The aim is to make survival easier for startups in Bavaria: The funding agency Baystartup, backed by the state government, is working on new financing models outside the usual venture capital channels. “We also want to use a new approach to support founders who have had few opportunities with venture capitalists and want to build their companies in the long term,” managing director Carsten Rudolph told the German Press Agency. “These are people who don’t want to sell after a few years just because the venture capital fund has reached the end of its term.”
Problem: Venture capital funds want to earn high returns in a short time
Start-ups often lose money in the first few years, which is why banks usually do not provide loans due to the high risk. However, venture capital providers often demand very high returns. “Venture capital funds often disappear out of boredom if the founders don’t promise triple-digit million sales for the fifth year,” Rudolph said.
This new model is similar to traditional SME financing
Therefore, Baystartup wants to increasingly bring together founders with investors who participate directly in a company as shareholders. Rudolph also sees better opportunities for older managers beyond student age. “We see greater potential in more mature founders in their late 30s or early 40s. Someone who has ten years of industry experience is not writing fantastic business expectations into their business plan.”
Great interest
Classic ways of financing medium-sized businesses have not yet been implemented in the start-up world, says co-managing director Barbara Dombay. “People often complain that start-ups don’t get loans from banks. However, if investors join as partners, the company has higher equity. This means banks can also provide loans.”
There is huge interest, said co-managing director Barbara Dombay. “We have started very carefully with this support for future medium-sized businesses to first assess the potential on the part of start-ups as well as private investors.”
Target group outside Munich
According to Dombay, the founders were “quite relieved when they no longer had to estimate their financial plans” and were not simply asked: “How can you go public on Nasdaq in New York in eight years?” Often the financing does not reach millions, but is in the six-figure range. “The goal is to first achieve profitability so we can continue to grow steadily.”
According to the two Baystartup bosses, the new model, oriented towards financing medium-sized businesses, may be especially suitable for company founders in rural areas characterized by medium-sized businesses, where venture capitalists rarely venture. Baystartup was founded in 2014 and is supported by two supporting associations. The agency brings together founders and donors through competitions and events. In its first ten years, the agency provided almost 550 million euros to young companies. Rudolph initially managed Baystartup alone, but with increased duties, Dombay has now been appointed as the second managing director.
State governments want to provide more risk capital
Regarding venture capital, according to Rudolph, at least well-known startups do not have difficulty finding investors, even though they are often based in the US or other countries. “Companies get their money and usually don’t leave, but at some point they are in international hands,” said the Baystartup boss. “So it’s primarily about economic interests and not about barriers to start-up companies. But this is clearly not a German problem, but rather a European problem: ‘How can we build these excellent companies and be economically successful in the long term?’
The state government is also looking to increase seed funding with state risk capital. According to a recent announcement by Economy Minister Hubert Aiwanger (Free Voter), an additional 750 million euros is planned.
© dpa-infocom, dpa:251123-930-328247/1
