.

With a collect of funds done through the bank and insurance networks (creating or reinforcing investment teams like it happened in France and the UK), we can also imagine to a certain extend some investors (now in a position of oligopoly) might have feared a sort of disruption in terms of competition and therefore were not pushing in favor of such a revolution gauged against their own interests. In really the gap between supply and demand of capital is so huge that there is no such reasonable threat (as proven in French "laboratory market" where the number of investors more than doubled in a few years, without affecting the historical players).

In 2011 we could count the active institutional VCs from Sweden barely on one hand, in a country of a human size similar to Israel - incomparably more active in trying to foster its entrepreneurial environment - we hope further discussions will take place to fertilize and dynamise that rich and talented entrepreneurial soil in Sweden - to save, keep, develop a Swedish edge in Innovation and fast growing businesses.

In 2013, Swedish entrepreneurs and investors still complain of dramatic shortage of financial resources and call for public action. See this article regarding the conference What's Next for Nordic Tech held in May in Stockholm.

Last updates

In June 2013, five years after we handed a report precisely about this very important subject for Swedish entrepreneurs and investors, Swedish government introduces tax deductions for investors, on top of lowering corporate tax rate down to 22%. The 50% tax reduction has a maximum limit of 650,000 SEK (75,000€) per individual per annum (for a maximum investment of 1,3mSEK (150,000€)). This tax reduction system is a lot more agressive than French FCPI allowing an individual to reduce only 2160€ per annum for an investment of 12,000€ (18% reduction rate). In France, the number of investors in those schemes was 91,000 people in 2011. After a few years we can reasonably expect such an attractive tax incentive scheme to attract several tens of thousands Swedish people. 

A number of 5,000 Swedish people (easily reached) investing 150k each would mean 750m€ investment per annum; meaning the investments in Swedish SMEs have all chances to explode by a high multiple in the years to come. Note that in France, FCPI can invest in EU companies (only in technology/IT); while we are not sure yet if this Tax Incentive Scheme in Sweden is reserved exclusively for Swedish SMEs. Contrary to French FCPI (which are funds gathering private investors), it is not limited to Technology/IT companies. Logically as Sweden is a member of EU, the commission should request Swedish Tax payers can invest in EU SMEs (not only Swedish based on a rule of non discrimination). And we don't see any obstruction that Funds would be created to collect individual's investments benefiting from those tax reductions. Stay tuned... > More info

In Finland in December 2012, the parliament approved the Government Bill on the proposal for the Act on Tax Incentives for Investments Activities during the years 2013-2015 and the amendment of Section 16 of the Finnish Taxation Procedure Act. More info

This is great news, pretty much the equivalent of part of the French law called "Loi TEPA" but this system is far from being as good as the system of "FCPI" (funds providing tax reductions) put in place in France in 1999, for several reasons:
1- High risk. The advantage to buy the stake of a fund is to split the risk from one to several investments and to benefit from the expertise of a professional investment team;
2- High Risk / Complicated / DIY. FCPIs are easily collected by bank and insurance networks and invested by semi-captive investment teams. In Finland, the private investor interested in tax reduction needs to identify himself good investment opportunities, then invest, then ad value before exit and sale of his shares?.. In France a team managing the FCPIs will do all this while the private investor remains totally hands off.
3- High risk. This tax reduction is 100% investment in one or two SME(s) that usually scare private investors off. In comparison, the system of FCPI provides tax reduction in funds which are invested "only 60%" in several SMEs, meaning 40% of the money is not even at risk, a much better risk/return profile, in turn a much lower risk avoidance and therefore very successful collect of funds. Let us see in early 2014 the success of this tax reduction in Finland during 2013, better than nothing or direct investment of state in SMEs.

In France the law of Finance of December 2010 reducing the tax reduction of FCPI from 25 down to 22% generated a loss of collect of 300m€ in 2011. The rate was again reduced down to 18% for year 2012; which made the collect collapse from the highest peak of 1,2b€ in 2010 down to 374m€ in 2012, lowest collect in 10 years. Fortunately, several private and public fund's fundraising in 2012-2013 compensate partially this fall. We look forward to seeing what the Hollande Government will do about this precise point in the law of finance for 2014.

In Germany, the BVK (Deutsche Venture Capital Association) works on a system of insurance for institutional funds of funds, financially provided in part by the German state, that would partially cover losses occurring while investing in VC funds.

See the consultation of the European Commission working on a project of directive to foster Venture Capital in Europe. An official document from the commission is to be found here. It barely alludes to tax incentive scheme page 6. While there is hope coming from such an initiative from the European Commission, each country can anticipate such directive. 

Feel welcome to contact us to discuss how to help with this initiative in your own country.
See our ideas on the matter in this document

"France is the last VC market active in Europe!" - a London based fundraiser