Both sides benefit from cooperation between established medium-sized companies and startups: Family businesses are exposed to new business models, approaches, and often highly talented specialists. The founders, in turn, sometimes receive pure investment, but often also strategic advice on scaling their business model.
Startups are increasingly recognizing the advantages that a family business has over a venture capitalist. After all, venture capitalists must always be oriented toward the capital market. However, most family businesses are run by owners who must plan for the long term and therefore responsibly. If a company likes a business idea, the decision to start a collaboration is quickly made.
Supplier contacts and new markets
VC firms focus their investments on the scalability of the idea during the growth phase, especially in the late stages of a new development. If there are no signs of greater market penetration, founders must then invest an enormous amount of time to obtain follow-up financing. In contrast, investments by family businesses are about more than just money or digitalization know-how: They can offer contacts with suppliers or entry into entirely new markets. Of course, family businesses also only want to support profitable startups in the long term – the time horizon is often different.
At Alphazirkel, we've created a platform that serves as a first point of contact for collaboration between family businesses and startups. However, there are a few things to consider when founders and SMEs meet.
Three rules for meeting with family businesses
Here are three rules to keep in mind when meeting with a family business for the first time:
• Unlike venture capital firms, SMEs willing to invest are sometimes tempted to commit to a new product quite early on. But for that to happen, your idea must be very convincing. In concrete terms, this means that the startup product must have passed the initial reality check. However, many founders—especially first-time founders—often get bogged down in the details and lose sight of the bigger picture. To avoid this happening, it's essential to test your product or model in real life.
• Many startups present a great technical concept – but then the business case falls apart. No matter how enthusiastic you are about your new product, without solid financial planning and risk analysis, your presentation will be a disaster. You don't just need to estimate revenues and costs and then list the expected profit. Your concept will only be considered viable by family businesses if it consistently generates profits. Risk analysis is also important: You should write down which assumptions in your financial calculations are particularly sensitive, meaning where even small deviations can lead to significantly different results. It can't hurt to outline a few scenarios.
“Honesty, right from the start”
• The competitive landscape and competitors are often overlooked. Family businesses, in particular – where a culture of trust is usually particularly important – value honesty, right from the start. So, right from the pitch, provide a realistic overview of competitors, similar solutions, etc. You should compare product features and assess market segments – and do this as clearly as possible. What is your competitors' estimated revenue? What reference customers do they have? And where do you see your place in this environment?
The more realistically you describe the situation, the more trust people will have in you.
