What funding for tech startups?

What is a tech startup?

A tech start-up is a young innovative company specialized in the new technologies sector. This particular type of company is based onexperimentation and the search for a profitable business model allowing a rapid development of the structure. The objective of the start-up is to propose an innovative and unique product or service.

Experimentation and the prospect of strong growth

The tech startup rarely has a prior market to sell its product or service to. This young company experiments with its business model and conducts several series of tests toidentify its market.

A start-up project is thus more risky than a more traditional project; the famous statistic that 90% of start-ups fail is often mentioned. However, these projects have a high potential for profitability. If the search for the market prevents the start-up from being profitable in its first years, theacceleration, even the industrialization of its operations as well as theincrease of its margin per customer are at the origin of the incredible successes of Silicon Valley as well as of French Tech.

The use of new technologies

The tech startup generally develops an innovative product or service by exploiting new technologies and digital technology. These young companies evolve in new sectors such as digital and biotechnology, but they can also innovate in an already mature or even old industry. There are many technology start-ups in fintech (finance), edtech (education), cleantech (ecology) and insurtech (insurance).

At the same time, this use of technology allows tech startups to completely invent new products or services. They can also improve an existing service by making the user experience more harmonious or by boosting efficiency or even performance compared to traditional competitors.

A significant need for financing

The innovative nature and the business model of the tech startup does not allow it to clearly define all the components of its market and to ensure immediate profitability. This is why another major characteristic of the tech startup consists in its important need of financing.

These financing needs inherent to young technology companies are used both to cover the start-up of the activity (recruitment, product or service development...), and its growth. They do not have time to finance themselves and sometimes need to raise funds to grow faster. 

In case of success, the tech startup is led to become a traditional company with an established business model or to merge with a larger company. In case of failure, the startup disappears due to lack of cash.

How is a tech startup financed?

As mentioned above, tech startups need significant funding , first to design and launch an innovative product or service, and then to accelerate to seek rapid growth. There are several financing solutions depending on the stages of the company's life.

The contribution of equity and love money

In the first place, the start-up can be financed by the equity contribution of the partners or the entrepreneur. However, the funds allocated remain modest and it is not unusual for the company to resort to love money. 

Love money is generally the first recourse for a start-up financing. It is a question of soliciting one's close relations, family and friends for a first donation. Donors benefit from tax reductions and exemptions. This financing is fast and non-dilutive, but requires a well-to-do entourage.

Business angels

A Business Angel is an individual who invests his or her personal funds in a company. 

They are generally former entrepreneurs who, although they have fewer resources than a venture capital firm, provide sound advice and valuable contacts from their address books. 

Subsidies

In France, the State allocates a budget to support business creation. Subsidies can take different forms: material or financial aid, social and tax relief. Several public or private organizations provide subsidies for business creation. 

Honorary loans

The loan of honor, non-dilutive and at zero rate, is a regional loan with a ceiling of 90 000 €. The recipient commits on his honor to repay the loan 3 to 5 years after receipt. 

The debt

The loans granted are very small and accessible . For businesses without tangible assets, it is almost impossible to obtain a traditional bank loan. Banks have indeed limiting criteria for companies that do not already have three positive balance sheets and have not previously raised funds.

In addition, the partners must make a sufficient equity contribution to take out a bank loan. This contribution must often represent at least 20% of the global financing. If not, the loan application is likely to be refused. Then, guarantees will be requested by the lending institution.

Crowdfunding

Some platforms such as Ulule or Hello Asso offer participatory financing based on a system of collecting donations or loans. 

Venture Capital

Venture capitalists are private investors who invest their capital in start-ups or young companies with high potential in exchange for shares in the company for a defined period. 

These investors bring both their financial contributions and their assistance in the management and development of the company through their expertise and contacts. 

The objective of these investors is to realize a capital gain from the sale of the shares within 5 years. 

Revenue Based Financing

Karmen is the Revenue Based Financing solution, an innovative, non-dilutive form of financing (there is no transfer of capital in exchange) aimed at digital companies, Saas and e-tailers.

To find out if you are eligible, it's very simple! Connect your company's financial tools in read-only mode thanks to open banking to our algorithm. Our objective is to analyze your company's potential objectively based on current and future revenues. 

Then, if you qualify, we will send you a loan offer within 72 hours. There are no hidden fees. If you are satisfied with the offer, you will receive the first transfer within 48 hours. 

Several products are available from Karmen to best meet your needs. The Karmen offer gives you rapid cash flow and enables you to finance your growth efficiently.

Karmen provides financing for growth through an instant, flexible and non-dilutive line of credit. 

This financing solution allows you to : 

• establish a simplified reimbursement schedule
• to retain control of the capital through non-dilution at 100%.
• get credit released within 48 hours

This financing solution makes it possible to extend the runway by delaying the next capital increase thanks to a credit line. 

This financing solution allows : 

• to lengthen the runway
• to improve performance
• to be in a strong position at the time of fundraising
• to be funded without dilution

If you're feeling the cash crunch when it comes to your working capital requirements, we recommend you take a look at the Karmen. If you'd like to find out more, please don't hesitate to contact us!

Summary of support for tech startups

Aid from public and private organizations

Tech startups can benefit, under certain conditions, fromspecific aid offered by private or public organizations. 

For example, we can mention approvals allowing the exemption of certain social charges or taxes such as the ACRE, the research tax credit(CIR) or the innovation tax credit(CII). 

We can also mention the Young Innovative Company(JEI) status, reserved for startups with R&D expenses representing more than 15% of their costs.

BPI France

For its part, BPI France (a public financing and business development organization) offers several funding schemes for tech startups such as the French Tech grant, repayable advances and the R&D innovation loan. Entrepreneurs can also receive assistance from regional organizations and funders such as the PRI, Regional Innovation Partnerships. 

How to get a French tech grant?

The French Tech grant is a BPIfrance scheme that has existed since 2014. This aid, in the form of a grant of up to €30,000 or €90,000, helps finance the launch of a tech start-up's project. 

This aid is aimed at young innovative startups with real growth potential. The company must have been registered in France for less than a year and employ less than 50 people. The young innovative company will incur expenses and Bpifrance proposes to share them. The aid is granted in the form of a subsidy that can cover up to 70% of the eligible expenses up to a maximum of €30,000 or €90,000. Note that to be validated, the projected expenses must be part of the overall project, serve it and be coherent. 

The larger grant of €90,000 is awarded to highly innovative projects facing strong barriers to entry and capital-intensive competitors.

Thus, tech startups are young innovative companies active in the new technology sectors. One of the main characteristics they have in common is their need for financing for the start-up and the growth of the activity. There are many ways to finance a tech startup (debt, equity, private or public grants, etc.). There is also a solution to finance your tech startup with recurring revenues in a non-dilutive and fast way: Revenue Based Financing is the solution for your company!