The Pigeon Movement – A rallying cry for French startups

Events

This article was originally posted on The Rude Baguette Weekly Digest – to receive the digest each week, sign up on the right hand side of the screen.

A dip in approval ratings – a Rise in Taxes.

From July to September, Hollande has seen his approval rating drop from 56% to 43% – there are only two other presidents who’ve had such a sharp drop in approval ratings in France: Charles de Gaulle after he signed the Evian Accords, ending the Algerian war, and Jacques Chirac, after the Treaty for the Constitution for the European Union was voted down by French voters. To put the number 43% into context – this is lower than former U.S. President George W. Bush’s average poll rating during his 8 years in office. It’s bad. Real bad. This past week, Hollande presented his tax reform plans for 2013, which included his infamous 75% tax of household incomes over €1 Million.
Throughout all this, in spite of articles declaring France a dead zone for startups, French entrepreneurs & investors have worked together to try to cut what could be cut while saving what must be saved. France Digitale – I can’t say enough about this association, composed of entrepreneurs & investors in order to affect change in government –  submitted just 4 proposals to the French government for how France could help support the French ecosystem. Our resident VC Mark Bivens wrote about them here, but in short, they are:

  1. Refine and reinforce the ‘young innovative entreprise’ status.
  2. Channel assurance-vie monies toward innovative SMEs by forcing them to invest in VC.
  3. Improve the R&D tax credit to strengthen links between large companies and innovative SMEs.
  4. Maintain the tax incentives that preserve the retail VC model.

Jean-David Chamboredon, GM of ISAI, wrote in La Tribune[FR] last Friday – If you have a beginner-level amount of French, I suggest you assign yourself of the homework of reading through this article. In it, he says “forget about the 75%” – you’re either going to go into tax exile or you aren’t – here are JDC’s own words (translated from the original article by JDC):

Jean-David Chambordeon“…I would prefer to speak now about the proposed changes to the capital gain tax scheme supposed to be aligned with ordinary income tax. For example, an entrepreneur who sells his company, after 10 years of work, 10 years of uncertainty, of ups and downs, of 70-hour work-weeks… would have to pay 45% (income tax rate) +  15.5% of Social Contributions in total i.e over 60%. We can only read from that proposal  an anti-capitalist & anti-economic mindset that destroys entrepreneurial dreams with an almost sadistic approach…”

60% Capital Gains tax – the real innovation killer

Forget taxing the wealthy, forget big government, the French government is eliminating the one tangible reward for building new companies, creating innovation, and providing the French government with a few hundred new employees. This come at a time where France’s big companies are beginning to show their anti-global competitiveness roots – Peugeot is laying off thousands, Bouygues is laying off thousands, and this is just the beginning. For the record, the current Capital Gains tax is set at 32.5%, an 84.6% tax hike.
No one loves tax hikes – times are tough, and they may get tougher. Short term adjustments need to be made, but this cannot be one of them. JDC went on to explain that, in France, capital gains will be taxed heavier than art transactions, real estate investments, and public stock purchase.
The proposed LF2013 will be debated in the French parliament houses (the National Assembly and the Senate); however, since both are dominated by the Socialist party, “we need to make the debate happen also outside of the parliament.” says JDC.
French entrepreneur Olivier Bernasson re-opened his blog just to share his feelings in an article entitled “Mr. Representative, tell Francois Hollande…,” in which he confesses, among other things, to have voted for Hollande, stating:

“Who will be rich enough and crazy enough to invest a penny in a French company like this?
Who will be rich enough and crazy enough to give startups the means to bring their dreams to life?”
 

The Pigeon Movement – France’s Last Hope for Startups.

In the wake of all this built up tension & disappointment from the startup community, a group of entrepreneurs put together a group called “Les Pigeons.” The group grew to over 3,800 members during the weekend alone – a gathering is scheduled to be held Sunday October 7th at 3:00PM in front of the National Assembly, and French startupers across the web have been changing their profile pictures to the pigeon seen to the right in order to spread the word.
According to Ruben Nataf, CM for Whoozer and allegedly the CM for @DefensePigeons, the group was started by Bluekiwi(Acquired by Atos | 04/12 for €20M) & Kwarter founder Carlos Diaz (currently based in SF), along with Whoozer CEO Fabien Cohen.
In French, the term “pigeon” is used to call someone a sucker – and it seems fitting here. Hollande has gone back on his promise to lower taxes paid by SMEs so that they will be less than big companies after tax breaks.
Despite France’s long history of innovation, financing, and technological prowess, the business world has turned a blind eye to France and pre-emptively declared it dead, without ever checking its pulse. I have felt the pulse in the French startup scene, and it is beating faster than a hummingbird, and stronger than an ox. It can barely be heard from a distance, silenced by government fat cats and the muscle of big business, but it is beating hard. There have been more multi-million dollar investments in the last two weeks – Work4Labs, Capitane Train, VoitureLib, Criteo, Melty – than I’ve ever seen in France, and I know there are so many more to come.

