What is the right funding ..

.. for my business idea?

There are a lot of articles about fundraising, maybe too many. Why would I add another one?

I think most of them cover “how to fundraise”, especially from VCs, rather than exploring two important issues:

a)    Which type of funding is probably the best for my venture idea?

b)    The pros and cons of different types of funding from a practical perspective.

If you want to learn more about one of both topics, let’s get started.

If you think about starting a new venture, there are various ways to cover the necessary expenses to build up your business. All of them come with their particular pros and cons. Which way is the right way for you will depend on your preference but probably even more on your business model and consequently “which type of business” you are building.

Typically, your options are

a)    Bootstrapping

b)    Public Funding,

c)    Debt Funding,

d)    and Equity Funding.

Let us start with bootstrapping and go through the list in the sequence as written above.

Bootstrapping

You might ask: What is bootstrapping? Bootstrapping is an overcomplicated term for how most companies are started: Without any external investment. The founders just use their own money to cover the initial expenses and then the business grows “organically”. Organically means that initial profits are reinvested to increase market share, develop new products, and hire the necessary people to do all of this.

This way of doing this has two major advantages:

1.     You and your co-founders own all stock of the company.

2.    Point 2 is a direct consequence of point 1: You can decide on your own about the pace at which you want to move forward, grow etc. There is no outside pressure except for the happiness of your customers to keep the business running.

If this way of building a business works for your idea or not depends on two things:

1.    The amount of money needed to cover expenses until they are profitable.

2.   The funds that are available to you and your willingness to use those in regard to point (1).

This means that bootstrapping will typically not work for deep tech companies that require millions or even billions in R&D before they can launch their first real product [1]. Examples range from biotech, to fusion reactors and quantum computing.

On the other hand bootstrapping seems to be very well suited for businesses with very low upfront costs. The most common example of such a business is any type of consulting service. When you start such a business, you (and your founders) are the only employees. The hourly rate that you charge to your initial customers is high enough to cover your own salaries and small overheads associated with the business. You are profitable from day 1. If by word of mouth from initial customers or any other sales channels, new customers come in and ask for more hours than your workday has, you can hire more people to be able to sell these additional hours to your customers, and so forth. The business grows very organically.

Or the profits from the consulting service are used to develop products that allow transforming the business from a consulting towards to product-oriented business – a way that was very typical to grow business before public grants and venture capital became more accessible.

Public funding

If your business model requires more upfront capital than you (and your co-founders) can afford, the first thing that you might look at is public funding.

Why is the first thing? On the one hand, many people have an academic background and are used to the fact that grants are the main source to fund projects. On the other hand, public funding programs have often a grant component associated with them which means that the money that you get you don’t have to pay back, neither in cash nor in equity. Thus, it seems to be “free money”. Is it, however?

To answer this question, let’s have a look at the structure of public funding available to founders. I will focus on Europe here but I would assume that in general, the ideas apply also to many other parts of the world.

Public funding is available on an international level [2], national level [3] or regional level [4]. As a rule of thumb, European funding programs have higher funding volumes than national and regional but are therefore also more competitive.

The programs differ from each other in 4 main aspects:

1)    Development stage of the company: The good news is that funding is available for the whole spectrum of company stages, ranging from the ideation stage to international multibillion businesses. The important thing is to be careful to assess which program might be the most relevant to you now and in the next couple of years.

2)    Focal area: Programs usually have a topic around which they are built. Some programs focus on AI, others on aviation, and another focus on sustainable farming just to highlight a few examples. Again, the good news is that in general there are programs for almost any topic that you can imagine and several programs are actually topic-agnostic. However, it is important to find out how you can wrap up your particular topic “being innovative” as this seems the main buzzword of today.

3)    Type of funding: There are various instruments how public funds provide capital to beneficiaries: Grants (which is what you usually want to have as they don’t have to be paid back), venture debt (which is a tricky thing, we will look at this later) and various type of convertibles.

4)    Alone or together: Some programs fund individual companies but many programs, especially on national and international levels like to see “consortia”, i.e. the collaborations of several entities, where the collaboration between industrial and academic partners is strongly encouraged.

