As the Covid-19 lockdown officially draws to an end in France, we ask Maurice Oms, National Correspondent for Startups at the Bank of France (Banque de France) about the impact of the crisis on businesses, how the economy is recovering, and, going forwards, what it all means for startups.
Almost a month has passed since the beginning of lockdown in France and the actors of the startup ecosystem continue to resume, gradually but surely, their usual activities. While the findings of a recent study by Station F on the impact of the crisis on European startups are for the most part, encouraging, the current post lockdown period will nevertheless remain a tense one for many.
As for all businesses, knowing how to act quickly and make the right decisions at the right time has become a “must” for start-ups during the crisis.
Team Breega therefore decided to ask Maurice Oms, National Correspondent for Startups, at the Bank of France to share his views on the end of lockdown and economic recovery in France with us, what he believes this means for startups and what help is currently available to them.
Maurice Oms, you are the National Startup Correspondent at the Bank of France, what does your role involve?
My role, and that of the other startup correspondents, is to assist startups in their search for financing. We also developed a specific startup rating system to take into account the specificities of this population of companies.
Since the beginning of the crisis period, our main focus has been on helping startups benefit from measures such as the French Tech Bridge (a loan system designed to finance startups who were in between funding rounds or due to start raising at the time of the crisis) or the Prêt Garanti par l’Etat or PGE, France’s State- backed business loans scheme.Are there Startup Correspondents in every region of France ?
Are there Startup Correspondents in every region of France?
The Startup Correspondent role was created this year in February 2020. It was decided that there should be a start-up correspondent in each French Tech capital – there are thirteen of them, and in each region. In total we’re a team of 15 Startup correspondents.
Did the Bank of France create the role of startup correspondent during the crisis?
The start-up correspondent role was actually tested for two years at Station F from the end of 2017. At the beginning of 2020, the Bank of France looked to developing this new role throughout the whole of its network, without, of course, knowing that a crisis was on its way!
The crisis we are currently experiencing has meant that our missions have become pivotal. Whilst our initial role was to support startups and to give them a rating, we’re now helping them to access the support systems that have been put in place to cope with this extremely difficult economic period. We can either be contacted directly by the startups or through the French Tech.
We provide founders with the closest possible support and we do everything we can to help them.
How does the Bank of France rate start-ups?
The Bank of France assigns credit ratings to all companies with a turnover of more than €750k, including startups, especially those involved in the French Tech 120 program. Because the startup development model is based on a growth economy, we developed a specific rating method for them.
Making losses is inherent to the startup development model. We therefore take both their business model and their growth prospects into account when assigning a rating.
What state measures have been put in place in France to support start-ups during the current crisis?
The State backed loan (Prêt Garanti de l’Etat): this is one of the main schemes proposed to companies, including start-ups, with it they can finance up to two years of estimated business payroll.
The French Tech Bridge: this scheme is designed for startups who were planning to raise additional funds in the coming months but are now facing a contraction in venture capital due to the coronavirus epidemic. Managed by Bpifrance, France’s public investment bank, the French Tech Bridge takes the form of Convertible Bonds, with possible access to capital. It has to be co-financed by private investors.
It should be said that the support measures for startups, announced in March by the government and Bpifrance, are unprecedented: since the end of March, around 500,000 companies have benefited from a State-backed loan designed to ease cash-flow difficulties linked to lockdown measures. A total of €85 billion has already been distributed out of an initial package of €300 billion.
Can you tell us what impact the Covid-19 crisis has had on the French economy so far?
According to Bank of France latest predictions, the French economy is expected to shrink by 10.3% this year, despite a “gradual” recovery from the third quarter onwards. However, growth is expected to rebound by 7% in 2021 and 4% in 2022. The Bank of France expects the unemployment rate to exceed 10% by the end of 2020 and 11.5% in 2021.
And what would you say has been the impact of Covid-19 on France’s companies?
On the whole, companies have been very affected by this crisis, which has caused a large majority of them to reduce or even stop their activity completely.
As far as startups are concerned, although some have seen an increase in their number of customers (startups working in the medical field, online shopping, communication, entertainment or distance learning platforms), the fact remains that the crisis has, for the most part, resulted in financial difficulties.
A majority of startups have therefore applied for State-backed loans because of a sharp drop in activity and an uncertain outlook. Others, engaged in a fund-raising program, have requested French Tech Bridges. Finally, some of them had enough cash in the bank with which to get through this difficult period and were able to continue their development while rationalising expenses.
Generally speaking, like other companies, the impact of the crisis will depend on the duration of the downturn and the speed of recovery, startups being generally less affected by remote working than by a halt in customer orders.
Are the banks being supportive of startups?
Banks have been fully committed to limiting the impact of the crisis on companies and also on startups. They have carefully examined all the applications submitted to them with the aim of helping a maximum number of companies within a limited timeframe.
According to Nicolas Dufourq, Managing Director of Bpifrance, 9,500 loans, with an average amount of 145,000 euros, have been granted according to a payroll criterion, provided for companies with little or no turnover. This represents an envelope of 1.4 billion euros for very young companies, some of which are startups.
What advice would you give to startups to best manage their cash flow during this period?
This period heralds complicated times for companies that are not as yet profitable and will be needing cash within 18 months time.
If they’ve been able to take advantage of many schemes, they will soon have to start paying their bank loans (after the six-month deferral), social security contributions and their employee once the partial activity (France’s equivalent to the Uk Job Retention Scheme) is over .
In short, major expenses are to be expected and their cash flow will be stretched.
It is therefore necessary to rework their business plans by elaborating realistic scenarios that are compatible with the profitability horizon.
And finally, what other advice could you give to start-ups reading this interview?
The unprecedented period we’re currently experiencing, although difficult, also provides startups with the opportunity to interact as much as possible with their ecosystem. There is national solidarity and it’s important to be a part of that. Also, during this period, maintaining a regular dialogue with your bank manager is essential, especially since banking institutions can intervene, alongside VCs, to help finance startups.