Alternatives to fundraising

Baptiste Wiel

Published on

2022

June 2, 2022

Updated on

2024

April 11, 2024

To start a business or generate growth, an entrepreneur usually needs financing. Finding the right financing for your business is not easy. Especially since there are many options! We hear a lot about start-ups raising millions. They are at the heart of the French entrepreneurial media. Fundraising is a financing tool that allows a start-up to accelerate its growth, gain visibility, hire employees and expand its network. On the other hand, raising funds involves time-consuming preparation by project leaders to approach investors, the arrival of new decision-makers and a dilution of the company's share capital. Is it possible to avoid raising funds? What are the alternatives? Revenue Based Financing, for example, can be the solution to release cash quickly and without dilution.

The disadvantages of fundraising

Fundraising is sacred in the start-up nation. However, although this financing technique allows for rapid growth, it has many disadvantages.

The main disadvantage of a fundraising is the dilution of the company's share capital.

What does this mean? The project holders' ownership of the company's shares decreases after they have raised funds. New shareholders hold shares in the company's capital. In addition, the founder is no longer the sole decision-maker on the company's strategy.

Fundraising requires a significant amount of preparation time for founders: preparing a presentation, canvassing investors, practising presentations, numerous meetings. Moreover, despite the effort and time invested in preparing a fundraising event, there is no guarantee that it will be successful. Fortunately, there are other options for raising funds.

What are the alternatives to fundraising?

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Here are different financing tools that are alternatives to fundraising.

Love money

Love money, or "proximity capital" in French, is generally the first recourse for a start-up financing. The entrepreneur solicits his relatives, family and friends for a first donation. The donors benefit from tax reductions and exemptions. This financing is fast and non-dilutive, but requires a well-to-do entourage.

Subsidies

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

The main organizations are Bpifrance, URSSAF, CCI, CAF, Pôle Emploi and local authorities. In particular, BPI France has set up the French Tech grant. This grant of €30,000 is awarded to companies with strong growth potential. This funding is non-dilutive and accessible.

Honorary loans

The honorary loan, non-dilutive and at zero interest, is a regional loan, i.e. financed by the region in which the company is located. The recipient commits on his honor to pay back the loan 3 to 5 years after receiving it. The organizations granting honor loans are associations such as Réseau Entreprendre, France Initiative and Wilco. The amount can reach 90 000 €.

Traditional bank financing

Guarantees (mortgage, personal guarantee) are necessary to make a traditional credit to the bank for a reason of creation of company. The loans granted are not very accessible and have a low amount. For businesses without tangible assets, it is almost impossible to obtain a traditional bank loan. Banks have limiting criteria for businesses that do not already have three positive balance sheets and have not previously raised funds. These criteria limit access to bank financing for companies in the early stages of creation.

Crowdfunding campaigns

Crowdfunding or participatory financing is based on a system of collecting donations or loans. Via platforms such as Hello Assoan entrepreneur can ask a large number of small investors to participate financially in his or her business creation. This method is suitable for brands and B2C offers. The advantage of a crowdfunding campaign is that it allows to federate a community of first users, called "early adopters".

The IRC

The CIR (Research Tax Credit) is a tax measure that financially supports companies in their research and development (R&D) activities.

Business Angels

A Business Angel or "angel investor" is an independent person who invests his or her personal funds in a company. Generally, thanks to their network and their experience, the Business Angel also provides advice to the project owner. The goal of the Business Angel is to generate capital gains from his investment by selling his stake after 3-5 years.

The new innovative alternative to fundraising: Revenue Based Financing by Karmen!

An innovative alternative to fundraising

Another innovative financing tool exists for project leaders: Revenue Based Financing.

This new non-dilutive financing tool is increasingly advocated among tech start-ups.

Karmen is the first Revenue Based Financing solution dedicated to digital and Software-as-a-Service (SaaS) companies. Karmen offers revenue-based cash advances to support growth in a non-dilutive manner.

A solution accessible to the greatest number

Karmen's mission: to support the growth of French SaaS start-ups with a 100% non-dilutive, digitalized, and fast (in less than 48 hours!) financing solution.

The only constraints to be funded by Karmen are:

Have a marketing history of more than 12 months.
Minimum annual sales of €300,000.

Conclusion

There are many alternatives to fundraising: grants, love money, business angels... But all these tools have advantages and disadvantages. New players in the field of Revenue Based Financing, such as Karmen, complete this range of alternatives with a non-dilutive, digital and fast offer.

Each company, depending on its business model and its level of progress, has a means of financing that is more appropriate than another. A financing tool at a given moment does not exclude the use of another tool later on! It is quite possible for a project owner to start with BPI grants, then complete their investment with Karmen and finish with a fundraising. These start-up financing options are complementary!