Over the last 12 months, the French market for growth companies has broadly followed global trends. Investment has stabilised and is more concentrated in fewer but larger rounds, with a clear focus on AI, deeptech, fintech and energy transition businesses. As is happening worldwide, investors are more selective and favour companies that use capital efficiently and have a credible path to profitability.

The French venture market has remained relatively resilient in value representing a total of EUR7.39 billion (versus EUR7.8 billion in 2024) with continued selectivity and a marked concentration of capital in fewer, larger rounds channelled towards AI and deeptech (with 618 deals versus 723 in 2024). Landmark VC transactions included:

• Mistral AI (EUR1.7 billion – Series C round);
• Loft Orbital (EUR170 million – Series C round);
• Adcytherix (EUR105 million – Series A round); and
• Alice & Bob (EUR100 million – Series B).

Exit activity remained subdued compared to the peak years, with strategic and sponsor‑backed deals continuing to dominate (sale of Greenbids to Nasdaq-listed Perion, acquisition of Mon Petit Placement by Malakoff Humanis).

Finally, on the capital markets side, the IPO window for French growth companies stayed narrow but not entirely closed (Younited, Semco Technologies and Kaleon).

The following key trends were observed in 2025, largely continuing those seen in 2024:

• continued concentration of large rounds and late-stage financings on a limited number of category leaders;
• resilient activity at the early stages (pre-seed and seed), supported by domestic seed funds, even though processes are longer (increased due diligence on financial and legal matters, tougher negotiations) and investors are more selective about teams and unit economics; and
• further confirmation and deepening of the sector shift already observed in 2024 towards AI, data infrastructure and greentech, while traditional consumer internet and certain life sciences segments are attracting comparatively less capital.

In 2025, the sector polarisation observed in 2024 was further accentuated. AI remained the main driver of VC activity, while life sciences (biotech, medtech and digital health) proved resilient and even gained relative weight in overall VC volumes. By contrast, greentech – although still material in absolute terms – saw a marked decline in amounts raised compared to 2024, reflecting the global backlash on sustainability themes.

Venture capital fund (“VC fund”) structures differ according to the type of investor involved. For retail investors, the most common structures are:

• venture capital funds (Fonds Commun de Placement à Risque – FCPR);
• innovation common investment funds (Fonds Commun de Placement dans l’Innovation – FCPI); and
• regional investment funds (Fonds d’Investissement de Proximité – FIP).

For institutional investors, the most common structures are:

• professional private equity funds (Fonds Professionel de Capital Investissement – FPCI); and
• French limited partnership (Société de Libre Partenariat – SLP). It should be noted that funds structured in the form of SLPs are the most commonly used to date.

These funds must be managed either by:

• a French management company approved by the French Financial Markets Authority (Autorité des Marchés Financiers – AMF) and authorised to act as such under Directive 2011/61/EU (the “AIFM Directive”); or
• a management company authorised in the EU that also complies with the requirements of the AIFM Directive. These management companies can be full-scope alternative investment fund managers (AIFM) (as defined by the AIFM Directive) or sub-threshold AIFMs. (In the latter case, most of the regulatory requirements of the AIFM Directive still apply by virtue of French local regulatory rules.)

Other types of investment vehicles include limited liability companies used by professional investors and club deals formed by business angels.

The corporate documentation generally established to govern the affairs of the VC fund comprises by-laws, prospectuses and subscription agreements and ancillary documents (SFDR appendix and KID PRIIPS, when applicable).

As per the contractual documentation, there can also be a shareholders’ agreement and side letters. The governing documents of a retail fund (FCPR, FCPI or FIP) must comply with detailed French law requirements for the fund to be approved by the AMF. Therefore, investors in a retail fund generally do not have the flexibility to negotiate the terms or to request protection in addition to that already provided by the by-laws.

The “Funds Principals” of VC funds mainly participate in the economics of these funds through carried interest mechanisms. Carried interest remunerates the performance of the management team in selecting potentially attractive investment opportunities and aligns the interests of investors when it comes to realising the expected capital gains on the sale of these investments.

In France, carried interest is structured through the subscription of specific fund units or shares, which generally represent 1% of the size of the fund. Carried interest units or shares are subscribed by the management company, its employees or its directors, in return for a capital investment. This capital investment is released pari passu to the fund’s other investors.

According to established practice, the share of the capital gain attached to carried interest units or shares is generally 20% of the total capital gain for a direct fund, after payment of a priority return to the investors.

The carried interest mechanism in France is subject to special tax treatment. Under this special tax treatment, distributions and gains made by the directors and employees of a management company from holding carried interest units or shares in a fund are subject to taxation as capital gains (plus-values) rather than as wages and salaries (traitements et salaires), provided that certain conditions are met.

