Hosting venture capital firms startup mixers
Securing corporate financing is a major challenge for IT companies. Financing through bank loans usually fails due to insufficient collateral (keyword: IP) and the banks' lack of industry knowledge. External financing is therefore generally ruled out. Subsidies only partially solve the problem, as they generally require own funds and the house bank principle generally applies. The problem is often exacerbated by the fact that capital requirements are particularly high when there is strong growth.
In most cases, it is therefore imperative to strengthen the equity base through venture capital. In this context, private investors or business angels, venture capital and private equity companies as well as family offices should be mentioned as potential investors. These provide venture capital and in return receive company shares. However, investors place high demands on companies. Basically, you need a mature business and financial plan for this. The most important decision-making criteria for venture capital providers are above all an attractive business model and a convincing management team.
The search for investors is therefore extremely difficult and time-consuming for companies in practice. First of all, a comprehensive business and financial plan must be drawn up. Many companies fail because of this, as they usually do not know which points investors really value. Even free advice offers (e.g. from IHKs) and consultants who are not at home in the venture capital industry (such as tax consultants) do not help here, as they lack the necessary practical experience.
Once the business and financial plan has been drawn up, suitable investors must be identified and addressed. Typical search criteria are the industry focus, the development phase of the company, the amount of capital required and the geographical focus. Companies seeking capital are faced with the challenge that many investors simply cannot be identified. While venture capital and private equity firms appear publicly, this is typically not the case with private investors and family offices. Associations such as the Bundesverband Deutscher Kapitalbeteiligungsgesellschaft (BVK) and the Business Angels Network Germany (BAND) create a little transparency, but only represent a fraction of the entire market. According to its own information, BAND unites around 1,600 business angels. In comparison, the Center for European Economic Research (ZEW) assumes around 5,000 business angels in Germany.
If potential investors have been identified and addressed, the contacts must then be followed up accordingly. This makes the search for capital time-consuming and therefore costly. In addition, companies seeking capital often do not have the necessary know-how to approach investors professionally. This is regularly shown in business plans that are randomly sent to potential investors by mass email (often with an open distribution list). Overall, the search for capital on your own represents an immense feat of strength for the company, whose resources would usually be better invested in building up the company.
An alternative to looking for capital on your own is the support of a consultant who specializes in venture capital financing. With his know-how and his experience as well as the corresponding investor contacts, he relieves the company looking for capital a lot of work. In addition, the use of a suitable consultant increases the chances of success in venture capital financing considerably. Although there are no official statistics, serious estimates (including those from the BVK) assume a probability of success in the lower single-digit percentage range for venture capital financing. Competent consultants are clearly in the double-digit percentage range.
Of course, the support of a qualified advisor has its price. In addition to a sound academic education, they have many years of professional experience with a venture capital provider and / or have been involved in entrepreneurship themselves. In addition, the development and maintenance of a corresponding investor network is associated with a great deal of effort for the consultant. The better the advisor knows his investor network and the more intensively he maintains it, the higher the likelihood of financing tends to be. If investors trust a so-called deal flow source, then the financing requests are examined more carefully. Companies represented by a consultant with a good reputation in the market have a clear advantage here. The importance of this task of the consultant should therefore not be underestimated.
How do you, as a capital-seeking company, recognize a qualified advisor? In addition to formal qualifications and relevant professional experience, references to successful financing (so-called track record) are an important quality criterion. You should also check general criteria: Is the advisor easy to reach? Is he reliable? Does his company have a regular business address and a common corporate form (e.g. GmbH or AG)? Does the advisor talk openly about the costs in advance? Ultimately, of course, the price itself is also a quality criterion. It is an open secret among industry insiders that on the basis of purely performance-based remuneration, no high-quality services can be provided over the long term. Since there are no formal admission requirements for consultants, there are unfortunately a lot of black sheep here. Choosing the right advisor is therefore very important.
The above shows that venture capital is an important element of the financing mix in IT companies. Finding a venture capital investor is, however, a nerve-racking and time-consuming effort that often does not succeed without professional support. Advisors who specialize in venture capital financing can help. The use of these experts has its price; However, the right consultant saves a lot of time and also significantly increases the likelihood of success. Due to the confusing market, choosing the right advisor is a challenge. Here you should not primarily pay attention to the price, but rather to the quality of the consultant, because there is usually a positive connection between price and quality. Experts in this field do not offer their services purely on a success-based basis.
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