When I started looking into crowdfunding at the beginning of 2014, a number of people outside Belgium told me that it would only work if the government gave tax incentives. Now they are doing that, but that won’t necessarily make a difference unless the people who can invest are connected with the people looking for the money.
Why are the government giving tax incentives?
Very simple. They would like to reduce some of the money which is rotting on savings accounts in Belgium and increase funding in the “real” economy as start-ups are finding it increasingly difficult to get finance from the banks.
The deal is that you can tax deduct up to 45% of your investment in a start-up so the government will essentially share the risk with you. There are a number of criteria to fulfil, as you would expect, but the barrier to entry is low. More info is available via http://www.decroo.belgium.be/fr/découvrez-tous-les-détails-du-plan-start
How does it work?
Tax incentives are a great start, but if I am launching a start-up, how do I find the investors? Conversely, if I have some savings I would like to invest, how do I find the start-ups? Indeed, its the classic problem of connecting the people who have a resource with the people who are looking for it. Essentially, it can be done in 1 of 3 ways:
- via a crowdfunding platform – in theory, this is good, especially as I am a big advocate of crowdfunding. The downside may be that the platforms need to be “approved” which could result in a relatively low number of platforms being able to offer a relatively low number of start-ups.
- via a fund – this could be a good solution but for the moment, there are not a lot of funds and the risk here is that this could simply takes us down the road of traditional finance. I believe that it is important that people know where their money is being invested and that they take responsibility for the risks they are taking rather than outsource it
- direct – which means that you need to connect the dots yourself. In my experience, the people who traditionally invest in property or sicavs, do not necessarily have the time, the know-how (on how to judge which start-ups may succeed as many don’t) or the motivation (most I spoke to didn’t even know there was such a tax shelter). The startups can quite easily find a business angel, but finding lots of “small” investors is more complicated, as is the management of the equity split. There are pro’s and con’s to each. If nobody knows about the tax shelter, nobody will look into the above options so raising awareness is the goal of this blog.
What I think we need
There are professional investors who invest in start-ups (venture capital, business angels) but the tax shelter is not targeted towards them as such. There are “amateurs” who tend to invest in property or stock exchange but don’t have the skills of the business angels and these are the target market. Essentially, we need a ned generation of business angels who invest differently. They probably will invest smaller amounts, not get involved in advising the business but play an active role is promoting it has it is in their interests to do so. If the business succeeds, they will get a return on their investment and this engagement with investors will help the start-ups in ways which business angels may not be able to.
I describe crowdfunding as “putting relationships and responsibility back into the heart of 21st century finance”. It’s not just about the money, it’s about people connecting with their local economy and investing in people and businesses which they believe in. For every dollar invested in the “real” economy (buying a carton of milk in the local shop), there are about 75 dolls spent on the speculative economy (stocks, futures, derivatives). The introduction of this tax shelter shouldn’t be about hoping to get rich by speculating on lots of start-ups but it should be about using Belgium’s vast resources in savings accounts to stimulate more local economic activity i.e. create jobs which will result in positive social and economic impact.