The relationship between the holders of carried interest units or shares and the management company is the subject of a “vesting agreement”. The purpose of this agreement is to define the terms and conditions under which holders of carried interest units or shares will be required to sell such units or shares in the event of voluntary or involuntary termination of their employment contract. The vesting agreement includes a schedule for determining the portion of carried interest that the holder may retain in the event of voluntary or involuntary termination. The vesting agreement also covers cases of “good leaver” and “bad leaver”.

In addition, the governing documents of VC funds that are dedicated to professional/non-retail investors are more frequently negotiated by investors because French laws and regulations allow flexibility for a wide variety of terms. lnvestors negotiate provisions that are commonly sought by investors in global PE funds, for example:

• key persons and change-of-control provisions;
• fault and no-fault removal of the management company;
• limitations relating to raising a successor fund;
• management and other fees;
• reporting and ESG obligations; and
• advisory committee membership.

There has been a noticeable increase in the use of continuation funds in the French market over the last 12 months, in line with broader European trends. Continuation vehicles are now more frequently used as a tool to provide liquidity to existing investors while giving additional time and capital to high-conviction portfolio companies. More particularly, based on data provided by the trade association France Invest, during the first semester of 2025, seven continuation funds raised more than EUR2.8 billion while, for the first semester of 2024, three continuation funds raised EUR837 million.

VC funds open to retail investors (FCPRs, FCPIs and FIPs) must be authorised by the AMF before both:

• formal establishment of the entity; and
• marketing its interests to prospective investors.

VC funds limited to non-retail/professional investors (FPCIs and SLPs) must be notified to the AMF within one month after their formation. Since the implementation of the AIFM Directive, the marketing of interests in a VC fund must comply with French regulations relating to:

• public offerings (VC funds that are offered to the public require the AMF’s prior approval of the offering terms);
• solicitation (VC funds must not solicit if they are not approved for marketing either through a marketing passport or under the French local marketing regime); and
• a marketing regime (the AMF’s prior approval is necessary for a VC fund to benefit from the marketing passport or to be authorised to market under the French local marketing regime).

The available, limited private placement exemptions are mostly:

• contact with an investor on a reverse solicitation basis;
• contacts with managers of funds authorised to operate in France (either by the AMF or through an EU passport) if the VC fund is marketed as an eligible investment for the funds managed by those managers; or
• contact with managers of third-party accounts authorised to operate in France (either by the AMF or through an EU passport) if the VC fund is marketed as an eligible investment for the portfolio managed by those managers.

“Corporate ventures” are the only types of structure that are not regulated as such, and involve a single institutional investor. These funds are often set up by large groups and specialise in the group’s sector of activity.

Depending on the type of investor, the regulatory requirements are more or less flexible. Retail investors are entitled to a higher level of protection than institutional investors. VC funds must in any case comply with the rules applicable to the type of fund set up, whether these are the relative rules contained in the French Monetary and Financial Code or the rules established by the AMF for each type of VC fund. The rules governing the AIFM and the depositary of the fund should also apply.

Venture capital initiatives are strongly supported by the French public authorities, and this market is expanding quickly. This is the case, for example, with Bpifrance (the French public investment bank), which finances and/or structures a large number of venture capital funds to enable the growth of developing companies in the fields of innovation (Bpifrance is behind around 30% of the amounts invested in seed and venture capital in France).

The “Tibi” initiative should also be highlighted. The aim of the Tibi label funds is to develop the financing of tomorrow’s technological leaders while promoting the decarbonisation of the economy. Institutional investors, including the Caisse des Dépôts et Consignations and Bpifrance, have committed to investing in these funds. To date, EUR7 billion has been committed.

Data available for the first half of 2025 suggests that fundraising for investment funds dedicated to the innovation sector has been much higher than for 2024. More than EUR1.693 billion was raised during the first half of the year for over 36 vehicles.

For early-stage companies, VC investors conduct red-flag legal due diligence, in addition to financial and business due diligence, plus, on occasion, technical due diligence and a background check of the founders. The legal due diligence covers the following:

• corporate law (including the status of the founders) and the capitalisation table;
• employment law;
• intellectual property and IT law (including, more recently, compliance with the AI Act);
• data protection law (compliance with the General Data Protection Regulation (EU) 679/2016 (GDPR) or similar regulation); and
• a high-level review of the top ten out of 20 contracts.

For larger financing rounds, due diligence may also cover the following additional topics:

• commercial/competition law;
• financial law;
• regulatory law; and
• tax law.

New financing rounds usually take between one and two months from execution of the term sheet, depending on due diligence, the structure of the investment and negotiations.

Usually, and for the sake of efficiency, counsels to the company (who also advise the founders) are in charge of leading negotiations and co-ordinating the various parties involved, including:

• new investors (and their counsels, generally appointed by the lead investor);
• existing investors (and their counsels, in particular in case of reinvestment); and
• business angels/employees (who generally have no counsel).

Fees of the participating investors’ counsels are usually re-invoiced to the company (within a certain cap negotiated in the term sheet).

