Raising capital for your start-up: the right steps

Mario Busshoff

8. September 2020

It starts with a brilliant idea. But soon disillusionment sets in: whether the idea alone is enough to get a start-up off the ground? The answer is clearly no, because without capital acquisition a start-up has no chance of success. Here we explain which measures are available to you for capital acquisition and how you can find investors.

How to find the right investors for your start-up

It happens that founders start with their own capital. Depending on the situation and the amount of capital, financing from your own resources is an excellent solution. However, you can quickly reach your limits here. Many founders bring in family and friends to participate in the start-up capital. With sufficient funds, this is a suitable way to acquire capital for the start-up. Those who are denied these routes can use crowdfunding. With this type of capital acquisition for start-ups, a newly founded company is supported by a large number of investors. Often the “swarm” consists of Internet users who are enthusiastic about a particular idea. Crowdfunding is usually operated via online platforms, with the money invested being earmarked. Founders offer investors something in return, for example in the form of a share in the start-up or a certain amount of the product to be marketed.

Business angel: early-stage capital acquisition

Business angels – the investor’s angels – are experienced entrepreneurs who help a start-up in the early stages. A business angel not only financially participates in a young company, but is also at your side with advice and action. However, there are also disadvantages to the support of a business angel. Since the failure rate of new start-ups is very high and investments are often simply lost, the interest rates on business angel capital are usually high. You must also give the business angel a stake in your business in return for his generosity. To secure the support of a business angel, contact one of the 40 or so business angel networks based in Germany.

Business start-up through subsidies

German founders benefit from a very well-developed funding network that is unique in Europe. A lot of funding is distributed at state level – for example by the Hessen Economic and Infrastructure Bank (WIBank). The Kreditanstalt für Wiederaufbau (KfW), on the other hand, supports start-ups nationwide with traditional promotional loans. The guarantee is a challenge with a traditional loan. In the initial phase of a start-up, banks always ask for a personal guarantee if there is no real security. The bank limits its risk through an exemption from liability. Development banks offer start-ups loans on particularly favorable terms.

What does a start-up have to bring along?

As mentioned earlier, the idea is great. However, if you don’t know how you are going to implement the idea, there is still a lot of work to be done. A start-up must have a flawless business plan. Regardless of whether you want to raise the start-up capital through a promotional loan or a business angel – a business plan is an absolute must. The risk can be controlled using a business plan, and it also serves as a guide for investors.

Following the business plan a pitch deck has to be prepared for potential investors. It is a short presentation that is intended to convince capital providers and investors of the start-up idea. Potential investors can get a good overview of the idea in no time. Often the classic business plan only follows the pitch deck. A start-up must present its idea from the most attractive side in order to secure the required start-up capital.

Capital acquisition for your start-up: steps to success

To be successful, a start-up needs to be aware of its own weaknesses and strengths. This also includes an in-depth examination of the business idea. Can it be turned into profit? Is it really necessary? And what does it offer that other companies don’t already offer? Also, ask yourself what is missing. If it is just a matter of raising capital for your start-up, you can do everything right with a promotional loan. However, if you also need know-how and contacts, you should look for a business angel. Are you flexible and do you want to win customers over immediately? Then crowdfunding is a perfect tool for you.

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