30 Responses

  1. Avatar
    Adrien Châtillon

    France is becoming a “crab basket” where you are given the illusion that you can succeed in life, yet, if you get to close to the light at the end of the tunnel, society will pull you back to that same black hole.
    On a side note, I read that the Goverment is thinking of allowing people under 20 years old to access the RSA…

    • Avatar
      KungFu VC

      In the France I grew up there was no illusion about what you should do with your life: I’ve been diagnosed at 14 by our fantastic orientation advisors that I should (would?) be a law enforcer (aka ‘cop’) and I believed it until I made choices which affected my education, and life, durably.

    • Avatar
      KungFu VC

      In the France I grew up there was no illusion about what you should do with your life: I’ve been diagnosed at 14 by our fantastic orientation advisors that I should (would?) be a law enforcer (aka ‘cop’) and I believed it until I made choices which affected my education, and life, durably.

  2. Avatar
    Adrien Châtillon

    France is becoming a “crab basket” where you are given the illusion that you can succeed in life, yet, if you get to close to the light at the end of the tunnel, society will pull you back to that same black hole.
    On a side note, I read that the Goverment is thinking of allowing people under 20 years old to access the RSA…

  3. Avatar
    Olivier Issaly

    First, everyone should be precise and stop confusing marginal rate with average rate…
    Average tax rate can’t be 60% for the governement has added a mechanism of tax cut depending on the number of years you kept your shares (up to 40% for 12 years), and also because up to 150k€ tax rates are lower.
    I did a small example with a founder who gets 3M€ after an exit let’s say after 10 years. Following the current fiscal project, the average rate would be 44% not, 60%. You also have to consider that as capital revenue will be taxed as working revenue, if you are married or have children, it will probably lower it even more.
    IMO there are two risks for this reform :
    1/ incentivize founders not to sell before 10 or 12 years, despite potential business opportunities before, and despite the 8 year average length of a VC fund
    2/ incentivize founders to take some money each year with dividens, instead of reinvesting everything each year in search of the big exit
    These are the real issues, but please stop saying everyone will be taxed at 60%, this is false especially for small exits lower than 1M€, and it doesn’t serve entrepreneurs image.

  4. Avatar
    Olivier Issaly

    First, everyone should be precise and stop confusing marginal rate with average rate…
    Average tax rate can’t be 60% for the governement has added a mechanism of tax cut depending on the number of years you kept your shares (up to 40% for 12 years), and also because up to 150k€ tax rates are lower.
    I did a small example with a founder who gets 3M€ after an exit let’s say after 10 years. Following the current fiscal project, the average rate would be 44% not, 60%. You also have to consider that as capital revenue will be taxed as working revenue, if you are married or have children, it will probably lower it even more.
    IMO there are two risks for this reform :
    1/ incentivize founders not to sell before 10 or 12 years, despite potential business opportunities before, and despite the 8 year average length of a VC fund
    2/ incentivize founders to take some money each year with dividens, instead of reinvesting everything each year in search of the big exit
    These are the real issues, but please stop saying everyone will be taxed at 60%, this is false especially for small exits lower than 1M€, and it doesn’t serve entrepreneurs image.

    • Avatar
      François Lagunas

      Could you give the details of how you get to this 44% number ? Another point I see, if I understood the project correctly, is that it is not 10 years from the time the company was created, it’s 10 years after 2013, which is a bit different. And finally, 10 years is equivalent to eternity for a a lot of startups.

    • Avatar
      Denis TRUFFAUT

      10 years is indeed a long time, in the sense you could design your product during 3-5 years, and only after being sure there is a real opportunity, create a company to exploit it.
      Then you will probably want to sell within 5 years before its economic potential will go down (business opportunities are rapidly filled by competitors).
      But with this socialist law, in this example, you cannot sell your company in the right time. You will miss important opportunities. Or worst, you’ll be ruined.

    • Avatar
      Denis TRUFFAUT

      10 years is indeed a long time, in the sense you could design your product during 3-5 years, and only after being sure there is a real opportunity, create a company to exploit it.
      Then you will probably want to sell within 5 years before its economic potential will go down (business opportunities are rapidly filled by competitors).
      But with this socialist law, in this example, you cannot sell your company in the right time. You will miss important opportunities. Or worst, you’ll be ruined.

    • Avatar
      Olivier Issaly

      So let’s say you get 3M€ after 10 years. You get a 25% cut according to the project, which means the taxed amount is 2250k€. Marginal rate above 150k€ is 60%, and from 0 to 150k it costs 70k approx (CSG/CRDS incl.). So it cost you in tax 70k+(2250-150)*60% = 1330k. On a 3000k revenue, it represents 44%. If I’ve made a mistake let me know .
      It would be even less if you keep your share 12 years and as I said if you’re married or have children.
      The real issue in my opinion is the disalignment of founders with VCs as they won’t have the same time frame. For founders who don’t want to work with VCs it’s still an issue but manageable I think.

    • Avatar
      TwoVentures

      3ME after 10 years… it’s just peanuts. No one will work hard for that.

