How to finance a start-up? The 8 best options

How to finance your start-up?

Here are the different solutions to consider:

• Auto-financement

• Crowdfunding

• Business angels and investment funds

• Bank loans

• Public grants and subsidies

• Honorary loans

• Plateformes de crowdequity

• Crowdlending

• Affacturage

The 3 best sources of financing for start-ups

Every start-up is unique, but some financing methods stand out from the crowd. Here are Hero's three most promising options:

• Crowdfunding

Present your idea on a platform and obtain funding from the general public . Not only does this raise funds, it also tests the market's interest in your offer.

• Affacturage

It's a way of financing cash flow by selling customer invoices to a third party.

By choosing factoring with Hero This means you can get cash in a hurry, avoiding lengthy customer payment delays. You choose which invoices to delegate to us, and we'll take care of the rest!

• Revenue based financing

This is a loan where reimbursements are based on the company's monthly revenues . It's a flexible solution that adapts to your start-up's growth.

Find out more, talk to our financing experts at Hero .

1ʳᵉ step: financing your start-up by building up your equity capital

The fastest way: self-financing with your own funds

Self-financing consists of launch your start-up with your own savings . Another similar source of funding is the "love money "where money is lent or given by relatives .

This form of financing depends directly on the company's revenues and growth. 82% of start-ups are financed by the founder's personal savings . For example, Michael Dell started Dell Computers with only $1,000 in savings.

Ideal for :

• Seed-stage companies with low initial investment costs l, particularly services or e-commerce (low initial investment)

Tips :

• Manage cash flow and working capital.

Enter contests

In France over 300 competitions of start-ups are organized every year, with the prizes often going to between €1,000 and €10,000 .

For example, e i-Lab competition supported by Bpifrance rewards technological innovation and offers a grant to help start-ups go from idea to company creation.

Ideal for :

• Innovative start-ups with high growth potential.

Tips :

• Prepare a solid pitch and use your network to get referrals.

Take advantage of public grants and subsidies

This aid can take the form of direct subsidies , en tax credits or loan guarantees .

In France, the Research Tax Credit (CIR) is a popular scheme that enables companies to reduce their tax bill in line with their R&D expenditure. Amounts may vary, but the CIR can cover up to 30% of eligible expenses .

Ideal for :

• Innovative companies focused on R&D and green projects.

Tips :

• Find out what the criteria are, and enlist the help of experts for your application.

What subsidies are available specifically for start-ups?

France has a number of schemes to support the growth and innovation of start-ups:

• JEI (Young Innovative Company) status offers tax and social benefits.

• Bpifrance offers various forms of financial assistance and support.
  

Applying for an honorary loan when you don't have access to equity capital

The honor loan is a personal loan These interest-free, guarantee-free loans are granted to project leaders on the basis of their motivation and the quality of their project. These loans, often offered by support networks as Réseau Entreprendre or Initiative France can range from 2 000 € à 50 000 € .

Ideal for :

Entrepreneurs without access to equity capital, but with a solid project.

Tips :

Rely on a solid business plan and a clear presentation of your vision.

Financing growth by opening up your capital

Call on business angels or investment funds?

The major difference between these two sources lies in the he amount of the investment and the level of involvement .

Business angels are often wealthy individuals ready to invest a portion of their capital in promising start-ups, usually for a fee. amounts under €200,000 .

Investment funds, on the other hand, have access to much larger sums .

Ideal for :

• Business Angels: start-ups looking to raise less than €200K.

• Investment funds: start-ups and scale-ups seeking large amounts of capital.

There are many subtleties between business angel and fund financing. Here are some questions you might want to ask yourself:

How do you assess the value of a start-up?

The financial valuation of a start-up takes into account assets, market traction and growth potential among others. Here are some valuation methods:

• Market comparables

Compare the start-up with other similar companies.

If a similar start-up was valued at 10 million euros and generates 2 million euros in revenues, yours, with 1 million euros in revenues, could be valued at 5 million euros.

• Discounted cash flows

Estimate future cash flows and discount them to their present value. Example: You expect to generate earnings of 1 million euros a year for the next 5 years, and the discount rate is 0%. Your company will be valued at 5 million euros.

• Asset value

Assess the company's tangible and intangible assets.

How much can a business angel earn?

In general, a business angel expects to raise between 1 0 and 20% of the start-up's capital combined with other investors.