With these 1 + 4 dimensions, you can imagine that there quite a jungle of programs that you could potentially apply to and luckily, governments are keen on putting more money in the service of growing new business models, thus more programs are being started each year.

How to navigate through this jungle? How to know which program is right? You have a couple of options: Usually, you can check the eligibility criteria on the program’s website and find some personal contacts to ask for more details. Don’t be afraid to make the calls. People on the other line are usually quite friendly and helpful (and will be much more encouraging than they maybe should be.). However, this means that you have to go through each program one by one and first you need to find them.

Another approach is to talk to one of the many public funding consultants that are out there nowadays. As people started to lose overview over the plurality of options available, a whole niche industry grew around public funding with people who try to help you with three things:

a)    Get an overview of which public funding programs are available.

b)    Help you to understand properly the pros and cons of each program.

c)    Support you during the application process in order to increase your chances of success.

In my experience, consultants are quite good at doing a). The success of an application depends on an in-depth understanding of the particular application process and having a network of people on the programs which can help tailor the application to the requirements of the program. Thus, consultancies tend to focus on particular programs, either for international, national, or regional ones; and it is advisable to talk to multiple consultants where each has a focus on particular types of programs.

Also, consultants are quite good at doing c). I would even dare to say, that without engaging with a consultancy the chances to get funding are significantly reduced. It’s a typical “prisoner’s dilemma” situation. Once, one company increases its chances to get funding, others will follow and everybody who does not engage in the game is left behind. For this service, typically you will be charged a one-time fee and a success fee [5] . The higher the one-time fee, the lower the success fee, and vice versa. [6]

However, be aware, that consultancies might not be your best advisors regarding point b). As a) and usually parts of b) are “free services” (as part of the customer acquisition process) and revenue is only generated when doing c), the incentive is obviously to be rather optimistic than balanced discussing the pros and cons of programs.

There are mainly two pros of public funding: (a) Mostly, you don’t have to give away equity. (b) Some programs are so early stage, that you might get funding from them before any business angel, not to say family offices or VCs, might invest.

However, as already indicated above, the money is not “as free” as it might look on a first glance. So what are the associated costs that you have to bear instead of paying with equity? I see mainly three things:

1)    Preparing a strong funding proposal takes time, significant time [7]. As time is the single most scarce resource for a founder, the time that is invested in acquiring public funding is time that is not invested into looking for customers, business partners, and meeting private investors. Even if the proposal is successful, during the implementation phase of the project, usually you spend most time talking to people who work in public administration. Unlike investors, they are incentivized to run according to processes rather than maximizing the value of the shares that they hold in your company. Thus, you cannot expect to be introduced to new customers, new business partners, mentors, or new investors. Thus, with public funding, you get money at the expense of increasing your network [8].

2)    You took the time to apply? Your proposal got approved after a multi-stage application process? Congratulations! Welcome to payout frustration hell. Usually, public funding is paid out at pre-defined points in time according to a project plan that is part of your approved project proposal. While funding agencies expect you to have a sixth sense of predicting the future and know your monthly financial needs up to the 6-th decimal, they seem not to be so keen to keep up with the payment schedule that they agreed to at the beginning of the project. Reasons can be manifold: Some employee taking vacation or being on a sick leave, the IT systems not working, government shutdown, or maybe you forgot to put a stamp on 1 out of 200 documents that were requested. But the outcome is usually the same: The payout is delayed by 2, 3 months or even more [9]. Thus, building your cash flow planning on public funding can put your company’s liquidity at considerable risk.

3)    As written above, there is an expectation of funding agencies for applicants to be in possession of magic powers to predict the accurate future of a highly unpredictable venture several years in advance. As most of us can’t do this, the plan that we got approved, is pretty much wrong or at least very inaccurate by the moment of approval. You don’t know it yet but when you find out 6 months into the project, your willingness to pivot is strongly hindered by the source of your funding: You had a plan so you are “encouraged” to stick to it even if the path you took turned out to be wrong, or you have a significant risk of losing your funding as plan A has been approved but not plan B.