Although French corporate rules provide that a capital increase may be voted by a 50% or two thirds majority of the shareholders, the structuring of the deal and the rights requested by investors (notably liquidation preference and drag-along rights) generally require the prior consent of all (or virtually all) the holders of securities (including ESOP – Employee Stock Ownership Plan – holders). The company’s corporate and contractual structure must be organised accordingly from the early stage of financings.

In most cases, investors subscribe to preferred shares with certain rights (notably liquidation preference rights, anti-dilution ratchet rights and information/audit rights). For major investors, preferred rights may also include the right to appoint board member(s) and veto rights on key decisions.

Preferred rights may be defined by either: (i) the certificate of incorporation (“statutory preferred shares”); or (ii) the shareholders’ agreement (“ordinary shares labelled as preferred”).

Statutory Preferred Shares

The preferred rights are reflected in both the shareholders’ agreement and the certificate of incorporation. However, the issuance of such preferred shares requires that:

• a court-appointed auditor (or an auditor appointed unanimously by the shareholders) delivers a report to the shareholders on the impact of the issuance of statutory preferred shares; and
• in most cases, the holders of each type of security giving access to the share capital give consent to such issuance of a new category of preferred shares.

This process generates delays (and costs) and is only recommended if the company already has pre-existing statutory preferred shares. In addition, statutory preferred shares are not available to individuals eligible for certain beneficiary tax regimes in France (in particular the Plan d’Epargne en Actions – PEA).

Ordinary Shares Labelled as Preferred

Investors’ rights are solely provided in the shareholders’ agreement, not in the certificate of incorporation. This structure tends to be favoured in the market, even in the case of larger financings.

Finally, certain early-stage start-ups can issue a “BSA AIR” (warrant), equivalent to a SAFE (Simple Agreement for Future Equity) in the US, with a cap, floor and/or discount over the next round to be negotiated. Unlike a bond or note, there can be no cash repayment of BSA AIR investments in downside events (absence of financing or liquidity).

In the French VC and growth market, secondary components are relatively common in larger or later-stage rounds (Series B+ deals) rather than early-stage financings, to provide liquidity either to early investors such as business angels, the management team or key employees having vested ESOP, while bringing in new institutional investors. In such cases, discussions are held on the application of a discount to the round price, conversion of secondary shares and the issuance of ratchet warrants to be attached to the secondary shares.

Key documents in VC transactions are as follows.

• The term sheet, generally non-binding, drafted by the lead new investors and executed by the company and, as the case may be, the founders and the main existing investors. This is a one-to-eight page document detailing the main conditions of the transaction and the provisions of the shareholders’ agreement. The company usually grants a three-to-six-week exclusivity period for new investors to complete the transaction.
• The main shareholders’ agreement, executed by major investors and the founders, detailing governance (composition and organisation rules of the board; veto rights on certain decisions; information and audit rights); share transfer rules (right of first refusal and tag-along rights); security issuance rules (priority or pre-emption right in new issue); liquidity (drag-along rights and liquidity process); liquidation preference; and specific provisions for the founders (leaver call option, non-solicit, non-compete and IP provisions).
• A short-form shareholders’ agreement executed by minority investors and ESOP holders with limited rights (full tag-along rights) and key undertakings (right of first refusal to the benefit of main investors/active founders, drag-along rights and acknowledgement of liquidity process) and liquidation preference, consistent with the main shareholders’ agreement.
• A representations and warranties agreement providing for representations given by the founders and/or the company, and an indemnification mechanism (generally through the transfer or issuance of shares).
• An investment agreement detailing the structure of the transaction; generally executed for larger transactions or complex investments (with several tranches or conditions precedent); the investment agreement usually includes the above-mentioned representations and warranties.
• Shareholders’ resolutions approving the transaction, the issuance of shares and the ESOP, and appointing board members (generally through a shareholders’ unanimous decisions deed).
• Updated by-laws.
• Subscription forms executed by each subscriber.

Contrary to other VC markets, France does not have standardised investments documents even if there is strong market practice on the main terms of the investments. Some projects have been developed to provide guidelines to founders and investors by certain think tanks and law firms without being prevalent on the market.

“Downside Scenario” Protections

These generally include the following.

Ratchet rights

A ratchet right entitles the investors, in the event of a down-round within a two-to-five year period from the financing closing date, to benefit from additional shares, thereby reducing the price per share of their investment. This ratchet is usually structured through warrants attached to the shares (but can also be structured as an adjustment to the conversion ratio of preferred shares). Ratchet rights generally use a weighted average formula and can include a “pay to play” condition.

A liquidation preference

This entitles investors to be repaid for their investment before the other shareholders if a liquidation, sale or merger of the company takes place, and can be either:

• a non-participating liquidation preference – investors receive the maximum between their pro rata of the total proceeds and their investment amount (1x non-participating, which is the most common protection); or
• a participating liquidation preference – investors receive their investment amount plus their pro rata of the remaining total proceeds (if any).

