It is true that money does not fall from the sky. The founder of a startup must often struggle to find funds to support the growth of his company. Let’s take a look at the solutions available to entrepreneurs.
Table of content :
- The business sense
- « Get up » at the right time
- Choosing your financing method
- Prepare to maximize your chances.
- What have we learned?
The business sense
The French Tech continues its small business. In France, according to the barometer of fundraising of the newspaper La Tribune, startups have managed to raise no less than 5 billion euros for the year 2020 (and 5.03 billion euros in 2019). A colossal amount that demonstrates once again that French startups have a good business sense!
Fundraising is a way to accelerate the development of a company. The principle of a fundraising is simple to understand: it consists in calling upon investors in order to finance the launch of the startup or to allow it to develop. Note that these large-scale operations are sometimes counted in millions of euros.
The investors solicited will take a participation in the capital of the company. The entrepreneurs will have to plan the issue of securities intended for the capital of the startup and sold to the interested parties. It is important to keep in mind that the entry of an investor (or several investors) in the capital of the company is not without consequences for the entrepreneur and his team. The powers are then spread out, which changes somewhat the governance mode of the company.
« Get up » at the right time
A bit of technical language to start with. It is not uncommon to hear the term “round” (or series) used when talking about startup fundraising. These terms can refer to a key stage in the life of the company or to the number of rounds raised by the company. There are several successive phases: seed (first round of financing, amounting to 250,000 to 700,000 euros), series A (800,000 to 3 million euros), series B, etc.
Just note that there are three stages in the life of a startup, for which it can be judicious to raise funds:
- Step 1 : before the creation of the project. The products or services may require a “research and development” stage. Two solutions are available to the company: public aid or love money (money entrusted by close investors: family, friends…).
- Step 2 : the initiation. The startup starts to get results. Entrepreneurs have the choice to turn to seed funds or business angels. Not to mention crowdfunding solutions (see below).
- Step 3 : when all signals are green. The indicators are there, the , the sales revenue increases significantly and the market demand is real. To support the growth of the company, several means are available: development capital funds, venture capital funds…
For a first go around the table, the entrepreneur must be able to estimate the amount to be raised, based on the company’s quantified objectives (data on customers, hiring plan in the company…). The goal of the operation: to be able to justify yourself to each investor. Regarding the amount, it is quite possible to be satisfied with giving a “range” to the investors, to avoid being completely off topic. Moreover, this amount can often evolve during the course of the project, according to the stages.
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Choosing your financing mode
Fundraising can be decisive for the economic growth of a company. However, it is important to find the right investor. In France, many solutions exist to allow startups to finance their creation project. Entrepreneurs must be convincing and demonstrate to investors the viability of their projects. Here is a brief overview of the available solutions:
- Initiation capital. These funds come to finance the essential expenses for the creation of the startup (market study, research and development, setting up a prototype…).
- Venture capital. This form of investment consists of a participation in the capital of a company with strong growth potential. The investor concerned can also bring his experience and network to the entrepreneur. Around the table, the sums advanced by the partners can be counted in tens of thousands of euros as well as in millions of euros!
- Development capital. The funds are reserved for “mature” French companies in a new stage of their development.
- Business angels. These key players have extensive experience in the business world (they are very often former company directors). The investment is aimed primarily at the most innovative companies on the market.
- Crowdfunding. This mode of participative financing allows the founder to collect money on a specialized platform to finance the development of his project. There are many crowdfunding platforms on the web.
- Crédit bancaire. The founder may also choose to use this method of financing. Keep in mind that banks can be “shy” about financing risky projects.
- Introduction en bourse. It makes it possible to consider raising substantial funds. This solution is not without risk. To be used as a last resort.
Two parameters should guide your choice: the maturity of the startup and the amount to raise. Note that you should not fall back on the first investor that comes along. He must have some “affinity” with the company’s sector of activity.
Prepare to maximize your chances
Before approaching investors, you need to implement a battle plan. Start by preparing your executive summary, which announces the color and summarizes your project on one page, and then write your business plan. These documents can be presented to potential investors.
Now it’s about finding your investors. Use your networks! In particular, you can approach your partners by making a tour on LinkedIn, to increase your chances of finding an investment. Above all, don’t hesitate to participate in calls for projects and other pitch competitions competitions to maximize your chances of meeting the right people.
At the time of the long-awaited meeting, you will have to show the investors how solid your business model is. You will also have to make them understand that your project, your products or your services answer a need on a precise market. The valuation of the startup’s team is also essential.
Then, it can also be interesting for a startup to turn to an incubator, so that it can accompany it in its fundraising. This specialized support structure offers many services and advice to young French companies for the creation and development of their project. For example, the incubator helps the startup determine its business model and business plan and understand the market. Thanks to its network (notably its relations with seed funds), the incubator can help the company in its search for financing. Launch Your Idea gives you some advice on how to succeed in your application to an startups incubator.
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