    • Avatar
      TwoVentures

      3ME after 10 years… it’s just peanuts. No one will work hard for that.

    • Avatar
      Olivier Issaly

      So let’s say you get 3M€ after 10 years. You get a 25% cut according to the project, which means the taxed amount is 2250k€. Marginal rate above 150k€ is 60%, and from 0 to 150k it costs 70k approx (CSG/CRDS incl.). So it cost you in tax 70k+(2250-150)*60% = 1330k. On a 3000k revenue, it represents 44%. If I’ve made a mistake let me know .
      It would be even less if you keep your share 12 years and as I said if you’re married or have children.
      The real issue in my opinion is the disalignment of founders with VCs as they won’t have the same time frame. For founders who don’t want to work with VCs it’s still an issue but manageable I think.

    • Avatar
      François Lagunas

      Could you give the details of how you get to this 44% number ? Another point I see, if I understood the project correctly, is that it is not 10 years from the time the company was created, it’s 10 years after 2013, which is a bit different. And finally, 10 years is equivalent to eternity for a a lot of startups.

    • Avatar
      Denis TRUFFAUT

      Having wife and kids while creating a company is not something easy, as you’ll have to work 7/7. BTW, you underlined real issues, I mean freedom and business restrictions. Thanks for the precisions.

    • Avatar
      Denis TRUFFAUT

      Having wife and kids while creating a company is not something easy, as you’ll have to work 7/7. BTW, you underlined real issues, I mean freedom and business restrictions. Thanks for the precisions.

  5. Avatar
    Pierre French

    Hollande is a joke, this whole government is a travesty, France as we knew it (already pretty damaged by years of laxism and “taxism”) is going to its ruin. Don’t even get me started on the RSA and the immigration policy, I wouldn’t know where to begin. This country used to encourage creativity and entrepreneurial mindedness, now people are just encouraged to leave. Pathetic.

    • Avatar
      TwoVentures

      Yes. Unfortunately France is going downhill. Just becoming lazy with people having all the rights but no obligation.

    • Avatar
      Liam Boogar

      I quite disagree with that statement – since when is it okay to say an entire country has become lazy? It’s not even historically true for France from before this LF2013 problem – they just don’t understand entrepreneurship.
      It’s a lot easier to write-off an entire country (especially one that is among the G8 and has the 2nd largest VC investments in Europe) than it is to try to understand and affect change to make it a great place to do startups. So I congratulate you being a great example of what lazy looks like

    • Avatar
      Liam Boogar

      I quite disagree with that statement – since when is it okay to say an entire country has become lazy? It’s not even historically true for France from before this LF2013 problem – they just don’t understand entrepreneurship.
      It’s a lot easier to write-off an entire country (especially one that is among the G8 and has the 2nd largest VC investments in Europe) than it is to try to understand and affect change to make it a great place to do startups. So I congratulate you being a great example of what lazy looks like

    • Avatar
      TwoVentures

      Yes. Unfortunately France is going downhill. Just becoming lazy with people having all the rights but no obligation.

  6. Avatar
    Pierre French

    Hollande is a joke, this whole government is a travesty, France as we knew it (already pretty damaged by years of laxism and “taxism”) is going to its ruin. Don’t even get me started on the RSA and the immigration policy, I wouldn’t know where to begin. This country used to encourage creativity and entrepreneurial mindedness, now people are just encouraged to leave. Pathetic.

  7. Avatar
    Vu de la baie

    “According to Ruben Nataf, CM for Whoozer and allegedly the CM for @DefensePigeons, the group was started by Bluekiwi(Acquired by Atos | 04/12 for €20M) & Kwarter founder Carlos Diaz (currently based in SF), along with Whoozer CEO Fabien Cohen.”
    Wow nice. So the guy who abandoned France way before Hollande to start his company in the bay and the wannabe who stole Path’s and Circle’s designs for his miserable me-too app are the spokepersons of French entrepreneurship?

  8. Avatar
    Vu de la baie

    “According to Ruben Nataf, CM for Whoozer and allegedly the CM for @DefensePigeons, the group was started by Bluekiwi(Acquired by Atos | 04/12 for €20M) & Kwarter founder Carlos Diaz (currently based in SF), along with Whoozer CEO Fabien Cohen.”
    Wow nice. So the guy who abandoned France way before Hollande to start his company in the bay and the wannabe who stole Path’s and Circle’s designs for his miserable me-too app are the spokepersons of French entrepreneurship?

  9. Avatar
    Adrien Châtillon

    The funny thing is that the word ‘entrepreneur’ is actually French. The irony!

  10. Avatar
    Adrien Châtillon

    The funny thing is that the word ‘entrepreneur’ is actually French. The irony!

  11. Avatar
    James Ferguson @kWIQly

    Happily in Switzerland (the German speaking side) we fo not suffer such baguetteishness – its more Gipfeli – but the startup environment is also weak

  12. Avatar
    James Ferguson @kWIQly

    Happily in Switzerland (the German speaking side) we fo not suffer such baguetteishness – its more Gipfeli – but the startup environment is also weak

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