Fund-raising: accelerating fast and strongly
Fund-raising is an essential stage in the development and growth of start-ups, enabling them to open up their capital to private investors. Estia Entreprendre and the Development and Innovation Agency of Nouvelle-Aquitaine support young businesses in their search for financiers, alongside the Pays Basque Technology Park.
It’s a record! Despite the health and economic crisis, French Tech start-ups raised funds of 5.4 billion euros in 2020 according to the EY (Ernst & Young) venture capital barometer in France. Fund-raising is often seen as the Holy Grail by start-up managers. But what does it actually entail? First, it’s a matter of timing. It comes in after the entrepreneur has invested their own funds in their project and requested subsidies and public assistance, especially regional assistance and finance from Bpifrance, the public investment Bank.
Fund-raising involves bringing investors into a company’s capital. These investors bring money into the company in return for a percentage of its capital holding. They therefore become share-holders and participate, with greater or lesser commitment, in the overall strategy of the project.
“It’s a long process, taking between nine and twelve months,” explains Annabel Dubois, Head of the fund-raising service in the Development and Innovation Agency of Nouvelle-Aquitaine (ADI-NA). “This stage enables the business to accelerate fast and strongly at the crucial time when it must confirm its strong potential for development. As for the investor, their role is to assess the risk of a project, or at least its chances of success.” Their aim is to achieve added value when they withdraw their capital, within a legal timeframe of 5 to 7 years. In the case of a start-up, investors therefore target projects with strong growth potential taking into account their risk-taking.
‘Friends and family’ to start with
In the ecosystem of capital investment, there are a great variety of financial players, depending on the degree of maturity of a start-up. When the project is first launched, the entrepreneur can mobilise their first funds, the so-called ‘love money’, from their friends and family. This was the approach taken in 2015 by Vincent Clabé-Navarre, founder of Message In A Window, a platform enabling communication campaigns to be organised in the windows of shops, hotels and restaurants throughout France. “By myself, I would not have been able to generate turnover,” remembers the President of the start-up based in Biarritz. “Based on a very successful idea and some customer tests, I raised 150,000 euros from my friends and family, who were quick to respond. That enabled me to recruit two people and accelerate the development of the IT tool.” Message In A Window then progressed to two new rounds of fund-raising, one of 800,000 euros in 2016, the other of 1.2 million euros in 2019, mainly from an investment fund and from Bpifrance, in order to continue its recruitment and invest massively in technology. The start-up now employs 12 people, generates a million-euro turnover, and is launching a new platform, bottl.fr, aimed at wine merchants and delicatessens.
“A solid and credible dossier”
The other starting strategy consists in appealing to crowdfunding platforms, of which there are several kinds: crowdgiving, based on donations, crowdlending, on the principles of loans, or crowdequity, on capital investment in capital.
The Pays Basque Technology Park supports start-ups in structuring their research into financing: from formalising their development strategy to the business plan, along with introducing them to people who could finance the various different phases of their growth.
“Needs are most pressing in the early stages, in the incubation phase, when the entrepreneur does not yet have experience or networks,” emphasises the Head of Estia Entrependre, Hélène Marty. Everyone in charge of start-ups at the Pays Basque Technology Park helps prepare entrepreneurs to design their business plan and strategic project. When the dossier is solid and credible it can be presented to various different investors. Within this framework, the Bask’Invest forum, jointly organised by Estia Entreprendre, E&Y, the CCI and the CAPB, every year puts growing businesses and investors in contact with each other (see elsewhere).
The phases of administrative and financial preparation, identifying and entering into discussions with sources of funding, requires a major investment on the part of entrepreneurs. It can be useful to have the support of structures such as fund-raising intermediaries, which are consultancy companies that specialise in raising funds.
At regional level, ADI-NA represents an essential intermediary for entrepreneurs, this time when their start-ups reach the ‘seed’ phase, especially in the green tech, deep tech, health or e-health sectors, which are particularly popular with investors.
From the pitch to the partnership agreement
“We support start-ups in fund-raising where the amount is between 300,000 and 1.5 million euros,” explains Annabel Dubois, “at the time when they have to finance their commercial acceleration. So the product has to be finalised and ready to sell and the market must have responded favourably to that value proposal.” The range of investors then widens to include business angels - in networks or as individuals – and investment funds, which may propose several types of capital investment, including venture capital and development capital. Since 2019, ADI-NA has introduced some 2000 investors to the entrepreneurs of Nouvelle-Aquitaine through its fundmeup.frplatform. It scrutinises the stages of the fund-raising journey, from the pitch, presenting the vision and ambition of a start-up project, to the finance forecast and the business plan, to signing the shareholder agreement. “It is in a way the internal regulation of the relation between all the partners,” sums up Vincent Clabé Navarre.
To achieve success in your first effort at fund-raising, it is essential to be well-prepared and supported. With this in mind, being part of an ecosystem like that of a Technology Park is a real advantage for the development and growth of a start-up.