Meeting Date
March 20, 2024
Event Type
XAnge Talks
🇫🇷 / 🇺🇸
🇫🇷🇺🇸
Hosted by XAnge to gain experts insights on equity sharing and discussing “Bons de Souscription de Parts de Créateur d'Entreprise” (BSPCEs), a key mechanism for equity sharing in startups. This breakfast was organized in addition to the recent french government announcements regarding BSPCEs regulation.
‣
‣
‣
‣
Recent BSPCE Updates and Bofip Clarifications
OFFICIAL BOFIP UPDATE - MARCH 27 2024
This update means that the value of the exercise price can be subject to a double discount: for illiquidity, and for differential rights.
- The illiquidity discount takes into account the fact that there will be more or less time between the moment the employee becomes a shareholder and the moment they can sell their shares. It takes into account holding ordinary shares vs. holding preferred shares.
- The discount related to differential rights takes into account the fact that an employee does not have the same rights as other shareholders in the capitalization table, and that this lower right is reflected in a lower value of the share.
⚠️ Although these clarifications provide assistance, the tax administration does not provide concrete guidelines regarding discounting methods. Therefore, it is up to each company to document this price by any means necessary: the tax administration does not set any rules.
It’s important to remain vigilant in documenting the discount applied during valuation work, in order to anticipate any potential challenges by the administration
“The Bofip update now accommodates traditional valuation methods, making it possible to align BSPCE valuations with their inherent nature, offering a more flexible framework for startups.” - Alexandre Leger, CEO @Equify
“We need to focus on the essence and liquidity of BSPCEs. Companies need to prioritize value creation over the initial exercise price.” - Nicolas Rose, Managing Partner @XAnge
Detailed views on BSPCEs distribution framework
Aspect | Alan's BSPCE Framework | Welcome to the Jungle's BSPCE Framework | Expert’s insights | |
Why ? | Approach | Egalitarian with universal allocation to adress employee retention challenges. | Transition from grade-based to a more structured system.
Adjusting BSPCEs to reflete company milestones and employee’s contributions. | |
To whom? | Allocation Strategy | Universal Allocation: BSPCEs allocated to all employees, fostering a sense of ownership.
Need of legal guidance to navigate different tax regimes. | Structured allocation system, BSPCEs allocated considering many factors like salary grid and seniority.
| Nicolas Rose: "The big question is, who is interested? Only senior executives, or everyone? While we've got the freedom to set this up however we like because it's all based on contracts, sticking to a uniform approach rather than deciding on a case-by-case basis is generally smarter.”
Pauline Paquet: |
How frequently? | Types of Grants | Hire Grants: Immediate alignment of new hires with company goals.
Promotion Grants: Given upon ascending to higher roles: recognition of increased responsibilities and contributions.
Refresher Grants: Periodic, to sustain motivation for long-standing employees. | Introduction of Promotion Grants as a clear signal of tangible rewards for career advancement.
Recognition and incentivization of employees assuming greater responsibilities and contributing significantly to the company’s growth. | |
When? | Vesting Schedule | Tailored to each grant type
Hire Grants: 3 years with 1 year cliff
Promotion Grants: 3 years without cliff
Refresher Grants: 2 years without cliff | 4 years with a 2 year cliff | |
Why? | Long-term Retention Promotion | Multiple grant approaches encourage immediate contributions and foster long-term engagement. | Promotion grants align career advancement with company goals. | |
Internal communication | Internal communication: Ensure employees understand the value and mechanisms of BSPCEs | Topics to adress:
• detailed explanations of the allocation process,
• vesting schedules,
• practical aspects of exercise and liquidity events.
Notion page: explanations about Alan’s BSPCE mechanisms.
Q&A
Internal simulation tools of the exercise of your BSPCEs: help take into account the concept of illiquidity. | Topics to adress:
• detailed explanations of the allocation process,
• vesting schedules,
• practical aspects of exercise and liquidity events.
HR, Finance & Legal need to work together for a clear communication strategy.
Notion page: explanations about WTTJ’s BSPCE mechanisms.
Q&A: once per trimester. | Nicolas Rose: "Communicating the program is key, and if there is transparency about the value and the challenges regarding liquidity, it makes it easier to explain what the BSPCEs are worth.” |
Exercice period/leave | Exercice period | 7 years window to exercise your BSPCEs after departure (very exceptional case).
| 1 year window to exercise your BSPCEs after departure.
Clear Offboarding session with General counsel: explanation of the exercise delay & how to find funds to exercise. | |
Liquidity | Liquidity events to reward employees and enhance attractiveness of BSPCEs. | Prioritize communicating on waiting for an exit to exercise the BSPCEs than to exercise during secondary market sales. | Prioritize organising liquidity events and communicate about them for employee to exercise their BSPCEs:
• secondary market sales,
• fundraisings. | Alexandre Leger “There is an important scarcity of liquidity events. It is important to carry out initiatives to enhance liquidity opportunities for employees, adding a tangible sense of value to BSPCE holdings.”
Nicolas Rose: “It is very important to have a clear BSPCE Pool Planning to anticipate dilution events. The forecast needs to take into account multiple different funding rounds.” |
A word from David Laroque from Not So Liquid - Expert in liquidity operations.
"Secondary sales should be used as an opportunity to create liquidity for all. Companies should aim for fairness and transparency in secondary sales to maintain trust by implementing systematic and regular secondary programs open to all employees. As these operations require significant legal and operational work for companies, we advise you to seek external help.”
Conclusion
The detailed exploration of BSPCEs from the perspectives of renowned experts underscored the importance of strategic allocation, management, and communication of BSPCE policies. By aligning employee interests with company growth and success, BSPCEs emerge as a pivotal mechanism for fostering a motivated, engaged, and invested workforce, thus driving the collective success of the startup ecosystem in France and beyond.