Many startups in the tech sector depend on external investors. But who wants to conquer the world with a scaling business model, is the classical bank advisor at the wrong address. The good news: There are many other interesting financing options for techies.
Germany has a broad investor landscape: Business Angel, Company Builder, Venture Capitalist, Accelerator and Co. are just some of the examples that surf the Internet. So startups need to first think about which type of finance is the right one and which investor might fit.
FFF – Friends, Family and Fools
One of the biggest fans is usually your own family and friends. That’s why they are often willing to invest in the business idea. Anyone who chooses this type of investment should be aware that the biggest fans are usually deeply disappointed when the investment is sacked. That’s why you should go through all the numbers before the deal and friends and family to point out the risks.
Business angels often participate in the company at an early stage. The investments are usually between 25,000 and 250,000 euros. In return for the financial support, the Business Angel receives shares in the company. Startups should inform themselves in advance about the Business Angel and check whether the Business Angel occasionally invests in a cross-border or regularly invests in start-ups.
Business angels who only invest on an occasional basis usually take longer to reach a decision. On the other hand, active and professional business angels make on average six deals a year and are generally more decision-making. In addition to professionalism, startups should also pay attention to whether the business angels have specialized in specific industries. In most cases, they can then access a broad network that can help.
There are now a large number of accelerator programs in Germany. Mostly behind the startup funding programs is a company that hopes to discover new impulses and products and to promote digitalization. The programs and application criteria are usually well defined. In addition to financial support – often in return for company shares – the startup receives office spaces, mentoring and the opportunity to start a pilot project with the company itself or with a network partner.
Startups should be well informed in advance about the conditions of the accelerator and what rights they may have to cede. In addition, some institutions use the programs as a pure scouting platform and one startup after another is passed through.
Micro-Venture Capital Fund
Most Micro Venture Capital funds are a group of business angels willing to invest large sums of money. The funds usually manage a fortune between 10 and 25 million euros and start with capital rounds from 100,000 euros. Micro venture capital funds usually require a stake between 8 to 10 percent stake. Follow-on financing will increase this.
Founders should first carefully examine the investors in micro venture capital funds and analyze which ones best fit the business. Because often the business angels are also ready for follow-up financing.
Venture capital funds
If you want to raise a lot of capital, you should take a closer look at venture capital funds. They usually have a total investment capital between 50 and 300 million euros AuM (Assets under Management) and invest in the seed phase between 500,000 and 2 million euros. However, in return, the participants are also quite high – between 15 and 20 percent startups should be prepared to surrender.
If this type of investor comes into question, founders should ask in advance who the responsible partner for the project might be. Because that’s not always clear with large funds. If the partner already manages many investments, it may take longer for him to have time to engage in a new case. This can unnecessarily prolong the search for investors and waste resources.