How to finance growth in France

Traditional financing players in France

Venture Capital funds

Venture capital is an equity investment by professionals or investors. For this purpose, the latter subscribe either to ordinary shares or to shares with priority dividends or warrants (ABSA). Alternatively, there is nothing to prevent them from granting advances on a partner's current account. In all cases, in addition to the funds, which can reach several million euros, they also make their network and expertise available to the structure.

It should be noted that the entry into the capital of an investor is temporary. In concrete terms, the venture capitalist remains on average between 3 and 7 years in the company's capital. And for good reason, his objective is to realise capital gains in the shortest possible time. In other words, he plans to exit the capital once the company has reached a certain level of profitability and is firmly established in its market. Among the most important VC funds in France are Kima Ventures, Idinvest, Partech, Alven, Serena, Daphni, etc. 

Corporate Venture Capital (CVC) refers to funds held by large groups that wish to support young companies. The firms that form these corporate venture capital funds sometimes offer real support for startups. Beyond their desire to have a return on investment, large groups can also participate in the company's strategy and help it to develop its activity. 

These investment funds are used to finance several small companies, so some synergies between these start-ups can be made and interesting professional relationships created. There are Manifesto Ventures (Danone's food-oriented fund), Orange Digital Ventures, AXA Venture Partners, etc. 

Fundraising is dilutive: in exchange for their funding, the funds get back (sometimes very significant) shares of your company. The share recovered for a given financing is determined upstream by the valuation of your company.

💡 For more on dilution, see our article on how to fund and grow without dilution? 

The banks

One solution for financing without dilution is obviously a bank loan. However, the process of obtaining a loan can be quite long and the amounts can remain quite small. 

This alternative will require a lot of energy, as you will have to convince the banks and most likely be turned down. Profitability is also a very important point for banks and can handicap you during your launch. Finally, some banks are quite hostile to the financing of tech companies and SaaS.

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Alternatives to traditional financing in France

Fundraising

Love money, or "proximity capital" in French, is generally the first recourse for a start-up financing. The entrepreneur solicits his relatives, family and friends for an initial donation. Donors benefit from tax reductions and exemptions. This financing is fast and non-dilutive, but requires a well-to-do entourage.

It is dilutive: in exchange for their shareholdings, relatives get shares in the company. 

Honorary loans

The non-dilutive, zero-interest"prêt d'honneur" is a regional loan, i.e. financed by the region in which the enterprise is located. The recipient undertakes on his or her honour to repay the loan 3 to 5 years after receipt. The organisations granting loans of honour are associations such as Réseau Entreprendre, France Initiative and Wilco. The amount can reach €90,000.

Microcredit

Microcredit is a method of financing intended for businesses that have difficulty accessing bank financing. Its aim is to enable project holders to create or perpetuate their project by granting a bank loan that is more accessible than traditional bank loans. 

In addition to the loan, this scheme is accompanied by a follow-up of the beneficiaries: assistance in administrative procedures, help with cost control, commercial development, etc.

Microcredits are generally offered by associations. The granting of a microcredit is based on several criteria:

• The project leader: motivation, experience, skills, etc.
• The project: location, potential, projected turnover, etc.
• The ability to repay.

Like all loans, it is non-dilutive. 

Participatory financing

Crowdfunding (or participatory financing in the broad sense) is based on a system of collecting donations or loans. Via platforms such as Hello Assoa business owner can ask a large number of small investors to participate financially in his or her business creation. This method is suitable for brands and B2C offers. The advantage of a crowdfunding campaign is that it allows you to build a community of early adopters.

The participatory donation can be with or without counterpart. Equity crowdfunding" (or participatory investment) is the term used to describe the case where the capital providers take a share in the startup's capital at the end of the financing round. Unlike other types of crowdfunding, investors become shareholders in the company they are financing. 

Thus, donation crowdfunding is non-dilutive and equity crowdfunding is dilutive for the entrepreneurs who use it. 

Tax benefits 

Investing in a start-up also means benefiting from tax advantages. Via crowdfunding platforms, anyone can invest in a start-up according to the nature of the project, the profile of the partners and the expected outcome. It is even possible to devote small sums to this participation through crowdfunding, which greatly differentiates crowdfunders from business angels or venture capitalists.

