FRANCE Trends and Developments Contributed by: Nicolas Karmin and Anthony Magagnin, Sullivan & Cromwell LLP
Luko, Hopium, Cityscoot, BioSerenity, Masteos, Ynsect or Virtuo – have undergone distressed proceedings. Tech companies facing financial difficulties are now strongly encouraged to initi - ate preventive procedures, such as a mandat ad hoc or a conciliation to confidentially han - dle negotiations with creditors and implement restructuring steps as early as possible. As the development of the start-up environment led to an increase in the size and workforce of the companies within the segment, the insolven - cy approach has increasingly resembled that adopted in more traditional industries. It should be noted, however, that distressed situations may also create acquisition opportu - nities for competitors or traditional corporates willing to purchase disruptive technologies at a discount. Development of Alternative Funding Options As traditional VC equity funding has become more difficult to access, start-ups are increas - ingly turning to alternative financing options to raise capital. In line with European trends, venture debt is developing in France and, for some start-ups, may be an attractive and less dilutive option despite potentially high lending costs. In France, venture debt instruments are generally structured as notes associated with warrants, constituting an equity kicker. From a general standpoint, venture debt naturally imposes certain con - straints on the borrower (relatively high interest rates, financial covenants, governance/reporting rights of the lenders such as an observer on the board, pledges on certain assets such as intel - lectual property assets). On the other hand, it
is viewed as an alternative to avoid a massive dilution through a pure capital increase financing round. Venture debt may sometimes be used as a complement to classic equity financing rounds or as a bridge to try to postpone a downround. It should be noted that the European Investment Bank initiated a venture debt programme target - ing only innovative companies having already completed one or two funding rounds with pri - vate investors. Even if much more limited, equity crowdfunding could also be viewed in certain circumstances as a complementary tool in the financing armory of tech companies. In January 2024, Vestiaire Col - lective, for instance, launched a crowdfunding campaign with the aim of reaching profitability and potentially going public. Outlook for VC Funds It is anticipated that VC activity will remain une - qual among sectors in 2025, with most fund - ing likely focusing on AI and defence. A future further interest-rate cut could conceivably result in a rebound in fundraising levels in 2025, but a meaningful recovery (in value and volume) in these, in deals and in VC-backed IPOs seems unlikely in the very short term. Current macroeconomic conditions may also result in an increase in disputes around earn- out/underperformance clauses which may have been stipulated in investment agreements between founders and investors. Conversely, the challenging VC environment also creates opportunities for investors to conduct transactions on the basis of more reasonable valuations.
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