Some news about financing, transactions, and exits in the startup scene can be quite dizzying – especially internationally. Investments in startups or early takeovers by major players run into millions or even billions. But how do startups in Germany access VC funding? Which investors are available, and what do they expect from founders? Dr. Carsten Rudolph, Managing Director of BayStartUP Brings investors and startups together.
When is it worthwhile for a startup in need of capital to get to know venture capitalists?
Startups should meet a few requirements before they can present themselves. First and foremost, they should be ready for venture capital financing. This means they should already have established a certain track record and taken significant initial steps.
A very good prerequisite, of course, is already a few hundred thousand euros in revenue. An IT startup should already have sold its software to a few customers; in the online sector, there should be a significant number of customers. However, if I, as a founder, am building a high-tech machine, I often need more time and materials before I have a marketable prototype. In some cases, I may also have to expect high costs for approval procedures, such as the CE mark, before I even have my first customer, for example in the healthcare sector. But even these founders, for whom the go-to-market process takes considerably longer, have to prove to an investor that their process will be accepted by customers.
How does a founder convince a venture capital fund?
Above all, founders should be able to explain their revenue mechanisms and make it clear that they have a scalable business model. This means that revenues can grow significantly faster than costs. While it may sound simple, in reality, this is where the wheat separates from the chaff. A startup must also know its own strengths and weaknesses and have a deep understanding of the market and its competitors. Perspective is also important: A VC investor always considers the exit and therefore needs long-term growth potential.
Who are the typical VC investors in Germany at the moment?
There are simply very few funds in Germany compared to other countries, so it's rather difficult to define "typical." There are only a few funds that can invest five to ten million euros in a startup, but we do have a certain number of smaller funds, some of which have been newly established in recent years. These are often staffed by experienced founders and also try out new concepts. I'm thinking here, for example, of the "Venture Stars" in Munich with "Netzathleten" founder Stefan Pfannmöller, a combination of incubator fund and company builder. We need such ideas more often, but we're also seeing more and more of them. As for sectors: Of course, less capital-intensive models like IT topics are somewhat easier to finance – initially. But well-scalable models, including in the hardware sector, are financeable; what counts is measurable evidence of rapid success. We're seeing increasing interest from international investors here, but only for larger projects, such as the investments by Highland Capital and now HPE Growth Capital in eGym with a total of over 60 million dollars. But some – for example, Partech – are already on the move earlier, sometimes with their own employees in the country.
What else might be needed…
We must continue to consistently build the overall ecosystem in Germany. Silicon Valley, for example, is at least 30 years ahead of us in this regard. A considerable amount of startup support has been developed at the regional level – although not in all federal states. The infrastructure, with accelerators, competence centers, funding pools, and networked players, is good and growing. But to get venture capital financing moving, it is primarily those who can really pull the bigger screws: the decision-makers at the federal level. Recently, we startup supporters have been more concerned with preventing further deterioration, for example, the recently overturned anti-angel law or the current planned tightening of antitrust law, which would make it more difficult to sell startups to investors. So, despite good opportunities for startups, there is still a lot of room for improvement overall.
Dr. Carsten Rudolph is Managing Director of BayStartUP. The Bavarian contact point for founders and startups organizes, for example, the Munich Business Plan Competition, offers startup coaching, and organizes one of the largest investor networks in Europe. Dr. Carsten Rudolph brings many years of experience in industry, consulting, and his own internationally positioned startup. Information about the support services is available at www.baystartup.de