Note that ordinary shareholders cannot be completely stripped of all their financial rights. French market practice has imposed that all shareholders receive a minimal amount (even when the proceeds are lower than the investment amount). This amount is generally equal to the nominal value of the shares or to a percentage of the proceeds (between 1% and 10%) and is to be allocated prior to the liquidation preference.

Recent market conditions have led to a greater focus on liquidation preference rights, with a preference of two or three times to reward risks in downside scenarios (see 1.2 Key Trends).

Anti-dilution rights

These are awarded in the event of a new share capital increase. Investors will benefit from an anti-dilution protection entitling them to maintain their percentage of shareholders and may also negotiate a priority right over future financings.

Founders remain in charge of the management of the company, but investors usually negotiate the following:

• the right to appoint one or more board members or observers;
• the right to convey board meetings and shareholders’ meetings;
• veto rights through a board-qualified majority of the board (ie, the majority including the investor board member) on certain operational decisions including approval of annual budget, capital expenditure (capex) over a threshold, compensation of the founders, related-party transactions, appointment/removal of key employees, sale of assets, ESOP, etc;
• veto rights through the investors’ majority (ie, approval of a percentage of the preferred shares) on certain protective decisions (number of board members, distribution of dividends etc);
• the right to dismiss, with or without cause, the officers of the company (above a certain shareholder threshold); and
• audit and information rights.

Generally, in French VC and growth deals, investors’ operational rights are limited to the above-mentioned veto rights rather than day‑to‑day control. Active involvement in management remains the exception and is generally limited to distressed or underperforming situations.

Within the context of a financing, representations and warranties on the company and its subsidiaries covering a large scope (corporate, capitalisation table, IP, employment, tax, insurance, accounts, financing, contracts, etc) are granted by the founders (generally at an early stage) and/or the company.

The following limitations are usually provided:

• information fairly disclosed in the agreement (no reference to data room);
• time limitations – between 12 and 24 months, except for tax and certain fundamental representations; and
• financial limitations –
1. de minimis (ie, the minimum amount of damages suffered either by the investor or by the company), generally equal to 0.1% of the invested amount;
2. the threshold (ie, the minimum amount of cumulated damages entitling the investor to claim) is equal to 1% of the invested amount; and
3. the cap (ie, the maximum amount that may be claimed by the investor) is equal to the invested amount (if founders are warrantors, then the cap for them is equal to one or two times their annual salary).

Indemnification can be paid in cash or in shares of the company, usually at the sole decision of the warrantor.

The French government provides a variety of programmes to encourage equity financing in growth companies. These programmes are designed to reduce risk and increase the appeal of investing in start-ups. They include direct financial support, tax incentives and special statuses that confer tax advantages. The landscape of incentives is subject to change, reflecting the government’s ongoing commitment to fostering a dynamic and innovative business environment. The complexity of these programmes and their application to specific situations can be significant, and the details of each are subject to specific rules and conditions.

Such programmes include the following:

• Bpifrance, the French public investment bank, which is a key player in this ecosystem. It offers a range of financial instruments and support services for start-ups and SMEs (small and medium-sized enterprises), including direct equity investments, co-investments, investment as an LP in VC funds, and various loans and guarantee schemes.
• The Young Innovative Company Status (Jeune Entreprise Innovante – JEI). Companies that qualify for JEI status can benefit from tax incentives (notably exemptions from corporate income tax and local taxes for a certain period) and social charge exemptions (partial or total exemptions from employer social security contributions on salaries paid to researchers and developers).
• Investment Tax Credits – France offers various tax credits to incentivise investment in growth companies. One example is the “réduction d’impôt pour investissement dans les PME” (Tax Reduction for Investment in SMEs), which provides personal income tax reductions for individuals investing in small and medium-sized businesses. The French parliament recently introduced additional tax credits (Finance Act of 2024) to incentivise individuals to invest in Young Innovative Companies (JEI) or Particularly Innovative Young Companies (Jeunes Entreprises Particulièrement Innovantes). There are annual investment caps and overall limits on the tax reduction amount.
• The Research Tax Credit (Crédit d’Impôt Recherche – CIR), a tax incentive designed to encourage companies to invest in research and development activities within France. It allows eligible businesses to claim a tax credit on their R&D expenditures, which can be used to offset corporate tax liabilities or, in some cases, be reimbursed if the credit exceeds the tax due. The credit is calculated as a percentage of qualifying R&D costs, with different rates applicable depending on the size of the company and the amount spent. The CIR is a key component of France’s policy to foster innovation and support the competitiveness of its industries on a global scale, and has been fairly stable over the past few years.
• The Innovation Tax Credit (Crédit d’Impôt Innovation – CII), which is a tax credit aimed at supporting SMEs that engage in innovative projects. It is similar to the above-mentioned Research Tax Credit (CIR), but specifically targets innovation expenses.
• The French IP box regime allows French companies developing eligible IP assets (eg, patents, patentable inventions, software protected by copyrights, etc) to benefit, under certain conditions, from a reduced corporate income tax rate of 10% applying to the net income deriving from the licensing or transfer of said assets.

