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Seven Options for Financing Your Startup

You’re founding a startup and are wondering how to finance your company? We have seven different options to share with you.

In the beginning, startup founders often wonder about financing and how to secure the necessary amount of capital for their company. Costs for office or shop space, materials, manufacturing, machinery and employees can quickly add up. That makes it all the more important to find out more about different financing options ahead of time. We put together seven different options for you for finding capital.

1. Financing with government funding

The government supports startup founders with different grant programs for starting a company. Some examples:

  • Students, graduates and academics who want to make their idea a reality can apply for the Exist Startup Grant from the German Federal Ministry for Economic Affairs and Energy. Depending on the applicants’ university degrees, it’s possible to receive funding ranging from 1,000 to 3,000 euros each month. The amount is granted for a maximum period of one year.
  • The Bavarian government offers the Bavarian Program to support Technology-oriented Startups (BayTOU), which assists startups with the development of their products, processes and services. Select young companies receive a grant amounting to a maximum of three percent of the eligible costs for the concept stage and 45 percent for a development project. For software developments, the maximum funding amounts to 150,000 euros. For technological endeavors, 26,000 euros are available for the concept stage.
  • The Flügge Program of the Bavarian Ministry of Economic Affairs supports startups from Bavarian universities. It’s aimed towards students, graduates and university employees with an innovative business idea in the manufacturing and service sectors. Grant recipients receive a monthly sum of 2,500 euros for one year. It is also possible to receive additional material resources and funding for business coaching.
  • Unemployed individuals who would like to become self-employed to end their unemployment have the option of applying for a Startup Grant from the German Federal Employment Agency. The startup grant, which is calculated based on the last unemployment benefit plus 300 euros, is granted for six months. It can be extended for another nine months. The startup grant, however, is a discretionary benefit; there is no legal entitlement to the funding.

A list of many state funding programs is available here, and funding programs specifically for Bavaria can be found here.

2. Finance injections from startup competitions

Award ceremony for phase three of the Munich Baystartup Business Plan Competition 2018 © Sebastian Widmann

Another option for bringing in additional money for your business idea is to participate in startup competitions. An example is one hosted by Baystartup each year, the Munich Business Plan Competition. In three stages, startups have the opportunity to present their business idea to an interested audience made up of investors, experts and entrepreneurs. In total, the competition awards prize money amounting to 48,500 euros.

The Ministry of Economic Affairs, Regional Development and Energy also offers a program called ‘Start? Zuschuss!’ Competition, which supports technology-oriented startups in the field of digitization during the startup stage. The funding awarded to the winners amounts to a maximum of 36,000 euros.

A host of interesting competitions are also open to founders on a national level in Germany such as the ‘German Entrepreneur Award’, the startup competition ‘Digital Innovation’ or the ‘Breakthrough Award’.

That being said, you shouldn’t base your funding strategy on these options because you can never be sure of winning the competitions. It’s more about promoting your startup with a win.

3. Venture Capital

Startups with a scalable business model can look for venture capitalists. Venture capital firms support young companies not only with financing, but also provide essential industry-based expertise and act as a figurehead for startups. They often take a large percentage of company shares in exchange, which they will want to sell off later to make as much profit as possible.

  • Young hightech companies can also hope for financing from the government funded High-Tech-Gründerfonds (HTGF). HTGF is Germany’s leading early-stage investor and supports startups with venture capital.
  • Startups in the fields of industrial technologies, enterprise software/Saas or mobility can apply for financing from Unternehmertum Venture Capital Partners (UVC Partners). This early-stage capital venture firm concentrates on European tech startups with high-growth B2B business models. The investment amounts for each round of financing range from 500,000 to 3 million euros and to a total of up to 12 million euros per startup.
  • Bayern Kapital GmbH also supports hightech startups with venture capital from the seed stage to the growth stage. Depending on which stage the startup is currently in, Bayern Kapital provides large sums of money.

4. Crowdfinancing

It’s also possible to finance a startup with help from the crowd. That includes the following models:

  • Crowdfunding: Investors do not receive financial compensation, but are instead given a reward for their financial support.
  • Crowddonation: donation-based financial support for humanitarian, creative or social projects without any compensation.
  • Crowdinvesting: Investors become shareholders and benefit from subsequent success
  • Crowdlending: Loans with a fixed rate of interest granted by private individuals who are paid their money back over a stipulated period of time.

Some of the best known platforms for crowdfinancing are Gofundme, Kickstarter, Indiegogo, Startnext, Steady and 99 Funken. An overview with tips, network information and support options in Munich for crowdfunding can be found here.

5. Bank loans and subsidized loans

An obvious option is to finance your company with a loan. It’s often difficult, however, to receive a standard bank loan for a startup idea if you cannot offer the bank any collateral. In such a case, the Bürgschaftsbank Bayern can help out. Loans for startups are also granted by financial institutions such as the LfA Förderbank Bayern or KfW (Kreditanstalt für Wiederaufbau). The KfW offers the following options:

This kind of loan also has to be applied for through your main bank. It can be helpful to talk with the LfA (LfA Förderbank Bayern) beforehand.

6. Accelerators and incubators

While most accelerators and incubator programs support startups mainly by providing the necessary infrastructure and coaching, some programs also help startups financially. The Munich ecosystem has startup programs that help finance a new business idea, including the Prosiebensat.1 Accelerator, the ESA Business Incubation Centre (BIC) Bavaria, Nutrion and Wayra.

7. Business Angels

Business angels are most often successful company founders who support other startups with their own capital, experience and industry expertise when founding a company. There are several business angel associations in Germany where you can look for a suitable investor, such as the Business Angel Netzwerk Deutschland and the Baystartup Business Angel Netzwerk.

Support services and informative websites

If you have further questions about startup financing, you can always turn to one of the following centers for support services. The IHK Startup Unit offers comprehensive support services for startups, which not only includes financing but also subjects such as business plans, formalities, legal issues, internationalization and networking. Innovative technology-oriented startups will also find the right point of contact at IHK Innovation Support Services. You can talk with them about the possibility of state funding for research and development as well as equity financing.

Baystartup also helps startups find the right options for financing. As part of what is known as Startup Finance Coaching, you can receive support in developing a funding strategy and drafting a pitch deck as well as business and financial plans. As soon as you’ve optimized your documents for an investor pitch, the Baystartup experts check to see if you can be presented to the Baystartup investor network – with more than 300 business angels, 100 VCs and capital transactions that amounted to more than 60 million euros last year.

Moreover, the Förderdatenbank (funding database) has a good search function for finding funding options. You can filter the results according to the funding area and type of funding.

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