Start-Ups: Financing the Start of a Company
Posted on August 24, 2017 In the seed or start-up phase, it gets to the point: The company is formally founded and now has to show that it can prevail with its product in the market.
The team makes final adjustments to the marketability of its product or process. Production and sales are set up, employees hired. The customer acquisition is in full swing and in the course of further financing rounds are usually necessary.
The capital requirements – above all for marketing and sales – are comparatively high in this phase. Above all, start-ups in the IT sector are not limited to the German market, but strive for early internationalization. However, it is still important to finance further development work as well as one’s own livelihood, employees and consulting services.
The Federal Ministry of Economy and Energy and the ERP Special Fund necessary support at this stage innovative start-ups with venture capital and soft loans hedged by a guarantee as well as expertise.
Equity, venture capital, venture capital or venture capital. Many names, which are always based on the same principle: One or more investors participate with their capital in a start-up. The advantage is that unlike a bank loan, the founders do not need collateral. What counts is the idea, the team and the business model. In addition, equity capital is ” balance sheet” as equity. This will facilitate any further capital raising – according to the motto ” who has, it will be given”. Last but not least, venture capital is also considered a ” smart money”, because not infrequently the lenders support the young founding team with their entrepreneurial know-how.
The goal of the investment is to increase the value of the company. If the investor withdraws from the company after a few years, he makes a profit by selling the company shares.
In addition to private investors such as business angels and venture capital companies, among others, medium-sized investment companies and publicly funded venture capital funds also invest in young companies.
“Start small”: Micromezzaninfonds Germany
Even if it is the great-million investments mainly that are the ones making headlines, there are in the start-up scene yet many founders, the “simmer” (at first). App developers or social start-ups, for example, also come with a relatively low start-up capital. For them, a silent participation of up to 50,000 euros by a medium-sized investment company (MBG) may be useful. As a silent partner, MBG makes a contribution to the company’s assets, but does not acquire any shares. The management therefore remains in the hands of the founders, who can not only finance upcoming investments through the capital contribution, but also improve their creditworthiness.
“Think big”: High-Tech Gründerfonds
High-Tech Gründerfonds (HTGF) invests up to 600,000 euros in the seed phase in innovative technology companies that are not older than one year. With the investment, young companies can cover their financing needs in the early stages: up to the creation of a prototype or a “proof of concept” or the market launch. In addition, the HTGF provides a subordinated shareholder loan.
And even after the seed phase, further participations are possible as part of follow-up financing rounds: Up to two million euros are available per start-up. Where the HTGF usually brings more investors on board. Since 2005, more than 1.2 billion euros have been raised by third parties in this way. In addition to capital investments, HTGF offers young companies in an intensive care and support, so that the record so far is impressive: Since 2005 450 companies have received funding and were successfully launched. In order to smooth the transition from the pre-seed to the seed phase, Dr. Early take Alex von Frankenberg, Managing Director at High-Tech Gründerfonds contact with the HTGF: “From the initial contact to the investment commitment perish typically four months. Our goal is to get to know and understand the company, the technology, the market opportunities, the business model and the founding team during this time. We have to come to the conclusion that the founding can become a permanently functioning company and recognize the contribution we can make, beyond financing. “
The Federal Ministry of Economics wants to motivate investors to contribute their capital to start-ups. There are a number of promotional instruments that are aimed directly at investors.
“INVEST” – grant for venture capital
For business angels and other private investors, for example, the “INVEST – venture capital grant” program was launched. If a business angel participates for at least € 10,000 in a start-up for at least three years, he receives a subsidy of 20 percent of his investment. In addition, from 2017, the tax, which is attributable to a later capital gain, can be compensated by a lump-sum grant. Shares of up to one million euros per year can be subsidized per company.