Investment in growth/start-up/VC fund portfolio companies may entail certain tax advantages for both French individuals and entities subject to corporate income tax (CIT).

French individuals may in that respect benefit from certain tax incentives, under certain conditions, upon investment or exit of growth/start-up/VC fund portfolio companies, as follows:

• Upon entry – specific personal income tax reductions for eligible subscriptions in the share capital of SME (réduction d’impôt pour investissement dans les PME). This tax reduction generally amounts to 18% of the amount invested in the relevant SME (but may potentially be increased to 30% (or even 50%) for subscriptions in the share capital of companies qualifying as young or particularly young innovative companies (see 4.1 Subsidy Programmes).
• Upon exit – potential application to the favourable PEA regime. French individuals may, under this specific tax regime, be exempt from personal income tax on the capital gain realised on their investment, provided that: (i) shares were subscribed to through this specific savings plan; and (ii) the shares or proceeds from the sale of the shares are not withdrawn from the PEA before the fifth anniversary of the PEA; however, social security contributions remain applicable at a rate of 18.6% (as increased by the 2026 Finance Act).
• The standard capital gains tax regime provides for a flat tax of 31.4% assessed on any capital gains, potentially increased by a surtax on high income (referred to as the “contribution exceptionnelle sur les hauts revenus” or CEHR) and the specific top-up tax introduced by the Finance Act for 2025 and extended by the Finance Act for 2026 (ie, so-called “contribution différentielle sur les hauts revenus” or CDHR). There is no tax specificity for capital gains realised on shares of growth/start-up/VC fund portfolio companies.

The French government has implemented several initiatives to bolster equity financing activity in France. These measures are designed to support start-ups, SMEs and innovation, as well as to stimulate investment in the French economy.

One of the key strategies has been the introduction of tax incentives to encourage investment in SMEs. For instance, the Madelin tax credit allows individuals investing in SMEs to benefit from income tax reductions.

In addition, the French government has reformed savings plans to direct more savings into equity financing. The PEA and the Plan d’Epargne Retraite (PER) are examples of savings plans that offer tax advantages to individuals investing in stocks or equity funds, with the aim of channelling more personal savings into the equity market.

To foster innovation, the government has set up the French Tech Initiative, which aims to promote the growth of French start-ups and to attract foreign talent and investors. This initiative includes the French Tech Visa, a simplified, fast-track scheme for non-European start-up founders, employees and investors to obtain a residence permit in France.

Additionally, as a member of the European Union, France benefits from EU-wide initiatives such as the Capital Markets Union (CMU), which aims to deepen the single market for capital across the EU.

In France, as in many other jurisdictions, the long-term commitment of founders and key employees is often sought through a combination of contractual agreements, equity incentives, and corporate-governance mechanisms. These tools are designed to align the interests of the founders and key employees with the success and longevity of the company, as follows.

Founders

The shares of the founders are generally subject to transfer restrictions – a four-year lock-up (with a 10% carve-out); a proportional tag-along of the main investors; and/or a full tag-along right in the case of a transfer of a significant part of their shares.

Leavers provisions – repurchase by the investors (and other active founders) in case of departure; claw-back on 100% of the shares (in the event of a bad leaver) or only on unvested shares with a reverse vesting (in the event of a good leaver). The acquisition price can be equal to nominal value (bad leaver); fair market value (good leaver); or discounted price (for termination for cause but without gross or wilful misconduct). The terms and conditions of the claw-back are subject to tough negotiation, and can differ from one matter to another.

Finally, certain rights of the founders provided in the shareholders’ agreement (primarily the right to appoint board members, and anti-dilution rights) are conditional on the founders being active in the company.

Key Employees

The long-term commitment of key employees is generally secured through the allocation of founders’ warrants (bons de souscription de parts de créateurs d’entreprise – BSPCEs) which allow them to subscribe, subject to vesting, to shares of the company at a given exercise price (similar to a stock option plan but with a favourable tax regime). The shares then subscribed are often subject to a call option in case of exit of the company. Alternative ESOP structures such as warrants (bons de souscription d’actions – BSAs), stock options or free shares are also available, but less frequently used given the applicable tax regime to the company and the beneficiaries.

In France, as in many other countries, there are several instruments and securities generally used to incentivise founders and employees. These are designed to align the interests of the employees with those of the company and its shareholders, and to retain key talent within the company.

