Lack of financing is the second most common reason for start-up failure. To have a strong backbone, you need to be able to convince your financial and banking partners, and be well capitalized.
Throughout its existence, the company must ensure that it spends reasonable sums in relation to its revenues, but it can call on several sources of financing to avoid this danger.
Unlike traditional companies, start-ups often have their business model validated by investors before they even launch.
This helps to create a natural creaming-off effect, since their existence is only possible thanks to the support of investors confident in their prospects of success.
In France, however, the situation is more fragile, with a lack of private investors, especially for the first rounds of financing.
However, there are different ways of financing start-ups, depending on your project and your needs.
This is often the first question on a young entrepreneur's mind: whether to use his or her own savings, or call on family and friends to finance his or her projects.
On the one hand, these funds will not incur any charges (interest rates, commissions, etc.) and will not make you indebted to any banking institution.
Depriving yourself of your personal savings can be a risky gamble in the event of unforeseen circumstances, jeopardizing your personal financial stability.
You can also use funds from family and friends. This is called love money. This is a form of venture capital, and is often used as the first round of financing, once the entrepreneur has raised his or her initial capital, and before turning to other sources of finance.
Nevertheless, you should be aware of the possible deterioration in your family relations in the event of a failure.
It's better to use love money for a capital increase rather than for seed capital. This step is less risky, and also serves to show that the investor has a high level of confidence among those who know him.
The second most obvious and commonly used solution is bank credit.
However, not all young entrepreneurs have the financial strength and guarantees needed to obtain a loan, especially in the current economic climate.
It's not uncommon for young entrepreneurs to be turned down time and again, despite the high growth potential of their project.
Unfortunately, bank credit offers are not always adapted to changes in the business world and the emergence of new forms ofentrepreneurship.
Venture capital firms and business angels have grown considerably in recent years.
These are groups of individuals who invest their funds in projects by taking a minority stake in the capital of young, often innovative, companies with strong growth potential.
In many cases, the business angel provides advice, skills, experience and a network of contacts to support the entrepreneur.
In 2016, 4,500 business angels grouped into more than 70 networks encouraged the growth of more than 400 companies across France.
Finally, public grants are another increasingly common source of financing. These are not necessarily subsidies in the strict sense of the term, but tax measures that reduce your social security contributions, for example.
ACRE is a subsidy that considerably reduces your social charges during the first few years of business. The NACRE scheme is designed to support entrepreneurs in carrying out their projects.
Companies based in rural areas or benefiting from specific measures can benefit from additional tax breaks .
Finally, the Banque Publique d'Investissement and the Conseil Régional are the bodies responsible for supporting the economic development of their region.
But you still have to overcome the often repulsive number of administrative formalities to be completed... Find out more from the authorities responsible for your place of residence!
Most start-ups try to build up their initial capital with their own funds, or by taking out a bank loan.
More often than not, they then turn to business angels or crowdfunding platforms to raise a larger amount of funds, while allowing new investors to join them.
Public assistance is often provided on an ad hoc basis, or through tax breaks.
The government's recent priorities and President Macron's ambitions should encourage the growth of self-employment and start-ups in particular.
In 2017, their failure rate was lower than that of conventional companies, reflecting their improved stability and the enhanced financing mechanisms available to them.
Written by our expert Paul LASBARRERES-CANDAU
May 22, 2018
