Chapter 5

• foundation phase

  • period from the idea to market entry

  • desire for support services in the form of consulting and coaching, access to networks, reduced rental space, and much more, including start-up capital.

• start-up and growth stage

  • start up phase period from the first sales to the break-even point, than growth phase

  • need for consulting, for example, with assistance in adapting internal structures and management systems in the event of rapid growth, or external support in accessing new markets.

  • further capital

• maturity stage

  • established company on the market

  • need for capital for investment activities. Sometimes it is also necessary, e.g., in times of crisis, to bridge existing liquidity bottlenecks by borrowing capital

• foundation phase:

  • capital mainly by the founder, family and friends

  • various external assistance from institutions offering advice, networking, etc.

  • Support services from public programs and investments from private persons as well as companies

• start-up phase

  • less family and founder support

  • public and private programs

  • Corporate venture capital

• growth phase

  • entrepreneurial investments

  • often still public programs in place

  • Private investments are subordinate here

• established companies

  • bank loans

  • equity investments

  • Rarely is venture capital granted

• “institutions that set up and support companies on the path to setting up a business”

• provide consulting and coaching services (e.g., help in drawing up the business plan).

• make rental space, office space, and infrastructure available

• survival rate up to 85% higher than the average start-up.

• They are usually financed in the form of economic development measures; in this respect, they are financed by the taxpayer, associations, and the private sector. A return flow occurs indirectly, e.g., through later tax payments

• helps start-ups to develop rapidly within a certain period of time through coaching, this can be done through start-up boot camps

This is a time-limited program to support start-ups in developing a market-ready offer.

• large number of people support a project financially and thus make it possible

• people turn to the public with the aim of finding as many interested parties as possible who will make a financial contribution

• Investors support a project directly and only on the basis of

  their personal conviction

‘+ fast and uncomplicated way to get money

‘- for investors, they have to expect a total loss of their

money if the project is not successful

• Classic crowdfunding (pre-sales crowdfunding or reward-based crowdfunding)

  • no financial consideration is paid, but there is a small “thank you” (e.g., a prototype or sales sample).

• Donation-based crowdfunding:

  • No consideration is given in return

  • for example, social or charitable projects where people only get involved in order to do something good.

• Crowdinvesting (yield-based crowdfunding or equity-based crowdfunding):

  • individuals invest in a project in an equity-like manner.

  • receive a return for their investment, which can be fixed or performance-based. This variant is typical for start-ups.

• Crowdlending (crowd loan or P2P loan (peer-to-peer) and lending-based crowdfunding):

  • persons grant a loan, i.e., they make debt capital available and the interest rate is fixed in advance

  • also typical for founders.

• private individuals who participate with their own capital in startup projects of people they often did not know before

• provision of infrastructure

• assumption (Übernahme) of an advisory or supervisory board function

• up to collaboration in the company

• takes place over a fixed period of time and is contractually defined in advance

• motivation is financial

These are private investors who participate in a project in the form of open or silent participation

• two types of funding provided to private companies at various stages. goals are the same: to increase the value of portfolio companies and then sell the companies, or their equity stakes, for a profit.

• Private equity

  • involves larger investments in mature companies.

  • invest for control, acquiring a majority stake or 100% of portfolio companies

  • make money in the short term and work in transaction deals

• Venture capital

  • relatively small investments in companies in the initial stages of development.

  • acquire minority stakes

  • higher risks than other investors in exchange for the promise of participating in higher than usual growth

  
  

• IPO (Initial Public Offering): In the event of an IPO, the private equity company withdraws from the company.

• Trade sale: The shares are sold to a strategic investor. This is typically a company that wants to expand.

• Secondary purchase: The shares are sold to another financial investor

• Buy-back: The shares are sold to the founders or owners of the company

• Liquidation: The company is dissolved because it was not economically successful. In this case, the private equity company does not get back the investment and takes a loss.

• invest in innovative start-ups with very good growth opportunities.