Types of Instruments

• Founders’ warrants (BSPCEs) are warrants, granted for free, which allow employees to subscribe to ordinary shares at a strike price determined at the allocation date. This is the most commonly used instrument in France as it benefits from an attractive tax regime described below. The Finance Act for 2026 has significantly revised the conditions governing the issuance of qualifying BSPCEs to French beneficiaries, thereby broadening the scope of this regime. In practice, the allocation is subject to several conditions, as follows:
1. the issuing company must be less than 15 years old and subject to corporate income tax;
2. the company must be at least 15% (since the entry into force of the Finance Act for 2026) held by individuals or companies, or at least 75% directly held by individuals (specific rules exist to disregard the stake of certain investment funds);
3. the beneficiaries must be employees, corporate officers or members of a board (provided that such board may be assimilated to the board of directors of a French limited company) of
1. the issuing company;
2. a subsidiary at least 75% directly held by the issuing company; or
3. since the Finance Act of 2026, a sub-subsidiary directly held by a subsidiary referred to above, it being specified that the issuing company must, in the latter case, indirectly hold at least 75% of the share capital of such sub-subsidiary, such percentage being calculated by multiplying the ownership interest held by the issuing company in the subsidiary by the ownership interest held by such subsidiary in the sub-subsidiary; and
4. the exercise price of the founders’ warrants must correspond to the fair market value of the underlying shares of the company at the time of allocation.
• Stock options are generally granted to employees who are not French tax residents (notably when the country of tax residency does not recognise founders’ warrants locally), as the tax regime for French employees is less favourable.
• Warrants or BSAs are generally subscribed to by consultant, freelance or independent board members who cannot receive founders’ warrants. Unlike the latter, the fair market value of the warrants must be paid at the time of subscription, and the tax regime is less favourable (see 5.3 Taxation of Instruments).
• Free shares: if the issuing company can no longer grant founders’ warrants (eg, because it is over 15 years old or because of its capital structure), free shares can be granted to employees and corporate officers. The number of free shares cannot represent more than 15% of the share capital (or 30% or 40% in certain circumstances) and a beneficiary cannot hold more than 10% of the share capital, provided that this threshold is determined based on the shares held by a beneficiary for less than seven years). The shares are effectively issued after an acquisition period of at least one year from granting, and the shares are then subject to a lock-up period (so the aggregate of the vesting and lock-up periods would be at least two years). The tax regime is less favourable than that applicable to BSPCEs (see 5.3 Taxation of Instruments).

Main Terms and Conditions (Founders’ Warrants, Stock Options and Warrants)

• Such instruments generally give right to ordinary shares (in particular without liquidation preference rights or ratchet), and are subject to a four-year vesting period with a cliff of one year – performance conditions can also be provided.
• In the case of a change of control, vesting is usually accelerated (and can be negotiated, in particular, to provide for a US standard double trigger) and is exercised at the time, failing which it lapses.
• In the case of departure, the key employees must exercise the instrument within a limited period of time (between one to three months, or six months in the specific event of a death).

Founders’ Warrants (BSPCEs)

No tax or social security contributions are incurred by the issuer/employer upon the granting/exercise of BSPCEs.

For beneficiaries, since the French Finance Act of 2025 (adopted in February 2025), a distinction must be made between the “exercise gain” (corresponding to the difference between the fair market value (FMV) of the shares on the exercise date and the exercise price) and the “disposal gain” (corresponding to the difference between the sale price of the shares and the FMV of the shares on the exercise date). Both gains are subject to an effective tax rate (including personal income tax and social security contributions, and unless a specific option is made) of 31.4%, potentially increased by the CEHR and CDHR (or 48.6% if the beneficiary has been employed in the group for less than three years). This technical distinction was enacted to avoid the application of a tax deferral regime on the “exercise gain” where the underlying shares (received upon exercise of the BSPCE) are contributed in a tax-free rollover to a new company (therefore leading to a “dry” taxation on the exercise gain for the beneficiaries).

The shares subscribed through the exercise of BSPCEs are no longer eligible for the favourable PEA regime.

Stock Options

For the issuer – a specific employer’s social contribution is due upon the granting of stock options, amounting to 30% of either:

• 100% of the estimated FMV of the options as determined for consolidated accounting purposes (assuming the company applies international financial reporting standards (IFRS) regulations); or
• 25% of the FMV of the shares at the granting date.

For the beneficiaries – taxation upon disposal of the underlying shares of:

• the “exercise gain” (corresponding to the difference between the FMV of the shares on the exercise date and the exercise price) at an effective tax rate (including personal income tax and social security contributions) of a maximum of approximately 61.6% (including deductible Contribution Sociale Généralisée– CSG); and
• the “disposal gain” (corresponding to the difference between the sale price of the shares and the FMV of the shares on the exercise date) at the effective tax rate (including personal income tax and social security contributions, and unless a specific option is selected) of 31.4%, potentially increased by the CEHR and CDHR.

Warrants (BSAs)

For the issuer – no tax or social security contributions incurred by the issuer/employer per se upon allocation/exercise of the warrants (to the extent that the warrants have been issued/subscribed to at a price reflecting their FMV).

For the beneficiaries – gains realised on these warrants are, in principle, subject to the capital gains tax regime (ie, a 31.4% flat tax rate, potentially increased by the CEHR and CDHR).

Despite the new rules introduced by the French Finance Act of 2025 (see below for further details on the new “management package” regime), these instruments may still be negatively viewed by the French tax authorities and particularly by the French social security authorities (Unions de Recouvrement des Cotisations de Sécurité Sociale et d’Allocations Familiales– URSSAF).