The summary of the points written above is that you have a so-called “double down”/”double up” situation like in leveraged financial products: If things go well, you have won double time, as the company works well and you have more equity than you would have otherwise. If things go bad, then there is a strong chance that things might go worse as all three factors explained above work against you: You are limited in your ability to pivot, your cash flow situation is worsened by circumstances that you cannot change, and you are lacking the network to find additional funding to keep the boat floating. This gets tremendously worse if one of the instruments that is used in the public funding program that you got awarded is venture debt (I will explain this in detail in the corresponding section below.).

In order to minimize the “double down” potential of public funding, I can recommend a couple of strategic considerations:

1)    Rather “underestimate” than “overestimate” your progress or in other words: Pick public programs that are as “early-stage” as anyhow possible. Once you have picked a “later stage grant” and find out there is way more work to do than expected, it might be hard to go back and apply again for something “earlystagier” as you already got funded for a later stage.

2)    If you have been to academia for a while, you probably have discovered how grant applications work: (1) Do research, (2) Apply for a grant where you claim that you will do 90 % of the search that you have already done under (1) and 10 % is actually new research. (3) Repeat (1). While this sounds absurd, given the system that academia currently is, this seems to be the best way to actually get funded. Once you switch to 50 % done / 50 % new or even worse < 20 % done / > % 80 new, your research will be either “too actually researchy” to be funded or if you are lucky to get funded the odds are against you to get funded again as you are doing actual research and don’t know the outcome.

Try to make sure that you can apply this wisdom to your public grants application: Be sure that at least 80 % of the work that you promise to deliver in your grant application has already been done to a reasonable extent but not yet published or directly reflected in your products (or prototypes). Then public grants become of higher value as you gain the flexibility to deploy them to business needs and real-world circumstances.

3)    In order to avoid the trap of “Doppelförderung” which means that you got awarded a grant twice for exactly the same topic, be smart to slice your development roadmap. This means using what you learned in academia: Slicing your research into “minimal publishable units”. Apply this skill to development planning and you will get “minimal fundable projects”. This might also be a topic that consultants could help you with, as more fundable projects mean also more funding applications and more revenue for them, so incentives are well aligned.

4)    Consider public funding more as “a goodie” than your main source of liquidity. This means that your liquidity planning should also work out without public funding and public funding might reduce your dilution later. Let’s make an example: Suppose that you have 5M and with that a runway of 24 months. Try to get your public funding project done within the same time period. Suppose that you got 2.5M of public funding allocated. Instead of considering that you have 36 months of runway now, rather think that you can raise 2.5 M less after 24 months in case that public money actually got paid out; or at least think that runaway is extended after the public money is on your bank account. Be aware that funding agencies might want some money back by the end of the project if somebody doesn’t like the documents that you provided or how money was spent.

5)    In order to save time on preparing the funding proposal, get a smart founder’s associate who has great writing abilities. Even though large language models can help you to save time, in the end, somebody has to sit down and do the remaining intellectual labor. Consultants will help you with that but they can never understand your business as you or at least as somebody who is a vital part of it.

Before jumping into debt funding, a last word around forming “consortia”. The earlier stage your company is, the less time I would recommend to try to create a consortium. If through your network you come across a consortium in the making that fits your topic and you can jump onto, that can be a nice and easy way to get public money as the lead of the consortium will do all the heavy lifting and you will just contribute bits here and there.

Debt funding

Debt is a funding instrument that is rather common for the purchase of real estate or the expansion (or restructuring) of established businesses. Not so much for risky ventures such as start-ups.

Why so? Because banks that issue loans like to have a security that they can cash in if the debt cannot be repaid. The value of real estate can easily be priced and be taken as a security until a loan is fully repaid, similarly, a business with a trajectory of profits can be priced either by its market capitalization or methods such as discounted cash flow (DCF). On the contrary, startups that do not have profits yet or maybe don’t even have revenue, cannot be priced with these tools and therefore can hardly serve as a security to back the loans that are needed to build the business.

However, in the last couple of years, two new forms of debt instruments emerged that aim specifically at early-stage companies: Venture debt and revenue-based financing.

