Debt Financing and Public Funding
Financing is not only selling equity. Bank credit, IP-backed loans, government guidance funds and grants are the non-dilutive half — and the half most often overlooked.
Talking only about equity means talking about half of financing
Equity is visible: a valuation, a press release, a term sheet. Debt and public funding are quieter, yet for early-stage AI companies they are often more consequential — they do not dilute, and they usually arrive before Series A.
Three channels:
Bank credit. Technology credit lines, IP pledge loans, order-based financing, venture debt. The difficulty is not having a product but evidencing repayment capacity — asset-light AI companies lack collateral, which makes IP pledges the main lever, with valuation and disposal discounts as real constraints.
Public funding. Technology SME evaluation, specialised and sophisticated SME designation, high-tech enterprise recognition, R&D grants, compute subsidies, government guidance funds. All of them share one feature: applying creates compliance obligations — public money comes with permitted uses, acceptance criteria and audit exposure, and misuse can trigger clawback and disqualification from future programmes.
Strategic capital. Corporate investment and joint development, often with technology, order or exclusivity conditions that are more complex than financial investment.
What we do
- Structure design: debt-to-equity mix, maturity mismatch risk, guarantee and credit enhancement
- IP pledges: patent and trademark pledge registration, valuation, disposal risk assessment
- Bank engagement: credit materials, financial presentation, venture debt structures
- Public programme applications: technology SME, specialised SME, high-tech enterprise, R&D grants
- Grant compliance: permitted use, separate accounting, acceptance materials, audit response
- Strategic capital: investment terms, joint development agreements, exclusivity and priority rights
Typical situations
Situation 1: IP pledge loan values far below expectation
Three algorithm patents are pledged for a loan. The bank’s valuation supports less than thirty percent of the requested amount, because the patents lack a demonstrable link to revenue and the disposal market is thin.
Our approach: broaden the collateral from patents alone to a package of patents, software copyrights and customer contracts, supported by contracts and collection records; apply for technology credit risk compensation programmes to reduce the bank’s exposure.
Situation 2: Grant acceptance fails and funds are clawed back
An R&D grant is received, but part of the money is spent on marketing and salaries outside the approved budget lines. Acceptance review finds non-compliant expenditure and requires partial repayment.
Our approach: set up separate accounting at project inception and book costs to budget lines; apply for variations in advance rather than explaining afterwards; run a self-check before acceptance with reconciliation notes and evidence.
Situation 3: Strategic investor demands exclusivity, blocking the next round
The strategic investor requires exclusivity in a defined scenario plus a right of first refusal. A year later, financial investors make clearing the clause a condition of investment.
Our approach: limit exclusivity by scope, term and exit conditions at signing rather than granting open-ended, all-scenario exclusivity; assess removability before the next round and, where necessary, negotiate a buy-out.
Process and deliverables
| Stage | Work | Deliverables |
|---|---|---|
| 1 | Funding requirement modelling, structure options | Financing structure + programme matching list |
| 2 | IP inventory and pledge preparation | Pledge registration materials + valuation support |
| 3 | Bank credit or programme application | Credit pack + application documents |
| 4 | Fund use and compliance management | Separate accounting plan + acceptance checklist |
| Ongoing | Renewal, audit and eligibility maintenance | Renewal plan + compliance register |
Frequently asked
How much can an IP pledge raise? A proportion of appraised value, subject to bank risk appetite — materially less than equity would raise. Its value is non-dilution and relatively fast disbursement.
Does public funding have to be repaid? Depends on the instrument. Grants and subsidies are generally not repaid but carry use and acceptance obligations; guidance funds typically invest as equity or fund units and exit on agreed terms. Neither is free money.
What does high-tech enterprise status actually give us? A 15% corporate income tax rate and access to further programmes. Recognition imposes requirements on R&D expense aggregation, IP holdings and commercialisation of results, typically needing a year of preparation.
Does taking public money affect later financing? Usually not, but restricted use, IP ownership terms and acceptance obligations will be examined in diligence and should be addressed in the investment agreements.
Legal basis
- Commercial Bank Law and technology finance policy
- Measures for Patent Pledge Registration; Provisions on Trademark Pledge Registration
- Measures for the Evaluation of Technology-based SMEs
- Interim Measures for the Graded Cultivation of High-quality SMEs
- Measures for the Recognition of High-tech Enterprises
- Interim Measures for the Administration of Government Investment Funds