How startup funding works in Germany Follow Sep 20, 2021 · 4 mins read
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Often good ideas fail not so much because of feasibility, but rather because they can be financed. Especially in economically difficult times, investors have to do a lot of convincing to convince the banks to take a positive view of their plans and support them by granting loans. It does not matter whether the banks offer their own products or whether the loans can be granted through public funds.

There are, however, projects that do require support and where both banks and the public sector are interested in implementing them. Especially when several persons or companies join together to form a group of companies, there is a well-founded hope that the project can be tackled by means of start-up financing.

Start-up financing of projects is often provided by public (promotional) funds Such start-up financing is often characterized by the allocation of public funds and is agreed at the beginning of a project. In doing so, the financiers assume that there will be a long dry spell during which no measurable success will be achieved initially. However, concrete targets and framework conditions must be negotiated before start-up financing can be granted.

In the case of start-up financing, the public sector trusts the initiators of a project and, in any case, often forgoes collateral such as equity or real estate as far as possible at the beginning of the project. The project itself is the security and the financier expects a clear success for the future.

Another way for the initiators to get money to start a project is to win sponsors. However, this is not start-up financing in the sense of a loan that has to be repaid, for example, after a grace period. Rather, sponsors count on the advertising effect of their measure, namely that they have supported a perhaps really non-profit project with money or helped to bring it to the start in the first place.

Finding a favorable start-up financing: A good mix makes it (often possible), but not without a business plan.

For example, if you are a founder of new business with a business idea and are looking for “start-up financing”, you may want to extend your research focus to “start-up financing”, “start-up loan” and similar terms.

After all, classic start-up financing, venture capital/venture capital is less likely to be found on the Internet under the term “start-up financing”. A good contact point is not only the house bank, which one should at least ask about the possibilities and variants, but also the KfW Bank - the Kreditanstalt für Wiederaufbau.

There are a number of promotional programs which, together with, for example, other regional subsidies and a business loan for start-ups from a normal branch bank, can often form a good mix for start-up financing.

Either way, however, you always need a reasonable business plan. In it, the following points should be well prepared and the following questions and aspects, among others, should be answered

  • Where is the need for the planned project/product/venture?
  • Who really wants it, who really needs it? How high is the suffering of the affected people really?
  • Would the thing just be a “nice to have”, or does the project/product really deliver an enormous added value for the future users/customers?
  • What is the amount of money needed, when, in which phases, at which times?
  • Where does the estimation of the costs come from?
  • How sound is the calculation?
  • Which points and cost factors were taken into account? Have any been forgotten?
  • What is the worst-case scenario or how high could the costs actually become in a very pessimistic scenario?
  • Which factors determine whether the cost plan can be met? Which elements are cost drivers?
  • Which parts of the project would have the greatest influence on the costs of the matter, for example, if something does not go as planned?
  • What benefits/revenues / saved costs does the project or product bring?
  • Who can, wants to, would pay how much for it? What do the alternatives cost?
  • If the project/product is more expensive than the alternatives: why is that?
  • Are the customers willing to pay this additional price?
  • Why should they pay the extra price?

These and many more questions should be answered satisfactorily for third parties. The above list is of course anything but exhaustive.

Many details should (be able to) be considered, calculated and answered in advance, including very detailed cost calculations, amortization calculations, etc. - you don’t necessarily have to be a management consultant for this, but you do need to have a solid basic knowledge of business administration & Co - because start-up financing is all about money.

And when it comes to money, it is primarily economic questions and answers that count.

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