Funding Your Startup: How to Get it Done

Capital is essential at the beginning of a project, especially for cost-intensive industries such as the technology industry. Particularly with a new business idea or the start-up of a company, it is not uncommon for there to be a lack of financial resources. On the one hand, there are special business start-up loans or subsidies. On the other hand, however, these are sometimes not enough. Then another type of financing is required, such as so-called start-up financing.

What is start-up financing?

Numerous companies have very good business ideas, but the implementation often fails because financial resources are not available. First and foremost, there is talk of start-up financing if certain projects receive financial support. Such start-up funding can come from various sources, in particular from institutional such as Horizon Europe and public donors. In addition, it is not uncommon for private investors to be involved, and of course banks are also active in this area.

Characteristics of the start-up financing

The start-up financing is determined at the beginning of a project. For this purpose, specific framework conditions must be negotiated with investors : What will the money be used for? Which goals should be achieved? In most cases, this type of financing does not require financial security. Rather, the project itself is viewed as a security. It should be successful in the future and thus make money. Thus, in most cases, start-up financing is provided with venture capital.

Start-up financing can be provided by various investors such as funds, banks, private investors or the public sector. In its 2018 Economic Plan Act, the federal government decided that around 790 million euros in venture capital would be available for young companies. This means that around two billion euros in public funds are available for the further development of venture capital measures in the coming years.

How does the start-up financing work in detail?

It is characteristic of start-up financing that the form of financing is determined at the beginning of the project to be financed. This is linked to the fact that the respective financiers negotiate with the recipient of the capital which framework conditions should apply. This usually includes determining the following factors:

  • What is the capital used for?
  • What goal should the funding achieve?
  • What are the specific conditions?
  • Do securities have to be provided?

The specific conditions are of course also important for start-up financing. These primarily include the interest rate to be paid by the recipient of the capital and the term in which the loan must be repaid. In many cases, start-up financing does not require any collateral from the lender. This is especially important for start-ups, as they are usually not yet able to provide loan collateral. Often the start-up financing is equally capital , which is known as venture capital.

Another characteristic of start-up financing is that the funds are often made available from different sources. These include in particular:

  • Funds or institutional investors
  • Banks
  • Private investors
  • Public authorities

What is the difference between start-up financing and start-up loans?

Both the start-up financing and the business start-up loan are often used in practice to finance the first few years of business activity or at least the start after setting up a business. Nevertheless, there are definitely differences between the two financing options. The start-up loan is usually a bank loan that is at least partially secured.

The conditions are usually quite favorable and funding can often be included. In the case of start-up financing, no subsidies are usually included and most of the time the lender does not require any security. Therefore, the risk of this type of financing is often higher than if it were a normal bank loan, for example a business start-up loan. unit volume

Start-up financing with the involvement of sponsors

Since private or institutional investors are often involved in start-up financing, venture capital is often made available. It is also not uncommon for the initiators of the projects to receive money from sponsors. While the classic start-up financing usually includes a loan that is repaid, the consideration for sponsorship money consists of various advertising and marketing measures. This means that the company in question, for example, prints or mentions the name or a logo of the sponsor on certain objects or its products. In return, the sponsor usually pays a certain amount per year, which the recipient can freely use.

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Author: Peter Navarro

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