I hope you weren’t planning on getting grants from OSEO this year

Feb 22, 2012
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[Update: some of the details in the article were originally inaccurate, and have been modified accordingly.]

While VC money is not always the most reliable way for startups to fund themselves in early stages, one of France’s unique selling points for startups is the subventions or “grants” that the government will give to startups to do R&D. In a time where most startups are doing tech and web-based innovation, finding a way that your technology is pushing the boundaries of innovation is easy enough to do, so that most startups can either orient their startup towards creating a new technology, or they can brand the technology they’re already doing as R&D and receive anywhere from €25K-€250K. While grant-writing required a professional or an ungodly amount of man hours to learn, banking companies like OSEO will help determine the feasability of your project, and then get money from Paris, the region of Ile-De-France, or even from the state’s grants programs. Everyone from Dailymotion to Co-Voiturage has passed through OSEO to raise grant money and more.

Now, OSEO isn’t any normal bank, as it is half owned by the Caisse Des Depots, a french insitution dating back to Napoleon which regulated the finances of the public sector; however, and have owned by the European Union. OSEO still has to turn a profit, so they aren’t just handing out grant-writers left and right. As your company grows out of R&D and into what they call the Innovation stage, they will help you explore your options towards reaching profitability: they’ll give you low- or no-interest loans, or they’ll help you raise money through finance vehicles like FCPIs. Once you have proven your product works and are nearing or have reached profitability, they offer standard loands for your Development and Transmission phase – at least this is what OSEO employee Baptiste Hamel told me with the accompagnied sketch.

This all sounds pretty good, until you start to hear the horror stories like the one I heard last month from a startup: they arrived at OSEO, and were sent to another organisation, which helped teach best-business practices in restaurants and other un-related sectors, and were then sent to another organization, and another, and another. The sixth organisation which received them heard that there was still determination in their voices, and so told them “look, no matter what you do, you are going to have to wait a year to get grant money.”

This didn’t sit too well with me, so I scheduled a meeting with Baptiste and sat down in the nice OSEO conference rooms with him and asked him straight point “are you steering away from giving grants to startups?”

The honest truth.

Because OSEO is regulated by the Caisse des Depots, it is also therefore governed by whatever political forces are in power at the time. During election seasons, for example, when politicians are trying to show how fiscally responsible they are, the budgets or regulations surrounding giving out high-risk grants (grants are considered 100% risk for governments in comparison to giving them debt) can stifle OSEO’s ability to help startups get grants. That being said, OSEO gave €16M in 2011 along with an additional €7M after that initial investment was depleted. This year they have €20M in grant money to give, with another possibility to raise another additional sum, should they use the €20M before the year’s end.

On the private side of things, OSEO is a bank, and thus they are subject to all the problems of other banks during the financial crisis. Providing subventions is not exactly the bread-and-butter for banks to make money. During the financial crisis, banks can not devote as much money high-risk investments, and must fall back on providing long-term loans for profitable larger companies.

Don’t blame the messenger-bank.

Nonetheless, speaking with Baptiste, I felt the overwhelming sense of pride he had for his work with OSEO. He boasted the 60 or so companies he had helped get grants in 2011, and said that even though some of the companies had failed and caused OSEO to take a loss, he knew that those entrepreneurs were going on to other projects and would be back again with their next big thing in no time. Though Baptiste will be leaving OSEO in April, he will be not changing fields drastically. Having been inspired by all the entrepreneurs he had helped to raise money, he will be opening his own firm that will provide similar services than OSEO to startups on a much more personal level – if you’re looking for someone who will help get your startup off the ground financially, I suggest you connect with Baptiste in the next couple months.

Conclusion: sink or swim

While this year may be a little more difficult for startups, as banks like OSEO get more strict on which startups they select, and even tell startups to wait a year before applying for grant money, it reminds me of one simple idea: startups have never been easy. We’ve streamlined the ability to put a website online, but selling a product involves just as much knocking on doors as ever, even if those doors take the form of an email inbox. The barrier to entry may have drastically diminished, but the barrier to success remains unscathed.