Private equity includes venture capital, which is relevant to start-ups. So how do you get venture capital for a start-up or business when there is so much competition? We’ll show you.
But first, som background information. So-called venture capital companies invest primarily in technology-oriented and innovative companies that are in the start-up and growth phase. Investments are usually made through a venture capital fund.
Alternatives to classic VC encoders are Incubators or Media for Equity Programmes. But also Crowd investing is possible for start-ups.
Venture capital as part of private equity
Venture capital, which is relevant for start-ups, is a sub-form of Private equity, in which a holding company participates in the company in the form of a venture capital fund. It is important for start-ups to know that venture capital funds typically focus on one or more industries and become co-owners through the investment, but do not seek a majority stake.
1. What is Venture Capital?
Venture capital companies are companies that usually invest in young companies through a venture capital fund. Venture capital funds often have one or more industry priorities in which they specialize. By bringing in capital, the venture capital investor becomes a co-shareholder with all associated rights and obligations. However, venture capital investors do not acquire, as is often assumed, the majority of the company – venture capital companies deliberately want the start-ups to hold the majority of the company. In addition to capital, venture capital companies usually also contribute sound industry knowledge and management expertise to the invested company.
2. Which start-ups are of interest to venture capital?
Venture capital or venture capital investors invest their money primarily in new and promising companies, which, although few collateral, have a high degree of innovation and Potential to bid. The following factors are important for venture capital companies in the selection of companies:
- Business idea: novel & innovative
- Market: promising and growing
- Customer benefit: clear benefit and benefit for the customer (USP)
- Team: Venture capital companies invest in people, not companies!
The minimum shareholding of the venture capital funds is usually around 100,000-250,000 euros.Tip
In our investor and promotion database, you can search specifically for venture capital companies by specifying the industry focus and the level of investment.
3. At what stage do venture capital funds invest?
Venture capital companies differ not only in their different industry focus, but also in different phases of investment. In principle, venture capital companies invest in the following three phases:
- Pre-founding phase (Seed)
- Start-up financing
- First phase of growth (expansion)
Pre-founding phase (Seed)
With the help of Seed Capital, the phase of idea development, research and development as well as the development of prototypes is financed. The aim is to bring the concept to market maturity. Since the seed phase carries the highest risk, venture capital companies rarely invest in the seed phase.
Start-up financing starts when product development is complete and the market launch needs to be financed. The financing of start-ups is therefore about financing a company that already has a product/service, which must now be produced and marketed with the help of fresh capital. For this phase, venture capital in particular requires the Proof of Concept relevant – i.e. there should be a clear indication that the business idea also leads to economic success.
First phase of growth (expansion)
If the product has successfully asserted itself on the market and the first sales have been achieved, the market position is now to be expanded. In order to finance future growth, specialized venture capital funds focused on expansion are available. Investments are mainly in production capacities and sales in order to be prepared for future growth.
4. Which venture capital investors are there?
Für-Gründer.de differs between the following different venture capital companies, which can differ significantly in terms of industry focus, industry know-how, investment total and possible synergies:
Classic Venture Capital Companies
The majority of venture capital donors belong to the classic venture capital companies in which the company operates as a fund manager / asset manager. The venture capital company establishes a VC fund with a special investment focus (e.g. with a special industry focus and / or investment phase). Once the fund is defined, the company must find investors (capital raising). With the money raised, the company then invests in the companies that fit into the investment strategy. Important for founders: If you want to win a venture capital company as an investor, check before contacting whether your company could correspond to the investment focus. The minimum investment amount is usually more than 50,000 euros. Pros: Since the companies focus on a few industries, you usually also bring industry know-how to the company.
Venture Capital of promotional banks
Most promotional banks have their own investment companies, which participate in young companies and thus promote the creation of a business. Depending on the federal state, special, mostly technology-oriented companies can be financed by a venture capital company. Pros: As a rule, the investment companies do not have a fixed investment focus; i.e. in principle, every business model is an option. However, since there is no specific industry focus, the promotional bank may not bring as much industry know-how into the company as, for example, a classic venture capital company.
High-tech start-up fund
Similar to the high-tech start-up fund, the Venture Capital fund, financed by KfW and BMWi, invests in young growth companies. However, the focus is on A-Series financing and beyond. In the first financing round, for example, between EUR 0.5 million and EUR 3 million of venture capital will be invested in a company. A maximum of EUR 10 million is available per start-up. The Coparion fund acts exclusively as a co-investor – so another investor must provide venture capital on the same terms.
Corporate Venture Capital
Corporate Venture Capital (CVC) companies are subsidiaries of large companies that make strategic investments for the parent company. Accordingly, the target companies are mostly active in related sectors of the parent company. In contrast to “normal” venture capital companies, CVCs are focused on increasing the value of the funds used, as well as on the added value that can be generated from synergies between the parent company and the financed partner company.
How to convince venture capital investors
In addition to the factors described above, which are important for how to get venture capital for a start-up, a convincing presentation – in part also in the form of Elevator Pitches or Pitch Decks – decisive for the first impression and, if necessary, the next step: the examination of the business plan.
When considering the business plan, a venture capitalist looks in particular at the Executive Summary and the Budget exactly. It is therefore important that you can convince with a waterproof financial plan. Use a professional financial plan tool to create your financial plan.