You can sell your equity to co-founders
Starting 2021: 10 ways for startups to finance their business idea
Collect money for your startup! We have put together the most important types of financing for startups for you - our top 10:
# 1 bootstrapping
Bootstrapping is the name of an independently financed company formation without any outside capital. Regardless of whether that is possible for you or not - self-financing has advantages and disadvantages. Use equity, start lean, grow flexibly.
Benefits of bootstrapping
- With financing with a lot of equity, there is above all an increased motivation: Those who invest a lot themselves naturally want to get the best out of it and are of course proud to have managed it with their own resources.
- In addition, the largest share of the company remains with the founder himself and does not become the property of investors, so that young entrepreneurs themselves have the greatest possible freedom of choice.
- Those who manage with little capital usually set up an efficient company that functions in a clearly structured manner.
Disadvantages of bootstrapping
- However, there is often a lot of pressure to make the most of the scarce resources.
- The high level of entrepreneurial freedom also harbors the risk of wrong decisions, because founders are solely responsible here and work without the know-how of others.
Even if the entire venture cannot be financed with equity, it still brings a certain security in the event of liquidity fluctuations and, moreover, creditworthiness.
The free online seminar “Financing and promoting your start-up”
In the online seminar “Financing and promoting your start-up”, the experts from merkur-start up explain to you in a competent and understandable manner what you need to know about equity, loans, alternative financing options, subsidies and grants.
There are also practical tips for a successful bank meeting.
# 2 Be economical
Liquidity planning is one of the absolute basics when setting up a business and must be taken into account when drawing up the business plan. In addition to financial sources, founders should above all focus on Efficiency in using your money respect, think highly of. Savings can be made in many areas without productivity having to suffer.
- Common office products are also available free of charge as open source software and in good quality.
- Office equipment does not necessarily have to be purchased again: Tables, filing cabinets and the like are also available cheaply and used.
- For many founders, their own office space is an important component in order to appear representative to the outside world. However, the running costs for such an investment are often underestimated. Check your rental needs and clarify exactly how your income covers rental and ancillary costs. Especially when the company is growing very quickly, however, appropriate rooms become very necessary. Instead of buying a property right away, leasing is an alternative. With this type of financing, the founder pays monthly installments and after a fixed period of time can decide whether to buy the property against a final payment. Further information can be found here, also with regard to the most varied of leasing procedures.
# 3 Startup financing with subsidies
Those who set up a company can often fall back on state funding, not only for founding out of unemployment. Often, however, deadlines have to be observed here, so those wishing to found a company should find out about relevant offers before founding.
A good Overview of funding programs for 2021 offers the portal of the Federal Ministry for Economic Affairs and Energy. Most of these programs include loans with appropriately favorable terms, less often grants that do not have to be repaid.
The EXIST start-up grant supports university graduates, for example, in implementing their start-up ideas by providing up to 3,000 euros per month to secure their livelihoods and up to 30,000 euros for material expenses for a year. To do this, founders must, for example, attend start-up seminars and be able to present a business plan after ten months.
# 4 Start-up support through the start-up grant
The reform of the start-up grant has made it more difficult to obtain funding for start-ups and the self-employed. But here, too, a well-planned project with a chance of success has a good chance of being approved and funded.
However, only recipients of unemployment benefit I, and possibly other benefits under SGB III, are eligible to apply if they are still entitled to unemployment benefit for at least 150 days.
A Funding of up to 18,000 euros - tax-free, non-refundable and additional to the profit made - is possible here.
Here we will show you step by step how to apply for the start-up grant in 2021.
# 5 Participation in start-up competitions
Sure, it's not calculable money, but it's worth a try: Young entrepreneurs can also take part in a start-up competition with their project. There is now a huge selection of start-up competitions, from local to international, for all industries from agricultural start-ups to innovation awards. For startups in the field of information and communication technology, for example, participation in ICT innovative paid by the Federal Ministry for Economic Affairs and Energy. With a successful idea sketch, founders can win up to 30,000 euros for their company.
Further start-up competitions in 2021 are for example:
KfW-AWARD “Founder Champions” Nationwide, application possible from the beginning of May to August 1st every year. Total prize money approx. 30,000 euros more information
Start2grow The start-up competition of the Dortmund Economic Development Agency. This means that not only founders from Dortmund can take part, but also from all over Germany (total prize money approx. 60,000 euros - some of them are paid out when they move to Dortmund). More information
BayStartUP BayStartUP organizes several business plan competitions, divided into the Bavarian regions. This means that on-site support can be offered throughout Bavaria and networking with the local business community. Total prize money (all together) 100,000 euros. more info
code_n award Worldwide competition for innovative start-up ideas for digital pioneers.more information
Science4Life Venture Cup Do you have a business idea in the life sciences or chemistry? - The “Science4Life Venture Cup” business plan competition will help you implement it! Total prize money of around 60,000 euros. more info
FutureSAX ideas competition - competition for innovative business ideas in Saxony (Total prize money approx. 30,000 euros), promotion North Hesse (Nationwide business plan competition for startups from all industries), and much more.
