It’s a bit like the French Tech employee’s carrot. BSPCEs (Business Creator Share Bonds), bonds that give the right to buy shares at a set price, are common in the French startup ecosystem. For employers, this is a good way attract and retain talent. For employees, it is a good financial motivation, because the more the start-up performs, the more its valuation increases. And therefore the more they can potentially tap into a nice jackpot!
But this situation is especially true for first-time employees or those who arrived at the company before the 2021 valuation surge. Since then, BSPCE prices are fixed in relation to the – therefore very high – valuation of the last round, leaving little hope for a potential gain given that ratings have been downgraded in recent months.
That’s why some start-ups decide to overhaul everything. “We suggest that start-ups cancel their old BSPCE plan and reallocate new ones to take into account the new assessment”, explains Louis Oudot de Dainville, partner at Gide. But this is not yet widespread. “It’s not systematized when it should be, like in the United States,” said Lucas Mesquita, co-founder of Caption Market, a startup stock trading platform. US start-ups, including unicorns like Stripe or Instacart, have recently downgraded their options (the equivalent of the BSPCE across the Atlantic). And some even do it quarterly.
lack of education
In France, the few start-ups that have already taken up the subject usually apply 20% discounts. In the United States it is… between 60 and 90%! “If a company’s valuation is revised downwards, it sends the wrong signal,” explains Alexandre Léger, co-founder of Equify, an equity management solution for start-ups. However, the regulatory framework authorizes it, as the 2020 finance law allows discounts on BSPCEs.
To set the right price, young people can turn to companies such as EY or PWC, but also to specialized companies such as the French Sovalue. “We created our own methodology and automated several processes, which allows us to offer a valuation of 4,000 euros against 20 to 30,000 euros for the big players”, guarantees Illan Glaubert, co-founder of Sovalue.
But it is still necessary that the start-ups are aware of the existence of these BSPCE assessments… “I think most CFOs and lawyers are poorly educated about valuing these instruments,” analyzes Balthazar de Lavergne, co-founder of Semper, another start-up equity trading platform.
What alternative to BSPCE?
Even though the subject is becoming more democratic, there are still other barriers to overcome. “Before the drop in ratings, there were already debates about the interest of BSPCEs. Many saw them a bit like monkey money, money whose color they will never see”, explains Louis Oudot de Dainville. Because selling your securities requires a liquidity event (a fundraiser, a sale, etc.), which doesn’t happen very often. Hence the creation in recent years of platforms for the sale of shares by start-ups such as Caption Market, Fairshares or even Semper.
But because the ratings have been revised downwards, these players aren’t making as much money anymore. “There is no lack of interest, but the market is extremely locked”, comments Lucas Mesquita. Fairshares has just ended its activity. “The context was extremely unfavorable, I didn’t want to offer you investments in start-ups with a headwind”, stated its co-founder Matthieu Stefani, in his weekly newsletter.
Will startups have to find another carrot? “They have to be interested in alternatives like the bonus. Admittedly, it is less fiscally advantageous than the BSPCE, but it is easier to administer”, advises Louis Oudot de Dainville. Start-up Futurz, created in early 2022, offers a platform that issues tokens (digital tokens) that are allocated according to employee results.
PRACTICAL – “The objective of the BSPCEs is to retain and motivate talent”