Free Shares

For the issuer – a specific employer social security contribution amounting to 30% of the FMV of the free shares at the end of the vesting period (ie, upon issuance of the shares, with the issuance date being at least one year after share allocation).

For the beneficiaries – taxation upon disposal of the shares (no taxation before) of:

• the “acquisition gain” (corresponding to the FMV of the shares at the issuance date) at an effective tax rate (including personal income tax and social security contributions) of a maximum of 39.4% (including deductible CSG) for the portion below EUR300,000 and 61.6% (including deductible CSG) for the portion above EUR300,000; and
• the “disposal gain” (corresponding to the difference between the sale price of the shares and the FMV of the shares on the issuance date) at an effective tax rate (including tax and social security contributions, and unless a specific option is selected) of 30%, potentially increased by the CEHR and CDHR.

General Comments

The French Finance Act of 2025 introduced a new mechanism which may limit the application of the capital gains tax regime applicable to securities held by managers (when such securities have been granted/subscribed to or acquired in consideration for the duties performed by such managers). This regime was recently adjusted by the French Finance Act of 2026; however, it continues to raise a number of uncertainties, which are expected to be clarified (hopefully) in forthcoming guidelines from the French tax authorities.

In practice, this new mechanism is primarily intended to target situations involving a “leverage effect” or “ratchet” features attached to the shares held by managers, and therefore mainly applies in LBO-type structures.

In short and under this new regime, the capital gains tax regime may not be available: (i) for shares subscribed to/granted for free if the net gain realised by the beneficiary (calculated excluding the exercise/acquisition gains on BSPCEs/stock options/free shares) exceeds a multiple of three times the company’s financial performance over the period between the entry and exit dates of such “instruments”; or (ii) in any case, if the beneficiaries have held the shares for less than two years before the exit or if there is no risk of loss of capital deriving from the shareholding of such instruments.

• For shares that have been held for less than two years and/or if there is no risk of capital deriving from such shareholding: the entire net gain realised upon exit should be treated as employment income subject to (i) ordinary employer/employee’s social security contributions; and (ii) personal income tax under the progressive scale of taxation increased, as the case may be, by the specific surtax on high income;
• For shares held for more than two years: the portion of the net gain realised by the beneficiaries exceeding the multiple mentioned above should be treated as “employment income” subject to (i) a specific 10% employee’s social security contributions (it being noted that in such case, no employer’s social security contributions should be applicable in such case); and (ii) personal income tax under the progressive scale of taxation increased, as the case may be, by the specific surtax on high income – leading therefore to an effective tax/social security rate of a maximum of 59%.

Note, also, that the French Finance Act of 2026 extended the “top-up” tax (referred to as CDHR) which should only apply to income received/gains realised in 2026, and aims to provide a minimum level of taxation of 20% on high income.

In all cases:

• a surtax on high income (3% to 4%) may apply to beneficiaries; and
• the different regimes described herein are based on the French rules currently in force (it is important to be aware that tax laws change frequently, and occasionally on a retroactive basis) and offer certain options which may be applicable for beneficiaries depending on their specific situation, on a case-by-case assessment.

The percentage of pre- or post-closing ESOP is negotiated as part of the discussion on the valuation of the company.

On the closing date of the financing round, the shareholders grant the management of the company the power to issue and grant the securities. The allocation is very often subject to the prior approval of the board at the qualified majority (ie, including the prior approval of one or two of the members appointed by the investors). This delegation of power is limited to 18 months.

The allocations are made after closing on one or several occasions.

In France, shareholder exit rights in the context of a sale, IPO, or other liquidity event are typically governed by provisions in the shareholders’ agreement.

• Transfer restriction before liquidity: the transfer of shares is subject to lock-up (for the founders exclusively), full tag-along rights (in the case of change of control, divestment by the founders and sale to a non-financial investor) and, in certain matters, proportional tag-along rights (on transfer by the founders).
• Drag-along rights provide that, if a shareholder receives an offer by a third party for over at least 95% of the share capital, and if the offer is accepted by a certain majority of the share capital, all the shareholders are committed to transferring their shares. In the negotiation of the majority to trigger the drag-along rights, parties usually try to avoid individual veto rights (except in the case of an offer before a certain period or below a certain multiple threshold).
• Liquidity provisions generally provide that the parties aim to find a liquidity solution (in the form of a sale or IPO) within a negotiated timeframe. After a four- or five-year period, investors negotiate the right to appoint investment bank(s) to identify liquidity options for the company. The drag-along majorities may be amended after the liquidity period to allow the investors to force a sale of the company. In the case of pre-IPO, the shareholders’ agreement may detail registration rights, lock-up provisions and undertakings to subscribe to the IPO as cornerstone investors.

