FAQ | How are companies financed?

Financing follows the life cycle of the company:

• In the creation phase, the contributions are made in equity or in "love money", i.e. by calling on relatives who agree to invest.
• In the growth stage, the company borrows from banks or issues bonds.
• Mutual Funds often accompany the company in its development.
• Once the company has reached maturity, it can open its capital to the public through an IPO.

A share is the ownership of a portion of the company's capital; the shareholder contributes funds to the company and receives a portion of the capital in return.

The bond is a claim on the company; the lender contributes funds and receives a bond in return.

There are hybrid forms:

• OCA: Bond Convertible into Shares; this is a classic bond with a call option on new shares of the issuer.
• ORA: Obligation Remboursable en Action: mandatory redemption in shares.
• OBSA: Obligation à Bon de Souscription d'Action (bond with share subscription warrants): possible subscription during a given period, of a number of shares at a fixed price.

Private equity is a private investment in companies, generally unlisted, wishing to finance their development through a contribution of non-public capital.

We speak of private investment because, unlike stock market securities available on the financial markets, equity investments are made by mutual funds.

These mutual funds invest in a portfolio of companies that they accompany in their expansion and transformation over a period of 5 to 7 years.

For the company seeking to develop, the contribution of private capital is a very important growth lever that is not necessarily found in public markets because of this "long-term" vision.

• The venture capital or innovation capital Investment in a company in the creation phase, in the form of seed capital if the investment is made while the project is only fictitious, or creation capital which corresponds to an investment at the time of the real launch of the activity;
• Development capitalInvestment in mature companies, usually in a new phase of their expansion;
• The capital-transmissionFinancing mainly in SMEs and SMIs to facilitate their transfer to another company or to individuals (managers). It often takes the form of a "Leveraged Buy-Out" (LBO);
• The turnaround capitalTurnaround capital: investment in a company facing serious difficulties in order to restore its financial health. This form of private equity is the most marginal.

Mutual Funds are not companies. They are co-ownerships of securities issuing units to private investors. A management company acts on behalf of the holders and in their exclusive interest. The holder does not interfere in this management.

The main types of mutual funds investing in companies are

• FCPR: Fonds Communs de Placement à Risques (venture capital funds).
• The FPCI: Professional Private Equity Funds.
• FCPI: Fonds Communs de Placement dans l'Innovation (Innovation Investment Funds).
• FCPE: Fonds Communs de Placement Entreprise (employees).
• The FIP: Local Investment Funds.

The Sustainable Finance Disclosure Regulation (SFDR ) aims to provide more transparency in terms of environmental and social responsibility within the financial markets.

These regulations apply to management companies, which must classify the funds they manage according to their characteristics:

• Article 6: the fund does not have a sustainability objective
• Article 8: The fund incorporates environmental and social features
• Article 9: The fund has a sustainable development objective.

SPAC, Special Purpose Acquisition Company is a company listed on the stock exchange for the purpose of making an acquisition.

At the time of its listing, it is only an empty shell. Unlike a traditional IPO, the funds raised from the public are not allocated to a specific project (financing of equipment, repayment of debt, etc.). In a SPAC, the funds raised are kept in the form of cash to finance future acquisitions.

However, investors are aware of the main criteria for targeted acquisitions: sector of activity, size, desired profitability ratios.

While in the United States, 248 SPACs listed in 2020, raising $83 billion, their number in France remains limited:

• DEE TECH to make one or more acquisitions in the technology sector with a focus on digital and/or e-commerce enablers, located or operating in Europe (including the UK) or Israel.
• 2MX ORGANIC to make acquisitions in the production and distribution of consumer durables.
• ACCOR ACQUISITION COMPANY (AAC) sponsored by the Accor Group, one of the world's leading hotel companies. AAC is designed to make acquisitions in the hotel-related services sector
• I2PO aims to invest in companies operating mainly in the entertainment and leisure sectors in Europe and abroad with a particular focus on digital.
• SOCIÉTÉ PARISIENNE D'APPORTS EN CAPITAL SPAC (ex FONCIÈRE PARIS NORD) specializes in the ownership and management of corporate real estate assets.
• TRANSITION dedicated to the energy transition