[screen shot from Japanese TV news where a picture of Macron “マクロン” pops out of the giant macaron “マカロン”]

Now that the French Presidential election is complete, it feels like we can all get on with our lives in thinking about Europe’s startup ecosystem. In proportion to the triumvirate of Liberté, Egalité, Fraternité, here are three regulatory reforms I’d like to see to support startups. Admittedly, the ability for France’s new Président, Emmanuel Macron, to effect substantial reform remains to be seen, so consider this a wish list to foster constructive discussion.

1. Make it easier to grant equity to startup employees and boardmembers

Readers of my blog know this as one of my pet peeves. As investors in French startups, we place a lot of value on equity compensation tools for reasons of improved alignment among company stakeholders, and the affordability of recruiting talented, driven people without an unwieldy up-front cash outlay. I’ve written in the past about how the French government rendered stock options ridiculously unappealing, how issuing fiscally acceptable warrants works but not to non-executive directors, and how one of the only functioning tools are free shares (rendered palatable by the aptly-named Loi Macron) though not immune to constraints and bureaucratic blundering. From a VC perspective, I generally favor ‘option-like’ instruments (e.g. options or warrants) rather than free shares. Here, the closest functioning instrument in France today is the BSPCE (founder warrants); however, outside directors or other non-execs are not eligible for BSPCE. With a nod to the government’s fear of abuse of such instruments, I acknowledge that the definition of an eligible startups will need to be properly scoped.

2. Reduce the cost and complexity for startups to restructure their workforces

Whereas incumbent organizations may excel at incremental innovation, startups are often better positioned to uncover the disruptive innovations which can usher in exponential progress. The thing about such innovation is that it usually requires agility and risk-taking. However, when startups are hamstrung by rigid labor laws — structures whose original intent in protecting workers’ rights was laudable — they are required to hedge their experimentation efforts because the cost of employee restructuring forces excessive prudence in hiring. Let’s give the French workforce some credit: I submit that there is a segment of the working population who would willingly accept the perceived lower stability in a French startup in exchange for the higher potential rewards. The rewards are both monetary and non-monetary, whereas the former could be greatly enhanced with measures in item 1 above. As in the first item, properly defining an eligible startup will be key.

3. Re-label social charges as “taxes”

I’m not even lobbying for a tax cut nor a reduction in social charges, both of which are always welcome of course. I’m merely requesting that we call a spade a spade. Social charges represent real out-of-pocket costs to companies and employees. For example, on a hypothetical 100k€ gross salary, the actual cost to the employer is 145k€, while the net salary to the employee is a mere 78k€, and that’s net before income tax. This 67k€ in lost surplus captured by the government should be called a tax (22k€ of which was paid by the employee, 45k€ paid by the employer). Labeling this a tax under international fiscal treaties could allow foreign nationals who are taxed on their worldwide income (e.g. Americans) to apply for a rebate on foreign taxes paid. As it stands now, any American citizen working in France is subject to a double taxation on their income, since the IRS does not consider most social charges as “foreign tax.”

I wish the fresh Président all the best in his new adventure.