Equity fundraising: a capital increase to fund product development at an electronics company

Our client: a French electronics design and manufacturing SME

Our client is a French electronics company that designs and manufactures electronic products and sub-assemblies combining hardware and embedded software, for industrial and professional OEM customers, with a nationwide footprint and part of its business geared towards exports. Its model rests on mastering the full cycle, from electronic design to qualified product; on a recurring customer base that values the reliability and traceability of manufacturing in France; and on growth driven by broadening the product range rather than by volume alone. Built around engineering know-how, the company had moved beyond the stage of an established SME and, at the time of the deal, was launching a new product development programme whose scale exceeded what its internally generated cash flow could support without weakening day-to-day operations.

The funding need: equity for a product R&D programme

The purpose of the deal was to fund a new product development programme, from electronic and software design through to qualification and preparation for industrialisation, at a time when our client's technical lead had to be turned into a marketable product range before competing offers became established with its OEM customers. The case presented three simultaneous constraints: R&D expenditure capitalised on the balance sheet with no immediate revenue, which conventional bank debt finances only reluctantly in the absence of identified repayment cash flows; the balance sheet of an industrial SME whose equity had absorbed the capacity investments of previous years; and the directors' wish to keep control of governance while opening the share capital to a partner able to support a later round. The mandate given to the firm covered scoping the need and the planned use of funds, preparing an investment case readable by fund investment committees, approaching a panel of equity investors, and then supporting our client through to completion of the capital increase.

What the funding market was saying in 2025

Three public publications help situate the environment in which this capital increase was carried out. They concern the industry and the private equity market, never the deal itself.

Why equity fundraising rather than debt

The need was a development need — expenditure committed today for revenue that is uncertain in both timing and amount. The funding therefore had to accept that risk profile rather than constrain it, which led us to choose cash equity where debt, even with a repayment holiday, would have imposed a repayment schedule unrelated to the market-launch timetable of the new products. The capital increase had a second, structural advantage: by durably strengthening shareholders' equity, it restored the company's borrowing capacity for the industrialisation investments to come, which naturally fall within the scope of bank lending or leasing because they create tangible assets and identifiable cash flows. The central question was therefore not choosing between debt and equity, but sequencing the funding over time: equity first, for development; debt afterwards, for series production. The structuring work focused on translating the technical programme into a use-of-funds plan, marked out by verifiable development milestones, so that an investment committee could link each tranche of spending to a risk being cleared. Over the period, the French private equity industry association noted that “fundraising is taking longer and remains difficult to carry out”, which described the climate of selectivity in which this funding was sought.

The trade-offs made concerned, first, the shape of the shareholding after the deal: the capital increase was sized strictly to the needs of the development programme, not to what the market might have absorbed, so that the directors kept control of decisions and the company retained headroom for a later round should industrialisation require it. They then concerned the rights attached to the shares issued and the shareholders' agreement: governance clauses were negotiated so as to separate what falls within a minority investor's legitimate information and oversight rights from what would have constrained the running of the business; liquidity clauses were set on a horizon compatible with the development and then commercialisation cycle; and investor protection mechanisms were accepted insofar as they did not alter the industrial trajectory. Finally, a single investor rather than a fragmented syndicate was deliberately chosen, for simpler governance and faster decision-making at the next stages. These choices were made in the light of this particular case and do not prejudge any other deal.

The macroeconomic backdrop: French electronics and growth capital

The French electronics industry operates within an explicit industrial policy framework: following the microelectronics recovery plan and the European Chips Act, the 2025–2028 strategic contract for the sector reaffirms that innovation is the main differentiating factor for an industry exposed to Asian and American competition, dependent on others for its components and equipment, and called upon by its customers' digital and environmental transitions. The component shortages of 2021–2022 have lastingly changed OEM customers' expectations: they now value supply security and design in France, which opens up positions for SMEs able to offer their own products rather than subcontracting alone. For these companies, the counterpart is a recurring R&D effort, capitalised on the balance sheet and hard to finance through debt alone, which makes strengthening equity a condition of their growth path.

On the funding side, 2025 presented a mixed picture: France Invest's studies describe private equity as broadly resilient in the amounts invested, but with fund-raising by the funds themselves taking longer and becoming more concentrated, and a sharp fall in the number of venture capital vehicles that managed to raise, while market analyses report a marked contraction in seed and early-stage rounds in the first half. For this type of deal, generalist growth capital funds and regional or sector funds focused on industry were the natural source of capital, with investment criteria based on technological depth, customer recurrence and the clarity of the use-of-funds plan rather than on the promise of growth alone. This description applies to the period observed and is neither a forecast nor a recommendation.

Collaboration Capital's added value on this equity fundraising

Collaboration Capital acted as financing adviser mandated by our client, as part of its activity as an intermediary in banking transactions and payment services (IOBSP, a regulated status in France, registered with ORIAS — the French register of insurance, banking and finance intermediaries — under no. 25000696). The firm does not subscribe, invest or guarantee any funding: it scopes the need, prepares the case, runs a competitive process among investors and supports the negotiation through to completion. The steps below describe this assignment as it was actually carried out, with its own specific features.

Further reading on business finance