Revenue-based financing means that a financial institution provides capital based on your current revenue and credible growth projections to make sure that the capital can be paid back with corresponding interest. Due to its focus on revenue and growth, this type of financial instrument aims at scale-ups or start-ups who are at the transition to a scale-up due to strong growth.

Venture debt is in its essence not that much different from a classical loan. The main differences are that venture debt is usually issued at a higher interest rate due to the higher risk involved and the institutions that offer venture debt are not common banks but institutions closer to the VC (and sometimes private equity) space who accept a higher risk at higher returns.

The process to get venture debt funding is usually not that different to getting funding from other private or public investors: You have to pitch, discuss your business plan, and go through the common due diligence steps.

If you consider taking onto venture debt, it is important to bear in mind two things:

Firstly, some creditors require private security from the founders and/or managing directors of the company. I would strongly advise not to do so as this completely short circuits the idea of a “limited liability” company and puts you in the danger of personal financial ruin if the business doesn’t work.

Secondly, it’s important to be aware of the insolvency laws that apply to your company (and the institution that provides you with the loan). Indeed, they can vary significantly from country to country and that can have a similar “double up”/”double down” effect as in the case with public funding.

I would like to spend a couple of words on the details of it, as it appears to be quite important to know about and understand.

In many countries, a company is obliged to file for insolvency not only if it runs out of cash and is not able anymore to pay its obligations but also if it is “overindebted”. Overindebted means that the debts on its balance sheet are higher than its assets. If you don’t have an MBA or business education, you might ask yourself what this means. Let me explain.

When you are paid out a loan, your balance sheet is indeed “in balance” as the cash in your accounts is an asset and the loan is a debt. Suppose you get a loan of €1m and your monthly burning rate is €100k. After one month you have €900k in your cash assets and still €1m on your debt side. If the €100k generated more assets than €100k, e.g. because you invested them successfully into stocks that went up 10 % or each €100k that you spend on marketing results in €200k in profits, things are fine. If this money however went for instance into R&D where the results are not immediately generating pricable assets, you might be already overindebted if you don’t have any other assets already, e.g. buildings, machines, or cash through other sources of funding.

In case a company is indeed overindebted, the managing directors have the obligation to file for insolvency. She can withhold to do so if there is a “reasonable chance for survival” but at her very own risk. So it comes down to the question of how “a reasonable chance for survival” is actually defined. For instance, in Germany, it is defined as “the probability of the business to fulfill its obligations within the next 12 months should be larger than 50 %. [10] You can see that this definition does not solve the problem but merely transfers it to the question of “How is the probability calculated?”. It turns out that there is no clearly defined process or methodology for doing so.

In practice, this means that to some extent you are left to the mercy of the corresponding judge and/or insolvency layer to decide if the business had indeed a > 50 % chance of survival or not. Of course, there are some best practices that you learn when you have been through the process once. It helps you to be “on the safer side” but essentially it is only the “safer side” – not the safe side. And for you as a managing director, especially if you are a founder and can’t get management liability insurance [11], this has some very dare consequences: You can get into the very unpleasant situation of having unlimited private liability for any damage that was inflicted to the creditors due to the insolvency situation. If we jump back to the example above and assume that after 6 months, €600k were spent but only €100k assets were produced (which is quite typical for a startup), you have potentially €500k for which you have a private liability if shit hits the fan.

For founders who are often both shareholders and managing directors of a company at the same time, this represents a “backdoor to limited liability” [12, 13]. This can be both quite shocking to discover in the worst possible moment and to deal with psychologically once discovered.

Consequently, if you don’t have a lot of tangible assets yet (which is typical for a startup), venture debt funding might give you cash but not really extend your runaway like other sources of funding would do; or extend it at the cost of the managing directors taking the corresponding, additional risk on their shoulders. Additionally, there is a double-down potential if venture debt is taken early on, as the loan stays on the debt side until it is paid back which usually happens only over the course of several years. Thus, your runway is lower than it could be if the loan wasn’t there in the first place as the loan has to be balanced by assets.

