Our advice on direct investment in startups

Invite yourself to the round table of French unicorns, like any investment fund? Now that’s possible thanks to Caption, a new platform that connects potential shareholders with employees of the same companies who, when they were hired, received the Company’s Founders’ Stock Subscription Warrants (BSPCE). This type of stock option entitles them, at the end of the lock-up period, to receive shares of their company at a discounted rate, which is therefore a great temptation to immediately resell to interested investors to immediately put capital gains.

However, to participate in such deals, you will need to be patient: the leaders of these unicorns, seeking to control their capital, do not always give consent to employees to perform BSPCE on the platform. You also have to be quick: titles offered in one-off campaigns (thus Caption has organized 34 deals involving 20 different companies since its inception in March 2021) often sell out within an hour.

In this type of OTC transaction, the main difficulty will obviously be in estimating the price to be paid. If Caption publishes all public information about the relevant company on the Internet, there is no obligation on the company’s executives to disclose more. “But we also indicate the price paid during the previously closed fundraising, which gives a reliable indicator for the valuation of the company,” explains Quentin Lekemia, co-founder of the platform.

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To limit the appetites of sellers, securities are also offered to investors in ascending order of price. This is how, in the summer of 2021, an employee of PayFit (payroll software publisher, 23rd in the French unicorn) sold the first tranche at €12 per share, then the second at €12.50, for a total of €122,500.

However, be careful not to confuse these resales of titles with fundraising organized by young sprouts in search of fresh money. These new ventures are indeed much riskier than those resulting from the BSPCE exercise, as the respective startups have less history than unicorns. And although the companies selected by Caption have a minimum turnover of 1 million euros, they are often only at the start-up or patent application stage.

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  • 12%: it is the average return of unlisted shares over a long period.

In such cases, to limit the risk, it is better to use platforms that perform the first sorting, such as Wiseed, Anaxago or Lita.co. “On average, we retain only 2% of submitted files based on the financial data provided by the company and the ability of its managers to succeed in its development,” says Mathilda Iklanzan, General Manager of Wiseed. As shown in our table below, these intermediaries also have the advantage of specializing in certain promising sectors, such as healthcare (in Wiseed or Anaxago) or energy transition (in Lita.co, Tudigo or Wiseed again).

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Also, make sure that the investment is made through a mechanism common to all shareholders – usually through a SAS (simplified joint stock company) and not directly. This will indeed facilitate the resale of securities in the event of a takeover bid by a competitor or in the event of a startup listing on the stock market. “Then we hold consultations with all shareholders in the form of electronic voting,” Matilda Iklanzan clarifies.

The initial bet can be multiplied by two or three.

Quentin Lekemia, co-founder of the Caption platform

Finally, whether you invest in the primary or secondary market, keep in mind that there is no guarantee that you will get your bet back. Yes, at Wiseed, out of 200 funded projects, about twenty have already announced liquidation. Only in the case of initial issues and under the condition that the securities are held for at least five years, you can take advantage of the tax benefit, which should compensate for the risk incurred. But this is only 25% of the investment made, which itself is kept within the limits of €50,000 for one person (€100,000 for a couple). These are maximum tax bonuses of 12,500 and 25,000 euros, respectively.

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Conversely, profits can be exponential. Among the ten startups represented by Wiseed that have already been sold or listed, the annualized rate of return (IRR) received by shareholders ranges from 8 to 45%. While the lucky buyers of PayFit shares on Caption were able to sell their stake themselves a few months later, in March 2022, during a fundraiser organized by the company. Sale price: €33, ie a profit multiple of 2.6 to 2.8.

Our comparison of 6 investment platforms with start-up capital

(1) Including developer financing. (2) Not reported, Anaxago does not state the name of its business. (3) A maximum of 250 euros. © Capital