From a tax point of view, it is possible to deduct 18% of the sums invested from the amount due for income tax (IR SME scheme). This percentage increases to 50% of the amounts invested for wealth tax purposes (TEPA law). This support can be dilutive or non-dilutive for the entrepreneurs depending on the modality of the participative financing. 

Incubators

Incubators are structures involved in the creation of a business and generally support the entrepreneur in thinking about his or her project, drafting a first BP and meeting with early adopters. 

By approaching an incubator, you can be supported in the realisation of your entrepreneurial project for a period of 1 to 3 years. While incubators are known for their support and advice to entrepreneurs, they can also put you in touch with investors who are interested in taking a stake in your company.

Incubators provide a non-dilutive, zero interest contribution to your business. This is a golden opportunity to finance your first developments with premium support, but you still need to be selected! 

Business angels

A business angel is an independent person who invests his or her own money in a company. Generally, thanks to their network and experience, Business Angels also provide advice to the project owner. 

The aim of the Business Angel is to generate capital gains from his investment by selling his stake after 3-5 years. It is therefore a dilutive mode of financing. 

Investment funds

In some cases where the rate of return is very high, it is possible toopt for a non-diluted fundraising. Unlike bank financing, fundraising is based on specific indicators. The investment funds themselves look for these data beforehand, which will require less energy from you. On the other hand, the process of raising funds can be quite long.

Intercompany loans

Introduced by the law for growth, activity and equal economic opportunities (known as the Macron law) in 2015, the inter-company loan allows a company to financially support another company with which it has economic ties, by granting it a loan. Limited liability companies (SARLs) and joint stock companies can now lend funds to micro, small and medium-sized enterprises (SMEs), subject to several conditions:

• the lending companies must only make this loan as an accessory to their main activity
• loans must not exceed 2 years in duration
• the loans granted must take the form of a loan contract
• companies must be able to prove an economic link (direct or indirect subcontractor, same economic interest grouping, same grouping awarded a public contract, etc.) justifying the credit.

Like all loans, this method of financing is non-dilutive. 

The competitions

Many associations, foundations, schools or other entrepreneurial organisations offer competitions for entrepreneurs or new entrepreneurs. They are sometimes aimed at specific audiences (women entrepreneurs, young people, regional competitions, etc.) or defined sectors (digital, ecology, trade, social and solidarity economy, etc.). 

The prize: (non-dilutive) financial endowments, but also the possibility to make oneself known and to meet partners or investors .

Research tax credit 

The research tax credit (RTC) is a measure to support the research and development (R&D) activities of companies, regardless of their sector or size. Companies that incur expenditure on fundamental research and experimental development can benefit from the CIR by deducting it from their tax bill under certain conditions. The rate of the CIR varies according to the amount of the investment (30% below €100 million, 5% above). 

The RTC is non-dilutive, in that it represents a sum deducted from the income tax or corporate tax due by the company for the year in which the research expenses were incurred.

BPI Early stage financing 

Bpifrance is a public investment bank that acts as a complement to the market to meet the various financing needs of companies. It offers them a continuum of financing at each key stage of their development and an offer adapted to regional specificities. 

It provides financing and guarantees to support the growth of French start-ups: short, medium and long-term loans, leasing, unsecured loans, innovation loans, sectoral loans (ecological and energy transition, industry, tourism, etc.). 

The best of both worlds: The RBF

Another innovative financing tool exists for project leaders: Revenue Based Financing. This new non-dilutive financing tool is more and more recommended for tech start-ups. 

Karmen is a non-dilutive funding solution that helps digital businesses access instant growth capital. Instead of waiting for online or subscription revenues to be collected month after month, Karmen unlocks the annual value of those revenues, up front. Karmen's solution allows digital businesses to access instant growth capital, within 48 hours, to fund their growth expenses (customer acquisition, marketing, recruiting, technology and more). 

For start-ups, we are often their first source of growth capital to help them accelerate before raising funds. 

For venture-backed companies, we provide an additional source of non-dilutive, founder-friendly capital to help entrepreneurs achieve their growth objectives, while retaining ownership of their company. 

‍Karmenis the first Revenue Based Financing solution dedicated to digital and Software-as-a-Service (SaaS) companies. Karmen offers cash advances, based on their revenues, to support their growth in a non-dilutive way.