What startup funding is available for German businesses
Germany has recently pledged to invest €10 billion in funding for German startups. But the process of getting investment is complicated and can be confusing to new entrepreneurs. How exactly do you get startup funding in Germany, and what options are available to you?
Types of funding
There are different types of funding available to you, depending on what stage your startup company is at. They are:
Also known as seed capital/Angel investment or seed funding, this is a form of securities offering. The investor receives equity in return for investing capital into a startup. It’s normally provided at the inception of the company to help them fund startup costs.
Similarly to seed investment, venture capital is a form of private equity financing. Venture capital firms providing funds in return for equity or return on their investment later down the line. This is normally given to emerging startups who have demonstrated high growth or the potential to do so.
Private equity typically refers to limited partnerships who buy and restructure privately own companies with the aim of increasing profits. They either buy companies they’re interested in for a lump sum or swap shares for investment funds. Private equity firms can be interested in companies of all sizes. But it’s worth noting that most private equity firms tend to fund larger, more established companies and corporate organisations.
Startup investment from the German government
The good news is that there are over 2000 different options for startup funding from the German government, regional governments and the EU. There are two types of grants you may be eligible for:
- Non-refundable cash grants – these are non-repayable and have terms and conditions attached.
- Monetary grants with interest rates and guarantees – these also have terms and conditions and some are non-repayable.
Just be aware that the guidelines are very strict for government funding for German startups. Your company may not be eligible for some of the better deals if you can’t put adequate cash behind the venture yourself, for example.
It’s worth looking into public funding before hunting for private investors so that you fully understand all the options available.
Types of public funding
There are four main groups of public funding available in Germany:
- Direct grants – non-repayable cash grants for the initial costs of setting up a business.
- Public loans – development banks offer low interest loans to entrepreneurs.
- Public guarantees – a scheme where public banks act as guarantors on business loans where the borrower can’t put down enough collateral to make them eligible.
- Equity capital – public sources offer equity capital to startups.
The Federal Ministry for Economic Affairs and Energy has published guidelines on what funding is available to which startups. It’s worth noting that you have to prove the money is going towards your business in order to be eligible for government funding. Public loans and grants are also difficult for startups to access, due to the strict grant criteria and fact that banks won’t often lend to new businesses. While there is a large amount of money available in public funding, it actually doesn’t stretch that far when you consider how much it costs to start a business how many startups are competing for it.
Get private startup funding
Germany’s private investment scene may be small in the eyes of the world, but it’s actually the second largest in Europe. If the public funding options available aren’t right for you, it may be a good idea to look into private startup funding. You can also use a combination of both to help you raise enough cash.
There are a wide range of private investment options across Germany. The great thing about going private is that your business doesn’t necessarily need to be tied to Germany, which it does for many types of public investment. Private funding can be gotten from investors all over the world, giving you a wealth of options.
The downside of having so many choices is that it’s easy to feel overwhelmed. Where on earth do you start your research?
First, think about whether an incubator or accelerator is best for you. Incubators support startups in the initial phase of their company, even before they have a fully rounded business model. Accelerators take companies who have an existing business model and accelerate their growth through providing financial backing. Whichever one you go for, your investor should be willing to mentor your and work as a partnership to help your business succeed. If they’re not interested in doing so, it could be a red flag.
Once you’ve chosen what type of investor you want to go for, the next task is to find one. There are various directories you can use for this, including German-based ones.
Use a crowdfunding platform
Crowdfunding is where lots of people each pay a small amount (or large, if you’re lucky) towards your new business or project. You use a crowdfunding platform to explain your idea and collect donations.
As it becomes more popular, there are tonnes of different platforms to choose from. Here are our top five favourites for German startups:
- Startnext is the largest crowdfunding platform in Germany. They fund themselves through voluntary donations, so you don’t have to pay commission.
- VisionBakery is the second-largest and offers a money-back guarantee if you don’t get enough investment.
- Seedmatch has proven performances and has multiple financing rounds for you to choose from.
- Steady is a young crowdfunding platform, but it’s experienced rapid growth and looks set to be one of the biggest players in the near future.
- 99Funken focuses on strengthening economies regionally, so is a great choice if your project focuses on public wellbeing.
H2: Use a startup advisory service
One fear many business owners have is that they’ll end up giving away too much equity or end up in debt with their investors. There are plenty of services that advise you on how to maximise your chances of getting funding and how to choose the best investment option for your business. Learn more about how we can help you get funding for your startup.