Start-Ups: Securing Follow-Up Financing
Two business people shaking hands
Founding consultants and investors always have the experience
that many start-ups fall into a funding gap after the pre-seed phase,
so they run out of air before they are on the market.
The most common reason for a funding gap is: the founding teams do not look after a follow-up financing in time. Therefore, plan for about six to eight months to prepare for the upcoming round of financing. It is recommended to proceed in the following steps:
Assess investment needs and running costs
Even though it is not about getting accurate figures in the early stages of preparation, you should already have some idea of what your capital needs look like. Talk about it with your coach and / or start-up consultant. What investments and running costs must be funded when the business plan or business canvas and financial planning are completed? Over what period? In the course of the pre-seed phase, traceable and realistic figures should be included in your financial plan so that you can forecast revenue, capital requirements, liquidity and profitability over the next three to five years.
Assess the degree of innovation and growth expectations
What is the developmental need to bring the service or product to market? Can the business idea be implemented relatively quickly and can customers be acquired promptly? Or are further research and / or development work necessary to achieve the necessary market maturity? What is the growth pressure in the industry and what about the scalability of the business idea? All this has a decisive influence on the type of financing and must be taken into account in capital and business planning.
Structure construction and growth
Looking back, many founders say that they have underestimated how much time and effort is needed to get their business up and running. Until the product or service can actually be sold, it is not uncommon to first consider customer wishes and needs. Anyway, a lot of conversations have to be conducted, contracts have to be concluded with clients, marketing has to be initiated, customers have to be acquired, etc. Therefore: plan milestones generously.
Research financing and funding offers
The range of financing and promotional instruments is large. From the three FFF Family, Friends and Fools, crowdfunding or investing to venture capital and loan financing, there are plenty of opportunities. In many cases, the participation of several investors may be useful. For example, having two or three business angels on board means not just more capital, but also more know-how – “smart money”. In addition there are participation programs of national and European (funding) institutions. These include z. For example, the High-Tech Gründerfonds – a public-private partnership of BMWi, KfW and other partners and now the nation’s largest early-stage investor – and the co-investment fund coparion, which together with ERP-Sondervermögen and KfW with a volume of 225 million euros was launched. In addition, funding programs of the state funding institutes or participations of the medium-sized investment companies in the federal states can supplement the nationwide financing offers.
Select suitable financing
The first non-binding discussions with funding and financing institutions are the best way to find out which of the possible financing options are suitable for the specific project and the company phase. Robert Schlösser, Department Director at KfW Bankengruppe, recommends that a typical mistake which founder teams still make frequently should be avoided: “Mass mailings to business angels and other private investors across the country are an absolute” no-no “. Go ‘. The investor scene, which is eligible for early stage funding, is relatively small and well connected. Since you should already choose a personal address and think carefully who you can address. After all, it’s not just about finding a lender, but also someone you can talk to about entrepreneurial issues for the duration of the round of financing. “
Prepare start-up for financing
Whatever funding or funding is being considered, key questions for the team include: Can capital requirements be met? Over what period? What requirements does the company have to fulfill? And when is the money available to the company at the latest? Precisely because the teams usually can not yet show any market success, the composition of the team or the future employees counts for the investor. It is important that all the necessary competences are represented and, among other things, the responsibilities for sales, marketing and controlling are clarified.
Finalize contracts for first round of financing
In the last three months of the pre-seed phase, the team should have fulfilled all requirements. Formalities such as the drafting of the articles of incorporation and the entry in the commercial register should now be completed and all questions regarding the participation agreement clarified. Thus, the first round of financing can be contractually sealed and thus ideally a seamless transition take place.