The ten best ways to finance a start-up
When financing a start-up, answers have to be found for a myriad of legal and tax questions. And that is not only the case when large-scale financing rounds involving investors and business angels are concerned. There is a wide range of financing options that can be suitable for start-ups. The important point is to consider and weigh the associated opportunities and risks. As a company can hardly take off without adequate financial means, you should proceed cautiously to avoid mistakes. And that is not easy in light of the growing number of new EU directives and national laws. We can offer in-depth and comprehensive know-how in the field of financing and will be happy to advise you on which financing option is right for you.
In this context, it might be a good idea to take a look at the top ten financing options for start-ups:
10) Bank loan
Most founders only consider taking out a conventional bank loan if they have sufficient collateral – and are willing to use it for a loan.
9) Advance payment for a product (usually from a customer)
It is also an option to negotiate an advance payment with a major customer. Yet this is only realistic if the development stage of the product or service has been completed and it is ready to use for the customer.
8) Incubators and accelerators
Incubators generally provide work equipment and consulting by experienced entrepreneurs who help founders analyse their business ideas, but they do not offer capital. Accelerators, on the other hand, match founders with mentors and/or capital. In return, they usually ask for a stake in the start-up.
7) Equity capital or your own services
Deals in which advisors receive shares (equity) in the start-up in exchange for consulting services require intensive scrutiny. Frequently company shares are transferred at unreasonably low prices, while the advisors themselves enter into a conflict of interest.
6) Venture capital investors
Particularly when choosing this option, you should seek professional advice. Venture capital investors are often professionals with a lot of experience in investing in start-ups and expect corresponding (high) returns for the venture capital they provide. The participation contracts are, as a rule, quite complex from a legal point of view and should be reviewed in detail before signing.
5) Business angels
Business angels usually provide less capital than venture capital investors, but their experience and networks are significant benefits to consider. Against this backdrop, it is key to choose the right person for the business environment of your start-up.
When crowdfunding is done well, it can not only finance your idea, but also create additional value by serving as an advertisement. Caution is due with regard to platforms where the crowd can obtain a stake in the company itself. The clauses of the respective contracts and the legal form chosen are decisive in such a case.
In view of the wealth of grants available, it is anything but easy to find out which institutions subsidise which kinds of projects. On this website, we provide an overview of grants and tips to keep in mind under “Grants”.
2) Friends & family
Founders often turn to these two “Fs” first when getting a small company off the ground. Yet special attention should be paid when choosing financing options requiring collateral by family members.
1) Managing on one’s own and growing organically
If a founder manages to keep founding costs low, grows organically and takes his or her time, it is possible to get by with only one’s own means (bootstrap approach).