One way to avoid this problem is to negotiate with the loan holder to change the status of the loan from a senior loan to a subordinated loan. This has the effect that the loan does not appear on the debt side of your balance sheet anymore. Especially banks will not be too happy to do so. However, what is worse than changing the rank of the loan, is to write it off completely. Thus, when things get tight, going into this type of negotiation with the creditor might save the day. While banks will be quite resistive, venture funds that work with venture debt might be easier to convince as they deal with such situations on a more regular basis. Surprisingly, public funds that support companies through venture debt are the worst to talk to regarding this issue. While you would expect that their interest should be to do all they can to help new businesses be successful even through difficult moments, they seem to care more about “sticking to the rules” rather than finding solutions. Hence, you might try but don’t have high hopes that whichever public funding institution provides you with a venture debt will be willing to change terms that help you avoid running into insolvency.

So after diving into many details on the pitfalls of venture debt, let me come back to the “double up”/”double down” topic. If things run well, you pay back your debt and keep your stock which increased in value which means that you got money for a much lower price. Essentially, you got money at the price of the interest rate that you paid which is usually much less than the value increase of the shares that you would have sold to get the capital that you received as a loan. However, if things don’t go so well, the venture debt does not necessarily extend your runway and puts you under additional pressure as a founder and managing director.

Based on what I wrote above, I would base the decision if to take on venture debt or not mainly two things: The type of business model you are running and the stage of the company. I would rather discourage business ideas with a strong R&D part to go for venture debt as cash that goes into R&D does not give tangible assets for a long time. Additionally, R&D bears a lot of uncertainties while the timing of installments is quite set in stone. In contrast, venture debt is interesting if you have forecastable revenue growth, especially if parts of the revenue are used to finance the build-up of tangible assets. Similarly, if the tangible assets that you already have are higher than the total loan that you are receiving, venture debt can also be a reasonable thing to go for.

To finish this part and a transition to equity funding, a short comment about convertible loan agreements (CLA): Although the word “loan” suggests, that this money ends up on the debt side of the balance sheet, CLAs are normally (unless otherwise stated explicitly in the corresponding agreement) a subordinated loan and therefore do not pose the same problem as a conventional loan. It is one of the reasons why it maintains a popular instrument for equity funding. Be aware, however, that for particular types of public funding, convertible loans are still counted as senior loans and therefore might affect negatively the funding eligibility of a company.

Equity Funding

If you ask about the pros and cons of equity funding, I guess it is quite easy to explain the advantages and disadvantages with one sentence.

Disadvantage: Your investor owns stock in your company.
Advantage: Your investor owns stock in your company.

While this may seem oversimplified, it holds a very important truth: As your investor owns stock in your company, there is a direct incentive to care about the well-being of the company as it correlates with the company's valuation.

Of course, sometimes valuation and healthy business growth can get decoupled, where early-stage investors try to bloat the valuation and get their shares sold to later-stage investors at the highest price. Nevertheless, I would argue that in more cases than not, investors have all the right incentives to help your business grow as this represents their own success.

This means that investors can and will probably introduce you to new investors for follow-up rounds. Also, investors are connected to other founders who can share their knowledge, and the limited partners (LPs) of a fund [14] are (or have been) successful founders or business executives themselves who can become strong mentors and help with their own network. Furthermore, investors can jump with follow-up funding if things do not go as according to plan (they never do) or market situations get rough.

However, these potential benefits should not make you naïve about your relationship with investors. They had to raise a fund on their own (and that can be even more cumbersome and tiring than raising money for a startup) with the promise of returns to the limited partners who invested in the fund. Yes, it’s important for them to see your business succeed but it’s even more important to make sure that the capital that was in invested in the fund is deployed in the most profitable way. Consequently, interests do not always align.

Most obviously, when negotiating the valuation of the company and other terms of the term sheet, investors and founders have contradicting interests. Also, when it comes to the structure of an exit, the details of the investment agreement can create a misalignment between investors and founders. For instance, if the multiple of the liquidation preference is too high, it might be more attractive for founders to negotiate higher salaries and bonus payments with the buyer rather than maximizing the company’s exit value.