Using crowdfunding platforms

Le crowdequity gives start-ups access to a wide range of investors. Instead of lending money, these investors buy a share in the company .

Crowdfunding platforms offer an opportunity for start-ups to raise capital often between a few hundreds of thousands to a few million euros .

Ideal for :

• Start-ups seeking to diversify their sources of financing and lacking a network of business angels.

Tips :

• Choose the right platform for your sector.

• Have a solid business plan.

Leveraging debt to finance start-up growth

Applying for a conventional bank loan for your start-up

Banks can lend money to start-ups on the basis of their creditworthiness, business plan and collateral offered . These loans have a fixed or variable interest rate.

Ideal for :

• Start-ups with a solid track record (more than 3 years in business) and requiring medium-term financing (3 to 10 years).

Tips :

• Prepare a solid business plan and provide all the necessary guarantees.

  Benefits	Disadvantages
  Low interest rates	Guarantees and sureties required
  Flexible reimbursement	Risk of excessive debt

Which bank finances start-ups?

Some banks, such as BNP Paribas , Société Générale or the Banque Populaire are renowned for their support of start-ups.

Financing your start-up with crowdlending

Unlike crowdequity, crowdlending involves borrow money from a group of investors. Returns are made in the form of periodic repayments with interest.

Ideal for :

• Start-ups wanting to avoid capital dilution.

Tips :

• Choose a platform adapted to your needs and your industry.

• Be transparent about the use of funds.

Take out a revenue-based financing loan

Also known as "royalty-based financing", this type of loan involves repayment of the principal in variable installments, based on sales of the exercise.

Ideal for :

• SaaS and e-commerce models

Tips :

• Choose the reimbursement model that suits you best:

  1. Total amount of fixed and variable repayments

  2. Total amount of variable and fixed-term repayments

  Benefits	Disadvantages
  Highly flexible	High financing costs
  Easier to access than traditional banks	Much more expensive than a bank if your sales grow

How does BPI help start-ups obtain financing?

BPI France (Banque Publique d'Investissement) offers a variety of financial products, both equity and debt, to support the growth of start-ups at various stages of their development. These range from low-cost loans to equity interventions.

The most innovative sources of financing for start-ups

In addition to traditional methods, there are a number of innovative solutions:

• Leasing : Allows companies to rent equipment.

• Leasing : A lease option with a purchase option at the end.

• Deferred pro credit card : as a AMEX, which offers extended payment terms.

• Affacturage : A way for companies to finance their pending invoices via third parties, as Hero does with its "accelerated payout" offer.

What are your start-up's financing needs?

Each start-up has its own specific needs:

• Cash flow for day-to-day operations

• Market expansion

• Research & Development

• Recruiting talent

Identify your main need. If it's a cash flow financing of less than 3 months' sales, factoring is ideal . For investments, as 1 000 000 € turn to investment funds or business angels .

Choosing the right mode of financing is a crucial step in the long-term success of a start-up. It's essential to take the time to assess your needs, explore the different options available, and select the most suitable solution for your business. financement start-up .

Frequently asked questions

Who invests in start-ups?

The main investors are the BPI, venture capitalists (VCs), business angels (BAs) and private individuals via crowdfunding.

When should you sell your start-up?

Sell your start-up when you have maximized its value in relation to your development capacity. For example, if you've exploited the full potential of your local market and don't have the resources for international expansion.

Why do start-ups fail?

The number 1 reason is cash burn. To manage your cash flow effectively and avoid this pitfall, you can use services such as factoring, which Hero offers start-ups to secure their financial flows.

What is a Ratchet BSA?

A BSA Ratchet is a protection mechanism for investors, enabling them to adjust their stake in the event of new fund-raising at a lower valuation.

How do I calculate the value of a warrant?

The value of a warrant is generally based on the difference between the warrant's exercise price and the current value of the share, adjusted by the probability of exercise.

What is a liquidity clause?

A liquidity clause is a mechanism enabling investors to monetize their stake in certain situations, such as a sale or IPO.

Other articles on the same subject:

• 8 business financing solutions: which one to choose?

• How can you improve your company's cash flow easily?

• Need for cash: what is it and how to react?

• Trade payables: definition, calculation and management

• Customer outstandings: definition, calculation and instructions for use

• The different sources of financing for a company

• Understanding and controlling cashburn: calculations and tips