Good news ! There are several ways to finance your startup. Indeed a startup needs financing while it develops its product. This is the force of war. Without this funding it may start its project and stop along the way or not start at all.
In this article, we will introduce you to these types of financing and each type will be detailed in a series of articles.
The banks
This good old bank also support startups but considers them as risk profiles. This is due to the fact that startups find it difficult to predict profit making and this does not reassure the banks who need a repayment guarantee.
Money back guarantees
- Equity is the amount of money paid by the owners of a company at the time of its creation. Banks want to make sure that it is sufficient. It also helps them to determine the amount of the loan because depending on the amount of funds, they can calculate the solvency of the business.
- Additional guarantees are also required by banks. They may require the partners to guarantee themselves personally or mutually by establishing guarantee funds. But this is a brake on financing. If you call on the bank, it is because you do not have investment funds.
- Your financial history will be scrutinized. In this process, the banks once again want to demonstrate and ensure your ability to repay. But this condition is not suitable for startups because they have a poor or non-existent credit history.
The disadvantage of bank financing is that you will have to pay back your loans very early. This may impact your cash flow because at the beginning of your business, you will not generate profits right away.
The bank finances startups either by credit or by taking part in their own funds.Equity capital is recommended for startups that have a good business model and wish to acquire large sums of money quickly. The partners must then be prepared to lose several shares in their company. For more details, I refer you to (this article).
Investment funds
An investment fund is a company that invests money in business projects. It is managed by investors who have contributed to the investment capital. Their goal is to invest in innovative companies in order to get a percentage of the profits of the invested companies. Also, they carefully choose the startup in which they invest.
In the same category as investment funds, there are investors or business angels. These are individuals who invest in companies in their personal capacity. They participate in the capital of the invested company and thus own shares in it.
Investment funds and business angels are a good alternative to startup financing. They are aware of the risk of seeing startups fail. They accompany startups in their development and play a mentoring role. Indeed, they are keen to ensure a return on investment. And they have a large network that will be very useful to you.
In order to find the right investment fund, the Eldorado site allows you to deepen your search according to several criteria.
Below you will find links to investment fund directories
- Le journal du Net (JDN) creates a more or less exhaustive list of these investment funds.
- Societe.tech
- Le journal du Net (JDN) creates a more or less exhaustive list of these investment funds.
- Societe.tech lists investment funds by region
Public Funds
The state provides a number of grants to help businesses grow. This type of financing is non-dilutive. That is to say, it has no impact on the company’s capital. It is organized by region and by department in order to respond to local problems. But there are also national subsidies. Here are some of them:
- The BPI is a state-owned bank whose goal is to boost the French economy. It is the main organization that deals with
- The French-Tech grant, provides up to €30,000 in subsidies for a startup
- The AFI (aid for innovation financing) is a grant that finances research and development of a product. It is granted to innovative SMEs
- Here you will find a tool to help you find regional funding
The advantage of public funds is that they make it possible to finance projects that do not interest the other funding institutions. But the disadvantage lies in the constitution of their file. The conditions of granting are very selective and take time.
Crowdfunding plateforms
Crowdfunding or participatory financing is the contribution of several people outside the financial framework to a project. This practice is mainly done on the internet via platforms. There are several types of Crowdfunding that I detail in (this article).
We will focus on Crowdfunding through donation. It’s a good way to finance a startup thanks to the simplicity of this system. Just go to a platform and present your project in an attractive way. The only thing left to do is to collect donations from Internet users. Moreover, this means allows you to test its concept because you will be given money if the project is deemed feasible and convincing.
Here is a list of the best crowdfunding platforms for startups:
- KissKissBankBank is a platform centered on innovation, entrepreneurship, creativity
- Kickstarter offers to participate in any type of project. So it is also possible for startups to publish their project there. It appears in this top because it is one of the most famous platforms.
- Anaxago focuses on financing real estate projects
- Sowefund invests in startups that have already raised funds
- Tudigo is an equity crowdfunding website for startups
- Ulule makes it possible to finance all types of projects
- Wiseed is an equity crowdfunding platform. Indeed, it invests in the capital of start-ups and SMEs.
These ways of financing your Startup can be cumulated in your financing strategy. You can have one type of financing for each stage of development. The perfect combo in our opinion would be to start with :
- Public funding. By creating your startup, you can benefit from subsidies and exemptions. According to the policy of your locality you will be accompanied and it is a good way to start compared to the bank with these conditions and investment funds which are dilutive.
- At the creation of your company, business angels are also a good means of financing. Thanks to their knowledge of the sector, they will be an indicator to know if your project is feasible. Indeed they will invest only if they think you have a chance of success. On the other hand, they will take part in the capital of the company but their share will be lower than yours and will allow you to keep control of the startup.
- Once your business is launched and you start testing your market, crowdfunding platforms would be ideal both to finance your project and to give you visibility.
- And when you have a good base in the market and you need to scale your startup, you can choose the investment funds. They will very quickly bring you a large amount of money but you will lose shares of your capital and your company.
We did not recommend the banks, because you will have to pay back your credit very soon when you are not yet making enough profit. We would like to make it clear that we do not have a monopoly on knowledge. This advice is a subjective opinion and may be useful for some startups. But situations are diverse and varied. Therefore, we and our partners will be happy to guide you in the choice of your financing.