Sources of capital funding for SMEs and SMIs

Small and medium-sized businesses are essential vectors for development and innovation within the defense industry. Their particular role is to establish and develop innovative products and / or services, and to improve the competitiveness of the sector’s major industrial groups. They thus play a major part in maintaining and developing the industrial and technological basis for defense.

A- The new scheme to enhance capital funding

For several years, the policy of the French Ministry of Defence, and within it, the French Armament Procurement Agency (Délégation Générale pour l’Armement: DGA), has been to support SMEs by providing assistance, particularly in the areas of innovation and access to capital. Since the beginning of 2005, the DGA has, as part of its work to implement the French National Economic Intelligence Policy managed by the senior economic intelligence advisor (Haut responsable pour l’intelligence économique: HRIE), firstly provided the administrative framework for the selection committee and monitored strategic sectors; and secondly, helped to manage the investment funds earmarked by the government and administered by the HRIE.

The scheme is targeted at SMEs working in sectors identified as strategic and is currently organized in five investment funds:

  "La Financière de Brienne", for the areas of defense and security,

  "FCPR Sécurité", venture capital funds targeted at expanding businesses in the global security sector (defense, civil security, IT security, industrial security, etc.),

  "Occam 1", specializing in information and security,

  "Emertec 2" for nanotechnologies,

  "FCPR Aerofund" for capital development and LBOs, specializing in strengthening the aeronautics and defense sectors.

The target companies are those focusing on needs in the defense, aeronautics and global security industries. They have a particular niche position, expertise, technology or growth market, and are appropriately structured to develop and ultimately to generate the profit levels required by a minority shareholder. They require funds to realize their plans to expand, develop their portfolio of business activities and/or grow by acquisition, and for capital restructuring or recovery.

B- Financière de Brienne

B/1: The French Ministry of Defence has worked in partnership with La Financière de Brienne (FDB), a specialist venture-capital company, since 1993. FDB is a subsidiary of the Group Défense Conseil International (DCI) and is state-controlled. A joint agreement defines how the DGA and FDB work together. La Financière de Brienne specializes in SMEs and SMIs with good growth potential, working in high technologies with dual (civil and military) application, positioned in sectors that are strategic for France and for Europe, particularly aerospace, defense and joint security.

La Financière de Brienne invests equity and quasi-equity in high-growth technology firms with broadly-based development projects, particularly those with an international dimension, centered around innovative products or unique solutions, and preferably based on dual technologies (civil/defense, aerospace/industry, etc.) in the following sectors:

  Electronics (micro-electronics, optics and optronics, micro-systems, nanotechnologies, etc.),

  Telecommunications (hardware and Internet technologies),

  Information technology (software and hardware technologies),

  Life sciences and biotechnology,

  Equipment and manufactured goods.

La Financière de Brienne invests between €300,000 and €1,000,000 in one or more rounds, in start-up, development and transfer/LBO operations. It takes a minority stake, in syndicate with at least one other investor. La Financière de Brienne works in genuine partnership with its subsidiaries for periods that can average up to 7 years.

Targets for project investment include companies formed from manufacturing groups by spin-off or deconsolidation, research laboratories, and SMEs requiring industrial development.

B/2: The arrangements for investment-fund management administered by the HRIE assign DCI the role of an umbrella fund, supplying the various funds involved. ACE Management, the FDB’s management company, is also a stakeholder in the scheme, and advises on and manages its direct financing vehicles. An amended version of the existing agreement between the DGA and the FDB, that will include ACE, is in the course of preparation. It will take account of the recent investment-fund arrangements implemented by the HRIE in which both DCI and ACE are given an essential role.