Three young Munich-based companies raised a total of almost 100 million euros in capital for their growth phase in the first half of 2016 alone. The digital fitness startup, founded in 2010, eGym announced in March that it had closed a Series C financing round of over €40 million. Launched in 2011, the smart home startup Tado announced in April that a new strategic investor had invested 20 million euros. In June, the big data startup, also founded in 2011, closed Celonis raised approximately 25 million euros in funding – in an initial financing round with external investors. News like this makes founders dream. A guest article by Larissa Kiesel from BayStartUP.
But: “You don’t just go out and raise $45 million.”"," says Philipp Roesch-Schlanderer, co-founder and CEO of eGym, summing it up. Behind this lies hard work in the market, ambitious growth plans, and the right direction from the start. And the capital market must also offer the right opportunities.
Where do the millions come from?
Typically, several investors, including international investors, invest in such double-digit million-euro rounds. HPE Growth Capital, a VC fund based in Amsterdam, joined eGym. Highland Europe, the European arm of US investor Highland, also participated in the current financing round. Highland had already invested around €11 million in 2014. Existing investors High-Tech Gründerfonds and Bayern Kapital with its Wachstumsfonds Bayern also participated in the round.
The capital for Celonis comes from the US fund Accel Partners, best known for its Facebook investment, and from 83North (formerly Greylock IL) from Israel. Tado received the €20 million from Inven Capital, the investment firm of the pan-European energy company CEZ Group. In a 2015 financing round, Statkraft Ventures, the fund of the Norwegian energy giant Statkraft, as well as BayBG Bayerische Beteiligungsgesellschaft and Siemens Venture Capital had already invested over €15 million.
What investors and startup experts say
Investors, especially from the US, see many untapped opportunities in Europe's growth market. When eGym investor Highland launched its second European fund with €332 million in 2015, Fergal Mullen, co-founder and partner of Highland Europe, told the Financial Times: “The funding gap in Europe is obvious.” According to his estimates, six times more capital had been invested in the US than in Europe to date. The startup portal TechCrunch.com also described European entrepreneurs in an article about Highland Europe as tending to be "underfunded" and "over-syndicated": European startups often have to accept disadvantageous shareholder structures with too many investors and too small sums to finance growth.
"I find it very encouraging that Munich and Germany as a whole have become more of a focus for international investors in recent years, thus increasing the likelihood of such multi-million dollar financing in the early growth phases."
so Dr. Carsten Rudolph, Managing Director of BayStartUP.
"The financing gap in the early growth market identified by German and international investors can be further closed. For this purpose, the Bayern Growth Fund, managed by Bayern Kapital, was launched. Since 2015, it has been providing public capital as a co-investor, making the growth market even more attractive for private funds."
Why do startups need so much capital?
Startups with excellent prerequisites that can now go all out and realize their ambitious growth plans – this is how the dynamics of large financing rounds can be described. The focus is on further developing technology and products, expanding sales, and internationalization. "It makes sense to globalize as quickly as possible.", emphasizes Dr. Carsten Rudolph.
"During the growth phase, startups need to strengthen their resources and attract highly qualified employees with commensurate salaries. Furthermore, significant company shares are usually already distributed, meaning the valuation must be much higher than in previous financing rounds."
