Why can't my startup find investors? Young companies often have a hard time raising capital. One reason for this is that many founders don't understand Not what investors and banks think, say Martin Giese and Nicolaj Højer Nielsen. In their book "Startup Financing," the two investors aim to show the way to successful capital raising.
With the constant news of multi-million dollar Financing rounds One might almost think that finding capital is no problem for startups. However, the experiences of many founders are quite different: Banks won't give loans, and investors won't even respond to their emails. At events, no investor really takes the time to even listen to the founders' groundbreaking ideas. Why is that?
With their book 'Startup Financing' they want Martin Giese and Nicolaj Højer Nielsen help startup founders access capital. In the introduction, the authors write:
"For a bank or investor, an idea is nothing more than a risk that must be weighed against potential returns. This is precisely why many founders don't get capital for their business idea."
Anyone who wants to get investors' money must first understand how they think and calculate. The authors therefore primarily convey the perspectives of various investors. Through their own biographies and approximately 20 years of experience in the startup environment, the two authors have gained a wealth of insight into startup financing. Giese has been a founder, employee, mentor, coach, and investor in his life. He currently heads the UnternehmerTUM accelerator. XpreneursNielsen founded his first company in 1999 and has since been a serial entrepreneur, business angel, and investor. He currently runs the early-stage investor Copenhagen United.
'Startup Financing' brings together the who's who of the startup scene
The authors self-published their 498-page tome in true startup style—and this is particularly evident in the somewhat confusing layout of the table of contents and index. Once you get used to the juxtaposition of actual text, case studies, and contributions from startup experts, the book guides the reader through the most important questions facing early-stage startups seeking investors in 19 chapters. Practical tips, illustrative examples, and infographics make the book an entertaining read despite the rather dry subject matter.
The authors were able to engage countless experts to contribute insights to the book. The list of contributors reads like a who's who of the (Munich) startup and venture capital scene: Flixbus-Founder André Schwämmlein, Andreas Unseld from UVC Partners, Celonis-Co-founder Bastian Nominacher, Baystartup-Managing Director Carsten Rudolph, Attorney Christoph von Einem, Bits & Pretzels-Host and investor Felix Haas, Personio-Founder Hanno Renner, founder, investor and mentor Jeff Burton, Inveox-Founder Maria Sievert, Mr. Beam-Founder Teja Philipp and Veronika Riederle, founder of Demo desk – to name just a few.
Risk vs. Reward
The book begins with the question of whether and when a startup needs external capital. Burn Rate Young founders learn to assess their capital needs.
Based on the central distinction between risk and (expected) return, the authors then explain the perspectives of different investors. Using a simple four-field scheme of high and low risk, as well as high and low return expectations, different financing sources can be classified. This explains, for example, why banks rarely lend to startups: The return in the form of interest is low, but the risk of default is very high. It would therefore be negligent of a bank to lend money to a newly founded startup. Private participants in a CrowdfundingCampaign investors, on the other hand, are willing to take a high risk of failure and expect only a low return, such as the finished product, because they want to help the product come to fruition. Venture capital investors are willing to take a high risk but want to see a high return. The authors thus explore the perspectives of all potential investors for startups.
Ideas are risky
The key from a founder's perspective is to reduce the perceived risk of the investor. The riskier an investment appears, the more difficult it becomes to find a financier and the more expensive it becomes – in the form of higher shares that founders must surrender, stricter clauses in the investment agreement, or similar.
A pure business idea is initially extremely risky: There's no evidence that there's a real market for the idea, nor have the founders demonstrated their capabilities, nor has it been demonstrated that the product is even technically viable. The expected return, however, is completely uncertain. Therefore, before approaching a professional investor, founders should first provide evidence that supports success and makes the risk calculable.
The investor, the unknown being
The book is particularly specific when it comes to tips on how founders should approach investors. Sample emails are helpful in contacting investors. The book includes six complete pitch decks that were used successfully to raise venture capital. Startups receive concrete support in preparing well-prepared contacts with investors.
'Startup Financing' also helps determine a realistic valuation. It also presents various investment models and contract templates, warns of potential pitfalls, and offers tips on contract negotiations with investors.
The book offers pretty much exactly what the subtitle promises: 'Practical tips from investors for founders.' It contains the knowledge that founders of early-stage startups in need of capital need – and strikes a balance between detailed insights, clear presentation, and practical relevance.
'Startup Financing: Your Insider Guide. Practical Tips from Investors for Founders' (498 pages) is available as Hardcover and ebook for Kindle.