The declining number of exits has led to new requests from the investors in terms of liquidity provisions:

• free transfer of their shareholding as from the end of the liquidity period;
• free transfer to secondary funds (fonds de position secondaire), applying as from the fundraising (versus only in the event of liquidation of the fund); and
• detailed sale processes.

Overall, standard exit rights remain largely unchanged, but negotiations now put more emphasis on clauses that make private M&A exits or secondary fund solutions easier to implement.

IPOs are not a common exit strategy for French start-ups (compared to a strategic sale or private equity buy-out). Start-ups considering an IPO must weigh up various factors that influence the timeline, including market conditions, the maturity of the business, regulatory compliance and the amount of capital needed.

The primary listing venue in France is the Euronext Paris. The regulated market of Euronext Paris is designed for highly structured companies that have the resources to meet the requirements of European regulations, so that they can attract international investors and a more liquid market. Euronext Growth is suited to SMEs, with simplified listing and reporting requirements.

Offering structures for growth companies often involves a combination of public offerings for retail investors and private placements for institutional investors. Generally, a pricing range is disclosed at the opening of the offering and will be set at the end of the subscription period depending on the book-building outcome.

As the employee equity incentive is subject to sale restrictions, secondary market trading is needed prior to an IPO to provide liquidity for early investors and employees. Liquidity can be provided by new investors (subject to the shareholders’ provisions on the transfer of shares) or existing stockholders, to demonstrate the support of core shareholders before an IPO. One of the main challenges is control over non-public information communicated to employees as part of the secondary market trading. Another challenge is the valuation of the company and the secondary price, which may impact the IPO price.

The most likely situation is for one or more existing shareholder(s) to purchase shares from other existing shareholders. An acquisition offer allows existing shareholders in a private company to sell some – or all – of their shares, enabling them to cash out without having to wait for an IPO that, in theory, might be several years away. This type of acquisition offer could also simplify the company’s shareholder structure ahead of a potential IPO. Once the company is listed, a tender offer can be launched to all shareholders of the company.

French legal provisions that govern the offering of a company’s equity securities in a venture capital transaction are primarily found in European regulations, the AMF’s regulations, the Monetary and Financial Code (Code Monétaire et Financier) and the Commercial Code (Code de Commerce). These provisions are designed to protect investors and ensure market transparency.

Regulatory Framework

• Prospectus requirement: for public offerings, a prospectus approved by the AMF is required unless an exemption applies.
• Private placements: limited to a number of investors or qualified investors (less than 150), these are common in venture capital and are exempt from the prospectus requirement.
• Employee equity participation: specific rules apply for employee share ownership plans, which may include preferential terms under certain conditions.

Disclosure and Reporting Obligations

Companies must comply with ongoing disclosure and reporting obligations, particularly for sizeable transactions that could affect the financial markets.

Thresholds and Limits

There are thresholds for the number of investors (150 qualified investors) and investment amounts (no prospectus under EUR8 million) that, if exceeded, may trigger additional regulatory requirements.

AMF Regulations

The AMF provides regulations and guidelines on the offering of securities, including venture capital investments, to ensure investor protection and market integrity.

In practice, the complexity of these transactions often requires careful structuring to comply with the relevant legal provisions, especially when numerous employees or incentive awards holders are involved.

In France, the scope of the government’s scrutiny over foreign investments has continuously increased over the past 12 months. Temporary protective measures adopted during the COVID-19 pandemic have become permanent due to geopolitical tensions and the energy crisis, while the scope of sensitive activities has been widened to protect French innovation.

This has led the FDI authorities, accustomed to focusing on defence matters and strategic infrastructure, to become particularly stringent in the technology sector, with increasingly tight control over innovative segments such as AI, biotechnologies, cybersecurity, photonics, data storage and semi-conductors.

This has materially affected investments by foreign VC investors (EU or non-EU) in French companies, as a very broad range of activities are now subject to the government’s investigations, regardless of the stages of development of the target entities (investments of 10% or 25% of a target’s voting rights may constitute eligible investments), the maturity of a project, or the amount of the investment.

In addition, the French government may condition its approval of such investments to certain undertakings by the investor (eg, maintaining IP, R&D or industrial capabilities in France, implementing procedures to protect French sensitive data, etc), which could hinder the integration of the target within the investor’s group or the ability of the investors to exit.

Regulated Industries

Depending on the nature and size of the investment, stake acquisitions in French companies may require regulatory reviews or approvals before they can be completed. This is especially the case for investments in certain regulated industries, such as banking or insurance companies (eg, the acquisition or extension, directly or indirectly, of a “qualifying holding” – 10% or more of 20%, one third or 50% of the capital or votes in a French bank is subject to prior assessment and a non-objection decision by the European and French regulatory authorities). In practice, these regulatory approvals are considered a condition for completion of the transaction and necessarily have an impact on its timetable.

Currency exchange control is not generally an issue in France, as it is part of the Eurozone, but investors must comply with anti-money laundering regulations. Banking-related regulations require due diligence and reporting, which can affect transaction timelines and complexity.