The 7 golden rules of non-dilutive financing
In parallel with the ongoing negotiations on the 2025 budget, many of you are contacting us to try to get help before “it’s too late”… It’s not a bad idea, but there are a few rules to follow:
Subsidies
They are very attractive and the actors who grant them make a lot of publicity about them... However, there is no magic, even if you have the sexiest project in the world, you must at least respect these 3 basic rules:
- Not being a Company in Difficulty (ED), this criterion is the result of a calculation => are your losses for the year greater than half of your share capital?
- Have equity at least equal to the amount of subsidy you wish to request. This is a matter of European rules and financial stability, which we will develop in a future post.
- Have cash at least equal to the amount you are requesting. This rule comes from the way subs work (the calculation that financers use to determine the amount they will grant you and the process of disbursing subsidies).
Debts
Here we will mainly see the subsidized debt offered by Bpifrance as part of aid for innovation, but the principle is generally the same for loans offered by other players, including commercial banks.
- Not being a Company in Difficulty: this is a completely blocking criterion, there is no way to escape it.
- Have equity 1.5 times the amount you wish to request. The basic rule is to have equity at least equal to the amount you wish to request, but in practice this is not the case, the ratios we observe at Flag range between 0.5 and 0.8 (depending on other criteria that we will see in a future post).
- Show the incentive of the financing line. Basically, you have to show the financer that you need this money. For example, if you have €3M in your bank account and you ask for a 15k loan, the financer may think that his financing is useless in your development…
- Have a runway of at least 12 months, excluding debt. This is a bit of a balancing act: you have to show that you need additional cash to accelerate but that you still have enough to move forward.
All of these criteria can be assessed on the basis of your last tax return up to July/August, after which you will need to calculate the impact of the start of the year.
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