  • can be obtained directly or through investment funds by the entrepreneur

• donors advantages:

  • additional expertise in new technologies

    • competitive advantages.

  • expand business areas or product range through complementary products thereby increasing demand and enabling them to expand their market share.

• start-upsvadvantages

  • preservation of capital

  • support services such as assistance with management tasks, or the possibility of expanding market opportunities

  • benefits from image of the CVC donor

• become part of a high-ranking network of investors.

• receive financial support from the public sector, either directly or via professional investors.

• use public support measures as excellent sources of information

support instruments for start-ups are typically found in the form of investment grants, loans, guarantees, subordinated loans, and equity investments.

• proven technical and commercial qualifications

• convincing business plan, which must be submitted with the application.

• project must not have been started at the time of application

• In most cases, support is provided for investments in machinery and equipment, vehicles, land, factories, and intangible investments.

• Some funding programs may also include operating funds

• Special investment grants: These are, for example, from the federal employment agency for recipients of unemployment benefits in the case of a start-up resulting from unemployment. The EXIST program provides scholarships for university founders.

• Start-up loans from the public sector: These usually run for long periods at a fixed interest rate; redemption-free years are also possible. The house bank principle (Hausbank-Prinzips) applies, because these banks process the application for subsidies. It is also relieved by the development institute, as a release from liability can be applied for in the absence of securities. This reduces the credit risk of the house bank, so that it will be more willing to grant the loan. This makes it easier for founders to access funding.

• Loans: These can be secured by guarantees of the federal states. Deficiency guarantees of up to 1 million euros are possible, so that even companies without collateral can obtain loans. Overdraft facilities and leasing contracts can also be guaranteed up to 80%.

• Public development banks: These provide mezzanine capital to improve the creditworthiness of companies. This is particularly beneficial for capital-intensive projects.

• Public-sector holdings: If there is a greater need for capital, public-sector holdings in companies can be made. For this purpose, the federal states have set up their own medium-sized holding companies.

• Consultations: These are supported, e.g., by Founder Coaching (Gründercoaching) Germany, a start-up coaching organization. The European Social Fund also supports workshops and information events for founders in order to reduce failure due to information deficits. Founders and established companies receive grants for technology, foreign trade, cooperation, and quality management consultancy services from the Federal Government's consultancy support. The Federal Office of Economics and Export Control (BAFA) is responsible for this.

• Technology companies: These are supported by the Federal Ministry of Economic Affairs and Energy, e.g., through technology promotion and innovation consulting. There is also support for innovative start-ups, technology transfer and research infrastructure, as well as cooperation with research institutions. The High-Tech Founder Fund (Gründerfonds) is a venture capital fund set up for technology-intensive investments with high capital requirements and high risks.

• the EU has launched an initiative to help increase the density of start-ups in Europe through networking.

• SUE has identified and networked clusters across Europe, bringing hundreds of start-ups together with financial investors for pitches.

• Funds are also being made available for international expansion.

• SUE also collects data on start-up activity so that macroeconomic analysis can be based on real data

Different sources of financing and support are appropriate in different phases of business. While incubators, with their financing and support services, are aimed at founders in the run-up and start-up phase, the services of accelerators are intended as accelerators of development in the founding phase up to the start-up phase. There are also special later-stage accelerators for the transition from the start-up phase to the growth phase. The crowdfunding instrument is used in the start-up and development phase to obtain capital without bureaucracy.

Business angels are private individuals who participate in start-ups out of economic interest, and this happens mostly in the early phases.

Private equity involves the purchase and sale of shares. This possibility exists for the later phases, especially for established companies. Venture capital (VC), which comes from financing companies, and corporate venture capital (CVC), which is received from group subsidiaries, are also suitable for founders. In both cases, the aim is to achieve maximum returns, and in the case of CVC donors, access to new technologies and innovations is also important.

The public sector supports start-ups with investment grants, loans, guarantees, subordinated loans, and equity investments. There are many different country-specific variants worldwide.