The first source of financing is the equity that the startup’s partners can raise and inject into the company. This financing solution depends on the partners’ financial capabilities. Contributions can include assets other than cash. For example, this could be the contribution of a web application or a research project.
A minimum amount of equity is essential for the start-up to be able to find other sources of financing.
Raising initial funds for a start-up: seed capital
Successful fundraising requires convincing investors. Investors will be interested in the project’s potential for added value. To do this, they will analyze the proposed concept and the team assembled around the project. A valuation is performed beforehand.
Fundraising allows for equity financing. This way, the company doesn’t go into debt. The main disadvantage of seed capital is that the startup’s valuation is still low at the start-up stage. Raising too much capital will significantly dilute the founding partners’ stake, complicating subsequent fundraising efforts.
Grants and competitions to help a start-up obtain financing
There are many schemes available to help start-ups obtain financing. To find out about grants and other support schemes , contact the Public Investment Bank (BPI)
Then, a startup can also participate in one or more business creation competitions . There are many competitions each year , and some will necessarily be appropriate for the project. Participating in such a competition can allow you to obtain a financial contribution and/or meet investors.
Bank loan to finance a start-up
Several guarantee schemes are available from the BPI.
To obtain a bank loan for a startup, the partners must provide sufficient equity. Otherwise, the loan application is likely to be rejected. The lending institution will then request guarantees.
The disadvantage of this financing method is that the startup will have to repay loan installments fairly quickly. If the business hasn’t started yet, this could impact its cash flow. In return, no new partners will be invested in the company.
Subsequent fundraising by start-ups: development capital
Once the start-up has started its activity, it can raise funds to develop. These fundraisings are called “development capital” .
Unlike seed fundraising, the startup will be valued much higher here than at its inception. This makes it possible to raise significant funding without losing control of the company.
Financing the development of a start-up with self-financing
Self -financing is a possible solution for financing the development of a startup’s business.
In practice, it’s very difficult for a startup to grow solely through self-financing. Often, its own resources are insufficient to follow the planned development plan. After its launch, a startup needs rapid growth. This requires significant resources to be mobilized.
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