Private debt, alternative financing available for start-ups, Financing

In this new season marked by the drought in fundraising, all refinancing options are on the table: round table extension, “bridge” (bridge loan), loan… But not just any loan. A start-up that is not yet profitable cannot knock on the door of its bank, which will ask for its last three balance sheets and, therefore, will not grant it financing.

Other players can grant loans to start-ups, whether they are in the start-up phase (series A or B) or more mature (pre-IPO): private equity and venture capital funds. In the jargon, this is called a “risk debt” or “risk loan”. French company Isai has just launched a debt vehicle whose first closing amounts to 40 million euros, for a target of 80 million.

An undiluted but expensive tool

Named Isai Growth Lending I, it is aimed at young companies with strong turnover growth of at least 4 million euros and that are on the way to becoming profitable or already profitable. This funding will, in particular, serve as a “bridge” for a future round of funding or for profitability, exit or shareholder reorganization. “Our timing is good. The context of market downturn is favorable for indebtedness”, underlines Jean-David Chamboredon, president and co-founder of Isai, who has had this project in the pipeline since 2020.

Startups will increasingly opt for debt or mix equity and debt to avoid raising new funds with lower valuations. The sharp downturn in IPOs will also encourage very mature startups to use them.

“‘Risk debt’ is a non-diluting tool compared to a roundtable where founders are usually expected to sell 20-25% of equity.”

Jean-David Chamboredonpresident and co-founder of ISAI

The loans granted by Isai will be between two and ten million euros and delivered in the form of bonds with warrants on shares (BSA). In addition to a potential capital gain on the shares, Isai is remunerated with an interest rate that will depend on “the level of profitability or economic maturity of the start-up”, specifies Jean-David Chamboredon. Count about 10%… a high rate compared to a bank loan, but within market prices. “It’s a non-diluting tool compared to a roundtable where founders usually must sell 20 to 25% of the capital”, recalls Jean-David Chamboredon.


“Risk debt” is still underdeveloped in France, although it has been around for about ten years. “In the years 2010-2011, several Anglo-Saxon funds financed French startups, especially biotechnologies, at prohibitive rates and guaranteed patents and technologies”, recalls Franck Sebag, partner at EY. This did not leave a good image in the minds of entrepreneurs and venture capital funds at the time.

Entrepreneur Invest is the most active French player – 150 cases and several hundred million euros awarded – in “risk debt” through a partnership with the bank Wormser Frères. In addition, one of the managers of Isai Growth Lending is none other than Sébastien Ritter, former investment director at the bank Wormser Frères. Eurazeo also offers debt, but not just for start-ups.

For Bertrand Folliet, director of Entrepreneur Invest, this tool is not necessarily well understood. “There is a notion of redemption associated with the ‘risk loan’. It should not only be used in special situations, but when you have a development project or in addition to funding. Equity is seen as nobler, simpler and more direct. »

A strong American development

The United States, as is often the case, is more advanced in these matters. Amounts awarded in “risk debt” increased from $4.4 billion in 2010 to $33 billion in 2021 according to PitchBook. The best known lenders are Hercules Capital, TriplePoint Capital and Silicon Valley Bank. More general players are also starting to incur debt in the tech sector. Blackstone ($880 billion under management) will invest at least $2 billion in debt in early-stage, pre-IPO and post-IPO start-ups.

According to specialist media The Information, KKR seeks to accelerate these matters whether by buying an actor or recruiting a specialized team. According to our information, White Star Capital, which has an office in Paris headed by Matthieu Lattes, is preparing a debt fund.

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