Events Nov 07, 2019

Whether you are an employee or an employer, becoming a shareholder must have crossed your mind. But have you ever thought about investing in BSCPEs (Bons de Souscription de Parts de Créateurs d’Entreprise – share warrants for entrepreneurs)? The Partech Shaker hosted a panel of three BSPCE experts: Sébastien Hurel, Kaishen Co-founder, Florent Artaud, Ekwity Co-founder, and Serge Rosenzweig, Barrister at the Paris and New York Bars. The panel explained the ins and outs of employee ownership and how it can help you motivate your teams.



1// Let’s get to grips with employee ownership basics with Florent Artaud, Ekwity Co-founder. Ekwity provides personalized services to help founders share their company’s value with their teams.

What is employee ownership?

There are several ways to share profit with your employees in France, including employee ownership plans and PERCO (collective pension savings plans). These options are mostly used by large groups, rarely by start-ups. The latter prefer BSPCE stock options: or the right to buy a company’s shares at a pre-established price. BSPCEs are easy to implement, free of charge and provide an advantageous tax regime.

Why should start-ups opt for BSCPEs?

1.  Recruitment: BSCPEs help to attract the best profiles in a highly competitive market.

2. Commitment: BSCPEs increase employee loyalty by creating a common, company goal.

3. Alignment: employees, founders and investors alike adhere to the same objective.

4.  Reward: value is shared amongst those who created it. It is important not to confuse salary with capital: equity can be a game changer; it is uncertain and non-liquid but it can make you very wealthy.


2 // The importance of caring the beneficiaries of employee ownership plans, by Sébastien Hurel, Kaishen Co-founder. Kaishen helps companies to reach success with their employee stock plans by providing a wealth management platform-based support to employees.


In the current talent war, 79% of employees intend to change company for better salaries. Founders tend to spend a lot of energy setting up employee ownership plans, but they shouldn’t underestimate the importance of efficiently rolling the plans out. Founders must ensure that their employees fully understand what the plan entails. There is a lot of misunderstanding, even mistrust, about such plans as they are a long-term, uncertain and non-liquid compensation. Employees need dual-fold support: collective, to make sure they understand the plan’s objectives and workings; and personal support for questions such as: what about taxation, what happens if I get married or if I leave the company?... Employees cannot ask their boss such questions as this would lead to a conflict of interest. They need to speak to a third party, and this is where Kaishen comes in.


3 // Legal focus, especially fund raising, with Serge Rosenzweig, Barrister at the Paris and New York Bars and founder of SRAvocat, which provides legal advice for start-ups and entrepreneurs.

=> When is the best time to issue BSCPEs?

Should it be before fund raising, or after? Or when you have reached a high sales target? The question is not when, but at which price you should give your employees the right to buy some of their company’s shares! Most BSPCEs are never bought because their prices are set too high.


=> How do you set the right price?

Founders cannot freely set employee share prices: this is decided by the tax authorities. If you have raised funds over the past 6 months, you should base the price on your company’s value. You should never talk in terms of percentage because you cannot possibly know how much a share will be worth in the future: you do not know what 15% of the capital at given time will be worth in years to come and this could lead to confusion with your employees. The best option is to base the price on the number of shares.


=> How do you set the value before raising funds?

You begin by studying the share capital. Start-ups reinvest global sales into company development, which means that the level of capital is low: in this case, the price is fixed according to your capital’s nominal value. If the fund raising is planned just after the BSPCEs are issued, the tax authorities base their decision on the letter of intent which indicates your company’s value.

Florent Artaud: Have you heard about preferential liquidation? This is when investors come into your company with guarantees, one of which states that in case of exit, they are first in line for compensation according to their level of investment. There is a dichotomy between preference shares held by investors and those held by company founders and their employees. This is why share price is key with BSPCEs: why should employees pay the same price as investors?


=> You raise funds to recruit more staff, but to recruit them you give them shares, so what are they worth?

Serge Rosenzweig: You need to convince your employees that everyone is working towards the same goal: either everyone makes money, or nobody makes money. If your employees are uneasy and want guarantees, they should work for a large corporate group, not a start-up.


=> What are the legal terms behind issuing BCPCEs?

Serge Rosenzweig: All partners vote at the general assembly on a pool of BSPCE then the CEO allocates BSPCEs to selected company employees over the next 18 months. If BSPCEs are not allocated they are cancelled. The strike price is set when the BSPCEs are distributed. You should identify your recruitment needs and set up a pool when you raise funds.


=> How should you implement the best BSPCE plan?

Florent Artaud: This must be based on your operational strategy. Let’s say that you reserve a x% pool of your capital. How should you define this percentage? If you are in seed, this will generally be between 5% and 10% of the capital on a fully diluted basis. Gradually, this pool will increase in line with recruitment needs. How much should you give to your employees? You have to look at your recruitment plan over the next six months. You decide how much you give to each employee depending on different criteria, such as experience and profile, etc.

Sébastien Hurel: Employee share ownership plans are becoming the norm and are essential if your company is to remain competitive and attract talents.


=> Do BSPCEs provide the same rights as shares?

No. You have to inform BSPCE holders that you are about to raise funds.


=> Why do investors tend to encourage start-ups to issue BSPCEs?

Serge Rosenzweig: Investors are not just driven by capital sharing; there is another side to the question: when you plan to issue BSPCEs, you should state if this is done on a fully diluted or non-fully diluted basis. Let me explain, let’s say your company has a value of €3.5 million when you raise funds. To calculate the price of one share, you divide 3.5 by the number of shares

- Non diluted: 3.5/ 3.5 (number of shares at T).

- Diluted: 3.5/4 (number of shares at T + number of BSPCEs at the time of fund raising), hence the price is lower. The number of shares is the same, but you put a higher number in your capital.

This is why you should prefer the non-fully diluted option.


=> When can I exercise my BSPCEs?

Serge Rosenzweig: If you do not exercise your BSPCEs when you leave the company, you lose them. You can create as many BSPCEs as you want. The standard practice is to have a four year vesting, including a one-year cliff period when you can exercise your options. Alternatively, vesting can be done with milestones: You can exercise them when you have reached a certain level of sales, or a certain number of users for your app, for example.


=> Which investors are served first?

Florent Artaud : In general, the last to arrive in the funding round is the first served: let’s look for example, at a 5-year-old company which has carried out several fundraising operations: first would be the Series-C investors depending on the amount they invested; then Series-B; Series-A; Seeds; and finally the company founders and the employees

Let me tell you what happened at “La Ruche qui dit Oui!” where I worked for almost three years. I left the company in July 2018, after having acquired a four-year vesting period for 75% of the BSPCEs that had been given to me. I needed to spend more than €10,000 to exercise them. I did not have this amount of money, so I didn’t buy it. So, BSCPEs are risky: it’s like switching from employee status to business angel status. But, unlike investment funds, with BSCPEs you invest your own money, just like business angels.




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