Reading time: 7 minutes
Raising funds has become a must for many companies seeking growth, innovation or internationalisation. Between business angels, venture capital, crowdfunding and hybrid instruments, options are multiple but often complex to understand.
This paper offers a clear and comprehensive exploration of the different financing modalities available, while opening up a perspective on Africa, where these mechanisms, still emerging, could play a decisive role in the economic transformation of the continent.
In a company's career, the question of financing is a must. Whether creating, developing, innovating or conquering new markets, companies need financial resources to transform their ambitions into reality.
Self-financing is not always enough. This is where the fund-raising, a process of bringing external investors into capital or mobilizing specific financial instruments.
Raising funds is not just a financial transaction: it involves a strategic choice. It influences governance, the balance between founders and investors, and sometimes even the future direction of the project.
Major funding phases
Financing a company changes with its life cycle. Each step requires different solutions:
- Pre-seed/seed phase At the very beginning, funding is often provided by relatives ("love money"), competitions, honour loans, or incubators. These initial inputs enable an idea to be transformed into a concrete project.
- Structured initiation Once the project has been validated by a first prototype or a proof of concept, the business angels, the family offices, crowdfunding or the seed funds.
- Venture capital (Series A, B, C) This is a crucial step in accelerating growth, recruiting teams, embarking on international business or buying competitors. Venture capital funds bring much larger amounts, but require rapid profitability in return.
- Development capital This type of financing is reserved for mature companies and supports international expansion, diversification or external growth strategy.
Each phase represents a shift from investors to different profiles and expectations.
Fund-raising actors
Private investors
- Business Angels : often experienced entrepreneurs or managers, they bring not only money but also their expertise and network.
- Family Offices They manage the heritage of wealthy families and invest in projects aligned with their values or heritage strategy.
Collective investors
- Crowdfunding It democratises investment by allowing a large number of individuals to finance a project. Three modalities exist: in capital (crowddequity), in loan (crowdlending) or in royalties (crowdroyalty).
Institutional investors
- Venture Capital Fund (VC) : specialized in supporting start-ups, they provide important financial resources and strategic monitoring.
- Thematic funds Some focus on specific sectors (tech, health, ecological transition, etc.).
Public investors
- Bpifrance, regional funds, European programmes They play a key role in complementing private financing and reducing the risk faced by investors.
Mobilizable financial instruments
Capital instruments
- Common shares : conventional voting titles and dividends.
- Preferential actions - allow investors to negotiate specific rights (priority dividends, veto, enhanced information).
- Free share allocations (AGM) : intended for employees or managers to retain them.
- BSPC : highly used in start-ups, they offer employees the opportunity to become shareholders on advantageous terms.
- Stock options : similar to BSPC but with a less favourable tax system.
Hybrid instruments
- BSA : vouchers to be used for future shares.
- BSA AIR Simplified version allowing for quick investment pending future fund-raising.
- BSA Ratchet : mechanism to protect the investor against dilution in the event of withdrawal after a lower valuation.
- Convertible bonds (OCA, ORA) : debts that can be converted into shares, as provided for.
Debt instruments
- Bond borrowings : raising funds from the market via debt securities.
- Bank debt : conventional credits, sometimes supported by public guarantees.
- Mezzanine debt : hybrid between debt and capital, often used in transmissions or LBO.
Associated contractual mechanisms
Investors often require mechanisms to protect and share gains:
- Waterfall : order of priority in the distribution of capital gains on resale.
- Ratchet : adjustment of the entry price of investors if a future lifting is made at a lower valuation.
- Shareholders' pacts : govern governance (e.g. veto, appointment to the AC, exit clauses).
- Management package : devices (AGM, BSPCE, sweet equity) to motivate and retain leaders.
Legal and regulatory framework (French cas)
There is a strict framework for raising funds, under the supervision of the Commercial Code. The rules cover:
- Issuance of ordinary or preferred shares (s. L225 and L228).
- BSA, BSPC and convertible bonds.
- The Preferential right of subscription (PDP), which can be maintained or deleted.
- The role of ad hoc auditor, mandatory in some cases, which guarantees the sincerity of the information and protects existing shareholders.
Advantages and disadvantages of different modalities
Each modality has advantages and limitations:
- Business Angels : experience and network, but strong dilution.
- Crowdfunding : visibility and democratization, but often limited amounts.
- Venture Capital : large financial contributions and strategic support, but profitability requirements and possible loss of control.
- Bank debt : no dilution, but repayment constraints and guarantees.
- Convertible bonds : flexibility, but delayed dilution possible.
Recent trends
- Venture debt : intermediate alternative between debt and capital, increasingly used in addition to the VC.
- Growth of crowdfunding equity through digitalisation and European regulation.
- Thematic funds (green, tech, health) that reflect major societal transitions.
- The rise of BSPC and free actions as a tool to retain talent in a tense market.
Raising funds is not only a way of getting money: it is a strategic lever that shapes the future of the company. It involves choosing the right timing, the right investor and the right instrument. The current trend is towards combination of hybrid financing, allowing to limit dilution while securing important means to grow.
A company preparing its fundraiser must therefore think ahead of its project, its valuation and its discourse. The success of a fundraiser depends on the quality of business plan on the confidence that the team will inspire investors.
Raising funds in Africa, a potential for growth
In Africa, these schemes remain relatively new and sometimes unknown to entrepreneurs. The majority of SMEs and start-ups are financed by self-financing, bank credit or family support.
Yet the continent is one of the most dynamic in terms of entrepreneurship, driven by entrepreneurial youth and growing sectors (fintech, agriculture, renewable energy, health).
The first major round tables in African technology show that the fundraising model is relevant and transferable. Lagos, Nairobi, Dakar or Casablanca become attractive hubs, where international funds start investing massively.
To fully unlock this potential, it will be necessary to:
- consolidating the regulatory framework,
- developing local crowdfunding platforms,
- raising awareness among entrepreneurs and investors,
- encourage partnerships between African and international funds.
In the long run, fund-raising could play a key role ineconomic emergence of the African continentby supporting growth, innovation and job creation.
