Can I get VC investors without customers

Private equity: venture capital for entrepreneurs and start-ups

Venture capital as part of private equity

The venture capital relevant for business start-ups is a sub-form of private equity in which an investment company participates in the company in the form of a venture capital fund. It is important for start-ups to know that venture capital funds usually focus on one or more industries and become co-owners through the investment, but do not seek a majority stake.

What is venture capital?

Venture capital companies are companies that invest in young companies mostly through a venture capital fund. The venture capital funds often have one or more industry focuses in which they have specialized. By bringing in capital, the venture capital investor becomes a co-partner with all associated rights and obligations. However, venture capital investors do not, as is often assumed, acquire the majority in the company - venture capital companies quite consciously want the entrepreneurs to hold the majority in the company. In addition to the capital, venture capital companies usually also bring in-depth industry knowledge and management expertise to the invested company.

The Federal Association of German Capital Participation Companies (BVK) consists of around 300 members, 200 of which are investment companies. Not all of these investment companies are active in the venture capital sector, but it is still not easy to find a "suitable" venture capital company. We would like to introduce you to a few of the venture capital companies in more detail below:

Which start-ups are interesting for venture capital?

Venture capital or venture capital investors mainly invest their money in new and promising companies that offer little security but a high degree of innovation and potential. The following factors are important for venture capital companies when choosing a company:

  • Business idea: novel & innovative
  • Market: promising and growing
  • Customer benefits: clear benefits and advantages for the customer (USP)
  • Team: Venture capital companies invest in people, not in companies!

The minimum participation of the venture capital funds is usually around 100,000-250,000 euros.

You can search specifically for venture capital companies in our capital provider and funding database by specifying the industry focus and the amount of investment.

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In which phase do venture capital funds invest?

Venture capital companies differ not only in their different industry focus, but also in different investment phases. In principle, venture capital companies invest in the following 3 phases:

  • Pre-foundation phase (seed)

  • Start-up financing (start-up)

  • First growth phase (expansion)

Pre-foundation phase (seed)

With the help of Seed Capital, the idea development phase, research and development and the development of prototypes are financed. The aim here is to bring the concept to market maturity. Since the seed phase bears the highest risk, venture capital companies rarely invest in the seed phase.

Start-up financing (start-up)

Start-up financing begins when the product development has been completed and the market launch needs to be financed. Start-up financing is about financing a company that already has a product / service that must now be produced and marketed with the help of fresh capital. For venture capital, the proof of concept is particularly relevant for this phase - i.e. there should be a clear indication that the business idea will also lead to economic success.

First growth phase (expansion)

If the product has successfully asserted itself on the market and the first sales have been achieved, the expansion of the market position is now pending. Specialized venture capital funds focused on expansion are available to finance future growth. Investments are primarily made in production capacities and sales in order to be prepared for future growth.

Which venture capital investors are there?

Für-Gründer.de distinguishes between the following different venture capital companies, which can differ significantly depending on the industry focus, industry know-how, investment amount and possible synergies:

Classic venture capital companies

The majority of venture capital providers belong to the classic venture capital companies in which the company acts as a fund manager / asset manager. The venture capital company sets up a VC fund with a special investment focus (e.g. with a special industry focus and / or investment phase). Once the fund has been defined, the company must find investors (capital raising). With the money collected, the company then invests in companies that fit into the investment strategy. Important for founders: If you want to win a venture capital company as an investor, check before contacting whether your company could match the investment focus. The minimum investment is usually over 50,000 euros. Positive: Since the companies focus on a few industries, you usually also bring industry know-how to the company.

Venture capital from development banks

Most development banks (a total of 16 development banks) have their own investment companies that invest in young companies and thus promote business start-ups. Depending on the federal state, special, mostly technology-oriented companies can be financed by a venture capital company. Important for founders: The minimum participation in the investment companies of the development banks starts at 20,000 euros, depending on the development bank. Positive: As a rule, the investment companies do not have a fixed investment focus; i.e. basically any business model is possible. However, since there is no special industry focus, the development bank may not bring as much industry know-how to the company as, for example, a classic venture capital company.

High-tech start-up fund

A special form of venture capital is the high-tech start-up fund, which promotes technology-oriented companies with venture capital. The high-tech start-up fund is financed by KfW, BMWi and private companies such as Siemens or Bosch and has a volume of a good 300 million euros (currently around 230 investments). The fund usually contributes 15% and up to 500,000 euros in the seed phase. Positive: Through the combination of the development bank and private investors, the High-Tech Gründerfonds combines capital strength and know-how. In a first step, up to 500,000 euros will be invested, 20% of which must be financed by the founder.

Coparion Fund

Similar to the high-tech start-up fund, the venture capital fund, financed by KfW and the BMWi, invests in young growth companies. However, the focus is on A-Series financing and beyond. In the first round of financing, between EUR 0.5 and 3 million venture capital is invested in a company. A total of a maximum of 10 million euros is available for each start-up. The Coparion Fund acts exclusively as a co-investor - another investor must therefore provide venture capital at the same conditions.

Corporate venture capital

Corporate Venture Capital (CVC) companies are subsidiaries of large companies that make strategic investments for the parent company. Accordingly, the target companies are mostly active in related sectors of the parent company. In contrast to "normal" venture capital companies, the CVCs aim to increase the value of the funds used, as well as the added value that can be generated from synergies between the parent company and the financed partner company. According to BVK, in 2005 there were 14 corporate venture capital companies with an investment volume of 900 million euros in 230 portfolio companies; a prominent example of a CVC is BASF Venture Capital GmbH.

How to convince venture capital investors

In addition to the factors described above, which are important for a venture capital company, a convincing presentation - partly also in the form of an elevator pitch or a pitch deck - is decisive for the first impression and, if necessary, the next step: the examination of the business plan.

When examining the business plan, a venture capitalist takes a particularly close look at the executive summary and the financial plan. It is therefore important that you can convince with a watertight financial plan. Use a professional financial plan tool to create your financial plan.

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Facts and figures on venture capital in Germany

According to BVK (Federal Association of German Private Equity Companies), over 7 billion euros were invested in private equity in 2014. Of this, venture capital accounted for 646 million euros, whereby:

  • 0.4% was invested in the seed phase (a good 31 million euros); 142 companies were financed
  • 5% went into start-up financing (around EUR 350 million); 446 start-ups
  • 3.7% was invested in expansion (around EUR 265 million); 139 companies were financed

Over 80% of the investments went into the industrial products and services, telecommunications, IT, consumer goods and life science sectors. The average investment in the seed phase was 220,000 euros, in start-up and expansion financing 784,000 and 1.9 million euros respectively.

VC phase

Million EUR

%

Companies

%

Ø million EUR

Seed

31,3

5%

142

19%

0,22

Startup

349,9

54%

446

62%

0,78

Later stage

264,5

41%

139

19%

1,90

A total of

645,7

 

712

 

0,91

VC: Selected industries

Million EUR

%

Companies

%

Ø EUR million

Industrial products

19,3

7%

65

9%

0,30

Industrial service

13,1

2%

45

6%

0,29

Telecom

159,1

25%

113

16%

1,40

IT

116,6

18%

163

23%

0,72

Consumer goods

45,3

7%

63

9%

0,72

Life science

148,6

23%

155

22%

0,96

A total of

645,7

100%

712

100%

 

Of which high-tech

162,3

25%

203

28%

0,80

Author: Für-Gründer.de editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.