Written in collaboration with Wilco, an innovation accelerator that helps startups to reach their first million euros in revenue within three years and assists SMEs/Corporates with their innovation challenges.
What is at stake?
While fundraising through investment rounds is often discussed, there are also other types of non-dilutive financing, meaning they do not require the entry of investors into the startup's capital.
The different types of non-dilutive financing include:
- Love money and gifts
- Grants
- Honorary loans
- Innovation subsidies (e.g., PTZI, Repayable advance, BFT, PIA, i-lab competition, i-Nov)
- Regional aid (e.g., in Île-de-France: TP'UP, PM'UP, Innov'UP)
- Crowdfunding
- European financing
Why is it important?
Financing is a strategic issue for a startup's growth. While considering non-dilutive funding, especially in the early stages, it’s crucial to manage these initial funds responsibly in order to:
➡️ Avoid any negative consequences such as legal disputes, financial losses, damaged reputation, or the inability to secure future funding. This is just common sense 😉
For example, failure to comply with expenses funded by the French Tech Grant will results in the second installment not being paid.
➡️ Maintain trust and credibility: Ethical and responsible management of initial non-dilutive funds sends positive signals to investors who will be more likely to invest again or to recommend the startup.
➡️ Establish sustainable values from the beginning: Transparent financial management from the startup's inception creates a healthy foundation for its growth and the attraction of new funds. It strengthens its values (corporate culture) and reputation.
It is advantageous to have a structured approach to responsibility (CSR, ESG, etc.) when seeking non-dilutive funding. For instance, funding applications to BPI now include a question about CSR scoring, while to obtain the WILCO Entrepreneur Loan, companies must present an ESG score and an action plan to improve this score in the following year... And these are just a few examples!
Eléonore HUON-MERCEUR, Startup Manager @ WILCO
Three actions to implement right now
1️⃣ Establish clear and transparent initial objectives
- Identify your actual financing needs before embarking on the process.
- Define projects that should involve funds and ensure that the associated objectives align with the startup's mission and ambition.
- Clearly and transparently communicate to funders the projects that the funds they are providing will cover.
→ There are financing options specific to certain commitments (see the mapping of impact financings).
2️⃣ Provide regular reports on the use of funds
- Monitor the allocation of funds to the targeted projects.
- Communicate honestly the performance/progress of the projects to funders and other stakeholders (including employees).
- Adhere to the terms of financial agreements between project holders and funding organizations. Non-dilutive funds often come with spending constraints and obligations. The startup is responsible for using the funds in accordance with the terms of the agreement and must avoid any inappropriate use.
3️⃣ Take measures to avoid conflicts of interest
→ Especially in the case of love money or competitions, in making decisions about the allocation of expenses.
📚 Further Reading
🔍 Impact Financiers Mapping
✍️ Contributors to this document
WILCO is an innovation accelerator that helps startups to reach their first million euros in revenue within three years and assists SMEs/Corporates with their innovation challenges.
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