Find investors for startups in Germany
Looking for investors
For many german startups, the search for a suitable investor determines the success of the project. Especially in a competitive market, it is often not the idea or the implementation that is decisive, but simply: capital and speed. The search for a suitable investor is often not easy in german practice. In the following, we present the most important points in the search for an investor, which you should know and consider.
Basic questions in the search for investors in german practice
Not every type of investor is appropriate for every german company. Some invest specifically in later growth stages of companies, while others enter the company right after the idea has emerged. So here you should keep in mind what types of funding are available and what stage your company itself is currently in.
If you are looking for financing through investor participation, you should also ask yourself the following questions at the beginning of your search for investors:
- Do I need a boost to my equity?
- Am I willing to give up shares in my company and if so, how many?
- Am I willing and able to coordinate my business idea and objectives with an investor?
- Am I willing to coordinate my business operations with an investor?
- Do I have to, do I want to or could I put the focus of my entrepreneurial activities on fast growth and return on investment?
The 4 Stages of a german Startup
The development of a startup into a full-fledged company is typically divided into four distinct stages in Germany. These are:
- Seed Stage,
- Early Stage
- Growth Stage (possibly several)
- Later Stage
Corresponding to the development stages are different financing rounds, which differ in the number and type of investors as well as the investment volume.
More information about the financing rounds will be available here soon: Financing rounds
Types of financing: Which investor suits my startup in Germany?
There are various ways to generate capital for your company in german practice. Thereby, the different financing options each bring different advantages and disadvantages, which had to be weighed against each other. In particular, you need to consider the phase your company has reached and how you have answered the above basic questions about the search for investors in Germany.
1. Venture Capital
Venture capital investors generate a lot of money in a short time and are the only way to make the company successful, especially in the growth stage and in competitive german markets. But they are also often indispensable in the early stages of the company, as they invest solely in the founders and the idea of the project - regardless of existing valuations or the amount of existing equity - and thus take a quasi-unsecured risk that many other financiers often shy away from.
However, founders in Germany must be prepared to give up shares in their company and to agree their business idea and at least parts of the operative business with the investors. The investors' objective is often a successful sale of the german company in the later stage (so-called exit).
More information on venture capital in Germany can be found here: Venture Capital
2. Business Angels
Angel investors, sometimes also referred to as business angels in german practice, are usually wealthy individuals who want to invest capital in new german startups. Business angels are often organized in a good network, which has the advantage of an accumulation of know-how, capital and contacts. The support of the business angel usually starts earlier than the commitment of a venture capital company.
Due to the high risks of a very early participation and support, business angels usually require a high economic participation. Business Angels usually demand a high economic participation in the eventual success of the company in german practice. Legally, the commitment of the money-giving mentor therefore often corresponds to that of the other venture capital investor.
3. Bank loan and convertible loan
Those who do not (yet) want to get involved in the directives of the german venture capital market have other options for obtaining capital. Especially those who pursue a truly unique idea often have less market pressure and can thus initially resort to other forms of financing, at least in the early stages of the venture.
One classic form in german practice is taking out bank loans. These prevent the financier from having the right of co-determination. However, the german bank regularly demands comprehensive collateral, which not everyone can provide. An alternative and also widespread form of financing, especially in the early stages, is the issuance of (convertible) loans, which have a qualified subordination, are in some cases interest-free for a certain period of time and, under certain conditions, can be converted into a genuine equity participation in the german company.
Government and private subsidies or development loans are only available to selected german startups that meet certain criteria. Of great importance are the so-called KfW loans, in which KfW assumes part of the default risk from the financing bank in Germany. The german federal states also have investment banks that maintain funding programs. Publicly subsidized loans usually have a long term and are repayment-free in the initial phase. Interest rates are significantly lower than those on the regular german capital market.
More information on government funding for startups can be found here: Government subsidies for startups in Germany
5. Friends & Family
One of the most obvious areas to seek investors is the immediate personal environment. In the early stages of the business, they are often the only ones who are willing to take a financial risk because of the personal relationship, even before a professional business plan or market analysis has been drawn up. The disadvantage is obvious: If the business fails, this often puts a strain on the private relationship as well. In addition, this path is probably only considered if one's own environment has the corresponding financial means.
Another financing option for german start-ups is crowdfunding. In this case, private individuals often have to be convinced of the idea, which is why crowdfunding is also an interesting financing option for start-ups geared towards commercial success, but especially for social or creative projects in Germany.
Mezzanine financing comprises financing instruments that combine the characteristics of debt and equity. Mezzanine capital includes, in particular, typical and atypical dormant equity holdings, subordinated loans, pari passu loans, and profit participation rights and certificates. These enable customized financing solutions for german start-ups as well.
Finding investors in Germany - how, where, whom?
Once you have decided what kind of investor to look for in Germany, that is of course only half the battle. Finding investors is time-consuming, and founders in particular are often already stretched for time with starting the german company themselves and moving the venture forward.
One of the best ways to find potential investors in Germany is to attend various founder and startup events. In the Internet you can also find a list of the largest and most successful german investors, broken down by the different areas and forms of financing in german practice. An elaborated pitch of the company can be sent directly to investors.
In order to support young entrepreneurs in approaching investors in Germany, providers have also established themselves on the Internet who actively support and advise in the search for potential, suitable investors. So while the founding team can continue to focus on the success of the german
startup, trained startup scouts and financing specialists check the investor landscape in parallel. They select suitable candidates without the founders having to relinquish control.
Found an investor for your german startup, now what?
Our experience in supporting young german startups in the financing phases shows one thing above all: legal support during contract negotiations is absolutely indispensable! Many large investors in Germany use hidden clauses that deprive founders of the fruits of their labor. Vesting clauses in particular are often ineffective. Smaller investors, on the other hand, often adopt pre-formulated contracts from the Internet without subjecting them to legal review - sometimes with disastrous consequences for the german company's founders.
It cannot be emphasized often enough: No signature without at least rudimentary advice from a lawyer!