Our tips for investing directly in startups

Invite yourself to a round table of French unicorns, like any investment fund? This is now possible thanks to Caption, a new platform that connects potential shareholders with employees of the same companies who have been issued warrants to subscribe for shares of the company’s founder (BSPCE) upon hiring. This type of stock option gives them the right, at the end of the lockup period, to purchase their company’s shares at a discounted price, so it is very tempting to immediately resell them to interested investors in order to pocket the capital gain right away.

However, participation in such events will require patience: the leaders of these unicorns, seeking to control their capital, do not always give their employees their consent to implement BSPCE on the platform. You also have to be quick: titles offered during one-off campaigns (thus Caption has organized 34 operations across 20 different companies since its inception in March 2021) most often sell out in one hour.

In this type of OTC transaction, the main difficulty will obviously be in estimating the price to be paid. If Caption makes all public data about the relevant company available online, there is no obligation for company executives to disclose more. “But we also list the price paid in a previously closed fundraiser, which provides a reliable measure of company valuation,” said Quentin Lehemia, 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. So in the summer of 2021, an employee of PayFit (a payroll software publisher ranked 23rd among French unicorns) sold the first tranche at 12 euros per share, then the second at 12.50 euros, for a total of 122,500 euros.

Be careful though, don’t confuse these title resales with fundraisers organized by young shooters looking for fresh cash. These new activities are indeed far more risky than those resulting from the BSPCE exercise because the startups involved have less history than the unicorns. And although the companies selected by Caption have a minimum turnover of 1 million euros, they are often only at the stage of launching or applying for a patent.

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In such cases, it is better to use first sort platforms such as Wiseed, Anaxago or Lita.co to limit the risk. “On average, we retain only 2% of submitted files, based on the financial elements provided by the company and the ability of its managers to succeed in its development,” said Mathilde Iklanzan, CEO 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 transmission (in Lita.co, Tudigo or again Wiseed).

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Also make sure that investments are made through a mechanism common to all shareholders (most often a SAS (simplified joint stock company)), and not directly. This will indeed make it easier to resell the securities in the event of a takeover bid by a competitor or a publicly listed start-up. “Then we consult with all shareholders in the form of an electronic vote,” says Matilde Iklansan.

The initial bet can be multiplied by two or three.

Quentin Lehemia, 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 stake back. So, in Wiseed, out of 200 funded projects, about twenty have already been announced about liquidation. Only in the case of initial issues and if the securities have been held for at least five years, it is possible to take advantage of the tax advantage, which should compensate for the risk incurred. But this is only 25% of the investment made, which alone remains within the range of 50,000 euros per person (100,000 euros per couple). These are respectively the maximum tax bonuses of 12,500 and 25,000 euros.

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Conversely, profits can be exponential. Among the ten startups featured by Wiseed that have already been sold or listed, the annualized rate of return (IRR) earned by shareholders ranges from 8% to 45%. While happy buyers of PayFit shares, on Caption, they themselves were able to sell their share a few months later, in March 2022, during a fundraiser organized by the company. Sale price: 33 euros, i.e. profit multiplier from 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 list the name of its activity. (3) Maximum 250 euros. © Capital