Another important situation where interests are misaligned is a situation as described above: If a company runs out of money and venture debt is involved, the founders, who are the managing directors, have to be very careful to choose if and when they are obliged to file for insolvency. This represents the worst-case scenario for the investors as it represents a total loss of capital. However, the worst-case scenario for founders is different: It is a private insolvency if they are held privately liable for financial damages inflicted on the creditors due to not filing for insolvency earlier. Thus, investors would push to “hold out longer” without providing additional funds to get additional data points while this may well contradict the best interest of the founders.

So what’s the best way to deal with investors then? First of all, it’s important to remember that investors are people with their own lives, twerks, and issues. You can’t get around taking this into account and building a personal relationship that works on both sides. Secondly, it’s not the investor’s job to run your company but yours. You can listen to their advice that sparks from experience and a sharp bird’s eye view but working on the business on a daily basis, you should know how to weigh the advice and incorporate it into an overall strategy. Thirdly, investor can be helpful with many things but it is not their job to save the company if things go wild. Investors can be part of the strategy to find a solution in a critical situation but it’s essential down to the founders to push it through.

Which brings me to the question of “how many investors” is it good to have? I would recommend having more than 2, definitely more than 1. Why? Because if the company is in short-term need of liquidity, it’s much easier to convince somebody to provide 30 % of what is needed rather than 100 %. It’s true that one would have to convince more people but if you ever worked as a street artist, you will know that it’s much easier to make 10 people put down €1 for your show than 1 person to throw €10 into the bucket.

An important aspect is to find investors who can help you with different things: Somebody who is well-connected to follow-up investors, somebody who is very good at attracting (and/or selecting) great talent, and somebody who has a strong network in the industry vertical that you trying to break into. Usually, each investor will be able to help on all of the things to some extent but usually, some investors are much better at one aspect than at another.

What became popular recently is to have very big angel rounds, i.e. having 30 investors who invest €50k each instead of having 3 VCs with €500k checks. While this can have the advantages of greatly multiple your network, it can also bear the overhead of running after every single individual to close the round. If you are considering going this way, make sure to consider a special purpose vehicle (SPV) for polling the tickets into one on your cap table.

When you are thinking about “how much to raise?”, the common wisdom goes like “as much as you need to reach your milestone at which you can raise again”. The idea behind it is that at each milestone that you successfully checked off your list, the value of your company increases significantly, and you can raise it at a lower price. While this idea is valid, the key consideration here is to think “How much money do I need for each milestone?”. As you might remember from reading a previous article of mine [14], you can expect that you will need to put in much more effort to go from idea to prototype and then from prototype to product than you might anticipate. Thus, to be on the safe side as a founder try to sell your most pessimistic scenario as the optimistic one. That is not easy to combine with the expectations of VCs to hear about “the most ambitious version of your startup”. Hence, your chances are slim that you will be able to get to the safe side and consequently, you shouldn’t stop fundraising, not even for two weeks.

Indeed, I recommend keeping in mind that “after a round” is “before a round”. After you close a round and receive the cash into your accounts, have a closing party, recover from the hangover, and use the attention that you generated on social media by posting about closing your current round, to start fundraising for your next. As each follow-up round is usually harder to raise, you have to spend more time on networking and finding the right people. Even the investors who signed a check for you recently need to be presented progress in consciously chosen pieces to demonstrate that you are on track and convince them they are throwing good money after good money in a follow-up round. Consequently, it is a good practice that one of the people on the management team (ideally one of the founders) makes fundraising his full-time “hobby”.

At last, I would like to dive-in briefly into the question if and if yes, when to go for equity funding. The first answer is: If there is no other way to finance the product development of the product that you want to sell, there is no way around fundraising. This is usually true for any complex deep-tech idea ranging from biotech to quantum computing. In most cases, public funding will be barely sufficient to do the necessary research but not to figure out all the nasty details of product development, not to forget building all the production infrastructure. If you have to go this way, I can only repeat the two paragraphs from above: Try to sell worst case if possible and never top fundraising.

On the other hand, if you are able to get to a product, and ideally to product-market-fit [15] by bootstrapping or combining bootstrapping and public funding, I would recommend doing so before raising a sizable round. Once you jump onto the VCs train, there are expectations to go and grow and do it fast. This is hard to do if there is no product-market-fit and iterations have to be done to get there while there is pressure on revenues, and this will result in frustration both on the investor as well as on the founder side. Also, waiting for product-market-fit to raise will prevent you from overhiring early on as each € that you spend comes from your own pocket.