Further current start-up competitions can be found here in the event list.
# 6 Startup funding through loans and credits
For larger purchases, a loan from the house bank is a method to raise the necessary capital to start a business.
Convince the bank
A professional business plan and good preparation for the bank meeting are essential. If the project is well developed, presented accordingly in the business plan and promises success, there are good chances of being granted a loan. In principle, however, the house bank will not do without private collateral and a corresponding credit rating.
Funding opportunities for start-up loans
In many cases it is advisable to take advantage of funding opportunities for start-ups. The KfW (Kreditanstalt für Wiederaufbau) offers, for example, an entry fee for start-up projects.
The federal government, the federal states, local authorities and the European Union also offer funding opportunities or loan guarantees. A guarantee means that the loan is granted by the bank and the funding agency guarantees that it will guarantee the loan in full or in part in the event of a loss. This type of loan is called a subsidized loan. Banks prefer this type of lending because the risk for them is mitigated. There are a large number of funding agencies for this house bank principle. In some cases, the various grants can be combined with one another.
However, it is not only the house bank that has to be convinced of the corporate concept, but also the respective funding agencies ...
But it is also possible to look for an investor who financially supports your own project. These are typically business angels or venture capital.
# 7 Startup financing with venture capital
With venture capital, investors provide founders with the appropriate capital depending on the development phase of their product or service. The investors are often available as advisors for young entrepreneurs and also acquire company shares. The financial leeway increases, but founders are not only responsible for themselves, but also for the investors, who now want to be kept up to date on the state of development and usually expect constant reporting. After all, investors run the risk that the company will fail, especially in the early stages of the development of a business, and want to protect themselves accordingly. As a rule, investors only get involved in the later stages of the formation, when the risk has decreased. The riskier the current status of the startup, the higher the interest on the funds provided.
This form of funding works best for computer, pharmaceutical, or biology startups that want to bring a promising product to market that has great prospects for success and growth.
# 8 Startup funding with Business Angel
Business angels can usually be won for their own company much earlier. They support founders with their know-how, but usually do not invest as much capital as venture capitalists. To this end, they act in an advisory capacity: Young entrepreneurs can share in the wealth of experience of business angels, use their networks and contacts, which can often prove to be much more valuable than pure capital in the early start-up phase. And: Business angels risk significantly more than venture capitalists because they invest during or shortly after the establishment of the company - at a time when success is by no means certain.
Finding such a popular angel is not that easy. The Business Angel Network Germany eV offers a nice guide “Best practice: How to get an Business Angel”.
# 9 Startup funding from the crowd
Crowdfunding is an increasingly popular form of financing. Since the financial burden is distributed over many shoulders, this is also referred to as crowd financing. A distinction is made between several types of crowdfunding.
Reward-based crowdfunding ("Crowdfunding")
This form of crowdfunding is the most popular, especially in the creative industries. Donors receive a thank you for their financial support, which is more extensive depending on the amount awarded. The “reward” can be anything that fits the company, from a small thank you card to a version of the finished product.
Equity-based crowdfunding ("crowd investing")
With equity-based crowdfunding, lenders become investors and receive a share in the company with which they also participate in sales. Investors usually aim for a later exit.
Lending-based crowdfunding (“crowdlending”)
With lending-based crowdfunding, lenders offer a loan with a fixed interest rate and a fixed term. For entrepreneurs, the main advantage here is that no banks have to be convinced to lend.
Donation-based crowdfunding ("crowddonation")
This crowdfunding is based on donations, so donors cannot expect any direct consideration. This form is most suitable for charitable projects.
This form of financing is particularly suitable for start-up models with very innovative ideas that otherwise find it difficult to attract donors in the traditional way. This specialist article explains which requirements a startup must meet for crowdfunding or crowd investing.
# 10 incubators & accelerators
It is also possible to let an incubator or accelerator help you. Both are often used synonymously, but differ from one another.
An incubator supports a startup with venture capital, but usually primarily provides office infrastructure and premises. Incubators are also available to advise and help with the analysis and development of the business idea.
Accelerator programs are offered by various bodies such as universities, venture capital companies or industry. Here, the startup is provided with a mentor and the capital-providing company acquires shares in the startup in return. Universities and colleges in particular are launching such programs more and more frequently: They want to make the market potential of scientifically developed ideas economically viable.
Examples of large accelerator programs:
Examples of university programs:
- “You decide about your goals - we support you through our network and our mentors in the implementation. This ranges from foundation to financing to internationalization. " So much for the promise of the newly founded SpinLab of the HHL Leipzig Graduate School of Management.
- "Our society needs entrepreneurial initiatives that not only constantly tease out new needs, but also respond to existing problems with economic, social and also artistic imagination: entrepreneurship as an open, creative activity that invites." The Entrepeneurship Foundation of Prof. Dr. Günter Faltin is not an accelerator program in the traditional sense. But the work is similar.
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