Start-up financing for advanced users

After founders have laid the foundations for their new company in the seed phase, the start-up phase follows. This is where they can hope to receive venture capital for the first time - but there are a few things to bear in mind.

If everything goes according to plan, founders have already found their first investors in the seed phase. In the subsequent start-up phase, the aim is to bring the company's own product or service to market maturity. This phase usually begins with the official founding of the company. From this moment on, founders typically need more money. At the same time, investors also have higher requirements.

For example, founders now need to draw up a much more mature financial plan than in the seed phase. This should look at least three to five years into the future. Profit planning is also important. Tax and legal aspects should also be taken into account.

As a rule, start-ups still make losses in this phase. In most cases, external financing is the only option in this phase, as founders are often unable to raise the required sums themselves. External financing is particularly important in the form of equity, as unlike a loan, this money does not have to be repaid. Venture capitalists are now becoming more decisive.

Public funds usually have to be repaid

There is a whole range of public funding programs that founders can rely on. Some of them have very different requirements. A good starting point for founders is the start-up platform. The Federal Ministry of Economics has listed funding programs there. However, the disadvantage of looking for a loan there is that, unlike money from a VC, you have to pay the money back.

In this case, it is important to keep the interest rate as low as possible. One way of accessing public funds is through low-interest loans from the state development bank KfW. We have already explained the requirements for these loans here. KfW also offers an entrepreneur loan of up to 100 million euros. Founders have ten years to repay it. The interest rate is usually between 1 and 2.12 percent.

Relying on venture capital to increase equity capital

How a start-up can raise equity capital depends on its legal form. We have explained here when which legal form makes sense. In principle, founders can raise equity by either increasing the stake held by existing investors or by looking for new shareholders.

However, both can lead to founders losing some of their entrepreneurial independence. At the same time, experienced venture capitalists can also provide them with advice - a major advantage compared to crowd investing, for example, which only makes sense for start-ups in very few cases.

In Germany, there are a large number of investment companies that may be suitable for founders. There are public ones, such as High-Tech Gründerfonds, and private ones, which make up the majority of them. The whole thing can be broken down even further, for example into business angels or venture capital funds, and large companies often also have an investment vehicle.

VC investors can either take an active part and thus participate in the management or take a silent partnership. In return for their investment, they receive share rights. It is therefore important for founders to carefully consider whether the respective VC investor is suitable for the company, whether they prefer a silent or active participation and how high the company shares they are prepared to give up should be. The German Private Equity and Venture Capital Association has listed its members. Founders can search for a suitable investor there, for example.