Will you be getting a piece..?

Will you be getting your piece (of action) of the new 600M€ gateau?

France is serious about investing in its future. Bpifrance, a French state investment structure, has dozens of euro billions to invest in companies and indirectly in various investment funds – all to support the development of the future economy. Part of this huge investment comes from “Programme d’Investissements d’Avenir” (PIA ― Future Investments Program), that allocates 35B€ for selected strategic domains.

A new investment vehicle was recently promoted by Bpifrance, under the PIA umbrella ― “Prêt Numérique” (Digital Loan).

The government subsidizes the Digital Loan (see below) to allow modernization of the French SME sector by investing in new technology and, hopefully, increase their competitiveness. The main investments areas covered are:

▪       Software – ERP applications, databases, websites, on-line services & processes etc.

▪       Related services – audit, installation & integration, training, consulting

▪       Hardware – telecom, servers, scanners, industrial controllers etc.

According to an OECD study, US companies use 30% of their investments for ITC, whereas this number is only 15% for France. The French National Bureau of Statistics (INSEE) confirms that the following ITC usage levels are valid for French companies with over 10 employees:

▪       68% have an internet connection

▪       33% have an ERP

▪       28% have a CRM

▪       13% have a supply chain application

▪       69% (very small SMEs) and 59% (SMEs) are not familiar with cloud computing

I have discussed the Digital Loan initiative with one of Bpifrance’s executives, who is responsible for this new investment vehicle nationwide. One of the issues I tried to understand were the criteria for selection of specific investments areas, as approved by the new Digital Loan. The term “innovative” was constantly coming up at the beginning, but finally I understood that the major criterion is to significantly improve the current state of the technology infrastructure of a given SME.

SMEs may receive backing for new technologies

If for instance an SME doesn’t have any ERP at all, then getting one would be approved. On the other hand, getting a new version of an existing ERP would not be approved. Then again, changing the current ERP system with a more powerful one (whatever that means) that would allow the company to significantly improve their operations, should be approved as well.

The Digital Loan program is only now getting on its feet. It is applied by 37 regional Bpifrance offices and their staff are learning their first lessons on the loan application.

As with several other similar subsidized state vehicles, the Digital Loan will offer the following advantages:

▪       A loan between 200K€ and 3M€, limited to the amount of company’s shareholders equity

▪       7 years horizon with 2 years delay for the principal

▪       2% rate discount compared to market rates

▪       No collateral from the company nor from its shareholders

The 300M€ Digital Loan program is limited only to SMEs (companies with up to 5,000 employees, other conditions apply).

So why am I then talking about the 600M€ pie? Because the Digital Loan must be accompanied by an equal amount of private financing – either a commercial bank debt or an equity infusion. This makes it of course more challenging for the company. On the other hand it doubles the total investment pool available, thus coming to 600M€.

Bpifrance is hoping, no, they are quite sure that they will be able to use all their available funds under the Digital Loan program within 3 years for ca. 500 companies. A fast calculation brings this to ca. 1.2M€ per company.

This is a pretty significant digital technology investment for an SME! Of course, this can include the services, the software and the hardware. Typically (take the ERP projects for example), the former two share the investment in the 50-50 ratio.

We agreed with my contact at the Bpifrance that we’ll talk again in a half-year’s time to see how Bpifrance’s estimations stand up to the reality.

In the meantime though, some of our ISV clients may ask themselves the question whether they are going to get their slice of this French 600M€ gateau…

Bon appétit!