Raising Public Funding for a Startup

The current environment is highly favorable for companies looking to undertake innovative projects, with a wide range of complementary innovation grants available. However, each of these grants has its own specific requirements, particularly in terms of deadlines, eligibility criteria, eligible expenses, and funding rates (...)

Recent governments have chosen to allocate more financial resources to make French companies more competitive and successful. As a result, government funding for innovation has doubled over the past 15 years[1], as has the number of national programs providing access to this support.

The current environment is therefore highly favorable for companies looking to undertake innovative projects, with a wide range of complementary innovation grants available. However, each existing grant program has its own specific requirements, particularly in terms of deadlines, eligibility criteria, eligible expenses, and funding rates.

In this article, I’d like to introduce you to some of the main forms of financial assistance available to innovative startups and explain their specific features.
Before we begin, it’s important to note that the various forms of assistance I’ll be discussing are intended for companies with projects that meet the criteria for innovation and/or R&D.

Webinar Replay: To find out exactly whether your project meets these criteria, I invite you to watch the replay of the webinar “R&D or Innovation: What Impact Do They Have on Your Development Projects?”

Tax measures

The first program to consider for an innovative startup is the Young Innovative Enterprise (JEI) program, which is designed for SMEs that have been in operation for less than eight years and are engaged in R&D projects. This program offers significant benefits for several reasons.

First, it allows companies to benefit from a significant exemption from employer social security contributions on the salaries of employees involved in R&D activities, thereby reducing the company’s total payroll. Second, it allows companies to benefit from a full or partial exemption from corporate income tax for the first two years in which the company reports a profit (provided that its JEI status remains valid).
Note that to register as a JEI, a company must first seek the administration’s approval in the form of a ruling. This validation confirms the R&D nature of the work carried out by the company, which secures your JEI status as well as access to the Research Tax Credit.

In addition to the JEI program, there are two other tax incentives that complement each other and the JEI. These are the Research Tax Credit (CIR) and Innovation Tax Credit (CII) schemes.
These schemes allow companies to recover a portion of the expenses incurred to carry out R&D and/or innovation projects (including personnel expenses, equipment depreciation, and subcontracting costs). If the amount of these tax credits exceeds the corporate income tax liability, an immediate refund of the excess amount may be requested.
The amounts of the CIR and CII must be reported when filing the tax return, i.e., by mid-May for a company closing its books on December 31. The tax credit refund is then received a few months after the filing.

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Note: The CII program and the immediate refund of the excess are available only to small and medium-sized enterprises (SMEs).

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Grants

In addition to these tax incentives, innovative startups can benefit from public grants that must be secured prior to incurring expenses, that is, before a project is launched. Most of these grants are offered by Bpifrance, a major player in innovation financing.
In the remainder of this section, I will present two of the innovation grants offered by Bpifrance that take the form of subsidies and are particularly attractive to innovative startups.

First is the French Tech Grant, which aims to support startup projects with real growth potential. What sets this grant apart is that, unlike most public funding, it is not limited to the amount of the company’s equity capital.

More specifically, this is a grant ranging from €20,000 to €45,000 intended for companies in the pre-launch phase or those that have been in operation for less than one year. This funding is designed to support the development and technical and economic validation phases (market research, feasibility studies, legal reviews, intellectual property assessments, etc.).

The second innovation grant offered by Bpifrance isthe Innovation Feasibility Grant (AFI). This grant helps companies with the technical and economic validation of their innovative projects and therefore funds preliminary work that involves significant risk (business development and marketing, technical studies, legal reviews, financial analyses, etc.). It generally covers up to 40% of a project’s budget, subject to the company’s equity and a cap of €50,000.

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Refundable Advances and Loans

Innovation grants are provided during the technical and economic validation phases of a project. For subsequent phases, Bpifrance offers innovation support that initially takes the form of repayable advances and, for more mature companies that therefore pose less risk to investors, loans.

Note: In the case of a repayable grant, repayment of a portion of the funding is contingent upon the project’s commercial success. Furthermore, unlike a loan or a grant, the funds are disbursed in installments (typically an initial installment at the start of the project and a second installment at the end).

Bpifrance offers, first and foremost,the Innovation Development Grant (ADI), which is designed to finance both internal and external expenses related to the design and development phases of an innovation. This aid covers between 25% and 65% of a project’s expenses, up to a limit of the company’s equity and €3 million. It must be secured prior to incurring expenses and may take the form of a repayable advance or a zero-interest loan (depending on the company’s maturity).

Bpifrance also offers two other forms of assistance in the form of loans which, unlike the assistance described above, are not directly linked to a project to develop an innovative product or service, but rather to a financial project (e.g., fundraising).
First, prior to fundraising, the Seed Loan (PA) aims to strengthen cash flow and create favorable conditions for attracting investors. The loan amount ranges from €50,000 to €100,000 and is available only to companies that have already received innovation support.
Next, within three months of raising more than €200,000 (excluding love money), an Investment Seed Loan (PAI) may be secured. This is a grant that allows companies to recover 50% of the amount raised (up to €500,000) to create leverage.

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Ultimately, what innovation grants are available?

As I have just explained, there are numerous public funding programs in France designed to support the implementation of innovative projects. In this article, I have provided an overview of some of these funding options. It is important to note that these innovation grants often complement one another and can be used to fund different phases of a project.

For example, tax incentives (CIR, CII) are available to innovative startups throughout the course of a project. In contrast, the innovation grants offered by Bpifrance can be accessed at the launch of a project and initially take the form of grants, then repayable advances, and finally loans as the company matures and the risk decreases.
The public innovation grants presented in this article are not exhaustive; they are only the most relevant and common grants intended for innovative startups.

For a more comprehensive overview, particularly for companies with a strong focus on technology, I invite you to watch the recording of the webinar I hosted in late September: “Innovative Startups: What Funding at What Stage?”

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[1] “Fifteen Years of Innovation Policy in France,” France Stratégie, January 2016 Link