Mostly, founders will combine multiple types of funding. Coming from academia and bringing research to real world applications, public funding will be the first thing to go for and then to raise money from angels and VCs to continue. On the other side, building a digital marketplace, usually starts with bootstrapping that is followed by equity funding. In other cases public funding can come before and after private investment. There is no right or wrong, many ways lead to successful business. Just bear in mind, that no matter which options you are considering, try to test them early in order to have more confidence which options are real options and which options are phantasies.

[1] Except that you inherited very large sums of money or already built one (or multiple) highly successful businesses whose proceedings can be used to fund the new venture.

[2] https://eic.ec.europa.eu/eic-funding-opportunities_en

[3] https://www.foerderdatenbank.de/FDB/DE/Home/home.html

[4] https://www.ibb.de/de/wirtschaftsfoerderung/foerderprogramme-a-z/foerderprogramme-a-z.html

[5] Ironically, or not, there are even funding programs who will cover a part of the one-time fee costs. Once you work with a consultant, they will also help you to use those funding programs.

[6] The exact numbers depend on the total funding volume and the complexity of the application. Typically, the higher the volume, the lower is the percentage that is charged.

[7] As a rule of thumb: I would estimate that about 2 months to 3 months FTE work are required for international, 1.5 months to 2 months for a national and 1 to 1.5 months for a regional proposal. Programs with volumes <100k might require less efforts but still from about 1 week to 4 weeks worth of work.  

[8] A small caveat: There are specific public incubators (similar to private incubators like YC, EWOR, Tech Stars, etc.) who are specialized in giving you access to a broad network of people. However, such programs are rather an intermediate step to get access to private capital rather than offering a reasonable amount of public money.

[9] There have been even such unfortunate stories, that companies actually went out of business BECAUSE they got lots of money by public grants. The anecdotes go like this: A company was in a very privileged situation when they both on the table: Offers from private investors and as well as approvals for public grants. Consequently, having the choice to reduce dilution, they decided to turn down the private investment offers in favor of the public grants. What they did not expect was the drama that was taking behind close doors at the public administration which effectively delayed payout of grants for more than 12 month. When the company turned back to the private investors, they funds were deployed into other investments, and the offers were off the table. The company ran into an insolvency situation and as consequence was no longer eligible for the grants that they were initially awarded.

[10] Due to the corona crisis, this time was reduced in Germany temporary to 6 and then further to 4 month as otherwise many, many more businesses would have had to file for insolvency.

[11] Until very recently, management insurance was something that was only offered to managers of companies who have a long-term profitability and revenue record. Luckily, that changed in the last years and such insurances became available to founders in a relatively early stage. However, once you are in a tricky situation, you will not be able to get the insurance anymore. Thus, make sure to check out what is possible early and get it. Premiums are usually not too expensive, and it will spare you some sleepless nights.

[12] The limited part of the liability limits the liability of the invested capital into the company, it means that it is limited to the assets of the company and the liability of the shareholders to their invested capital. It does however not limit the liability of the managing directors (or other people in operational functions) which can held accountable by other means – such as the insolvency regulations.

[13] You might ask yourself rightfully – “why does such a regulation exist?”. The reason is that in many companies’ shareholder and managing directors are different people. Especially if the managing directors don’t hold any sizable share of the company, lawmakers were thinking of a way to hold them accountable due to the responsibility that they have. Unfortunately, this played out a bit perverted, so that managing directors at early stage companies are exposed to a much higher risk than managing directors at corporations as (1) large corporations have usually large assets as well as revenues already (2) corporations can easily get corresponding insurances for their executives.

[14] https://www.hyper-exponential.com/p/lessons-learned-from

[15] How to know that you have product-market-fit? This a science on its own but the best sign is that all people on the fulfillment teams have to make extra shifts as there is more demand for your product (or service) than the teams can work off in regular work hours. However, product-market-fit does not necessary means positive unit economics. Getting to positive unit economics, is a milestone on its own.