Michael Duval (Baker Tilly) and Michel Rzonzef (LBAN): Unlocking Private Capital for Innovation

Michel Rzonzef, President of LBAN, exchanges with Michael Duval, Director and Head of Innovation at Baker Tilly Luxembourg, on the new Luxembourg tax credit for startup investment and its impact on angels and founders.

Baker-Tilly-Michael-Duval-Michel Rzonzef

Why are business angels so critical in the early stages of a startup’s development?

Michel Rzonzef: In their earliest phase, startups function within a highly uncertain setting. The product continues to take shape, the business model often lacks full validation, and commercial traction remains limited. Under such conditions, access to traditional funding channels, including bank loans or institutional investment, remains largely out of reach.

At that point, business angels step in. After founders’ personal savings and contributions from family and friends, they represent the first external private investors. They also stand as the second source of capital following public funding.

Business angels accept a level of risk that most conventional financiers would decline. Their contribution accordingly extends well beyond capital. Many have previously created or expanded companies themselves, which gives them a practical understanding of the obstacles entrepreneurs encounter. Business Angels bring this expertise, this experience, mentoring the founders, helping to open doors, set the base of good governance.

Their engagement frequently enables young ventures to structure operations more effectively, refine strategic direction, and sidestep expensive missteps.

Michael Duval: What differentiates business angels is proximity. They are not passive investors. Early dialogue with founders sharpens strategy and identifies weaknesses before institutional capital becomes involved. That constructive tension frequently strengthens both the company and the investment case.

“Innovation needs courage first, capital second.” — Michel Rzonzef

How do you expect the new twenty percent tax credit to influence investment behaviour?

Michel Rzonzef: This initiative carries substantial weight. Startup investment naturally involves considerable uncertainty. While a tax credit does not remove that exposure, it recognises it and enhances the overall balance between risk and potential return.

For seasoned business angels, such an incentive may stimulate more frequent commitments or encourage slightly larger investment tickets. For newcomers, it can ease the psychological hurdle associated with making a first allocation into an early-stage venture.

From LBAN’s perspective, the measure also delivers a clear message: Luxembourg values the role of private capital in driving innovation and aims to establish a competitive environment in comparison with other European ecosystems.

Michael Duval: Eligibility requirements, including holding periods and proper structuring, reinforce a long-term investment mindset. Angel investing already aligns with that approach. The measure does not remove risk, but it acknowledges the strategic importance of early-stage capital in strengthening the innovation ecosystem.

With this framework in place, what should startups understand about angel expectations?

Michel Rzonzef: The tax credit strengthens foundations already embedded in angel investment practice. Business Angels adopt a long-term perspective, generally participating through newly issued shares, while seeking transparency and strong alignment with founders’ ambitions.

Entrepreneurs must approach fundraising with solid preparation: a compelling vision, credible financial forecasts, and genuine openness to governance and dialogue. Angels rarely adopt a passive stance; they favour constructive engagement and strategic contribution. A carefully structured funding round, robust documentation, and reciprocal confidence form the backbone of any successful transaction.

Such a tax incentive delivers optimal impact when both parties view it within the framework of an enduring partnership rather than a short-term financial advantage.

Michael Duval: Startups that anticipate these expectations generally experience smoother fundraising processes and build stronger investor relationships. Structured preparation and openness to constructive challenge foster durable partnerships and reinforce the broader ecosystem.