Berlin After the financing is before the financing: start-ups regularly need fresh money to finance their growth. But it wasn’t that easy in 2022, the financing market for founders collapsed drastically.
A similarly low level as in 2022 is expected for 2023 – but the needs of start-ups will not simply disappear. What do investors advise founders so that they can still get financing? And which conditions should entrepreneurs under no circumstances agree to?
Below are seven tips from investors from the best-known German venture capitalists from Lakestar to Earlybird and other experts:
“Regardless of the company phase, every founder should be able to answer the question in the current market: How solid is the core of my business model? Start-ups that want to collect fresh growth capital are required to have a perspective on their path to profitability.
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This includes taking a very clear look at their cash burn rate. We encourage founders in our portfolio to also see opportunities that arise in a challenging market, for example in the direction of consolidation.”
Uwe Horstmann from Project A (Trade Republic, Voi, Laserhub):
His advice: No excessive demands.
(Photo: Project A)
“I would recommend going into talks in a more ‘conservative’ way, especially in the current situation, instead of brushing off directly with excessive demands from potential investors. If the market interest is good, you can negotiate up, but not down if things don’t go so well.”
Jan Miczaika, Partner at HV Capital (Enpal, Scalable Capital, Flixbus):
Sometimes a clear cut is better.
(Photo: HV Capital)
“I advise founders and also venture capitalists to always focus on the ‘fundability’ of the company in the next round. How do you make the company as attractive as possible for other investors or a strategic buyer?
For example, some founders and investors avoid company devaluations and instead build complicated warrant or liquidation preference structures. I often prefer a clear cut that sets up the company cleanly for the future.”
Christian Nagel, co-founder and partner of Earlybird (Getsafe, EyeEm, N26):
Concrete numbers must be ready.
(Photo: Earlybird)
“Overall, it is helpful to start any discussions from a strong position. That means focusing on profitable growth and having these figures at hand in a concrete and transparent manner. However, those who are not necessarily dependent on financing talks in the coming year should delay them entirely and wait and see how the market develops.
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If you really can’t avoid financing talks, you should be prepared to consider options that would not be attractive under other circumstances and to accept mediocre conditions. Sometimes it also makes sense to examine alternative financing options.”
Max Brückner, Cherry Ventures (Mondu, SellerX, Sanity Group):
“Venture capitalists continue to look for outstanding entrepreneurs. It is certainly important that in the financing discussion you can also show how the company will grow and act cost-efficiently.
That doesn’t mean, however, that investors expect companies to become profitable very early on. It remains true that growth is a very important metric and money will continue to be made available to fund it. Trimming too early and too narrowly for profitability would be asking too much.”
Martin Schilling, Techstars:
“Investors take much longer to decide and look at deals much more closely. Unless absolutely necessary, founders should reject multiple liquidation preferences, board approval rights that are not industry-compliant, or critical dilution provisions.”
Kai Hesselmann, Deal Circle:
“If founders raise capital from a position of strength, i.e. do not necessarily need new financing, they should not agree to any liquidation preference and should not grant new investors a fixed interest rate. The new investors should get in at the same conditions as the previous investors or even on the basis of a higher valuation.
In general, founders should not give the new investors any significant say in the matter. In this way, they eliminate the risk that the new investors will be able to sell them. They should also not agree on any milestones that must be reached for the capital to be paid out.
Founder teams should also attach importance to protection against dilution. This prevents the founders’ shares from being devalued: In the event that the start-up gets into trouble and the investors make large amounts of capital available to the company, the founders’ shares are protected.
Also, founders should not accept vesting, i.e. having to earn their shares over a certain period of time.”
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