Bavaria is a popular place for start-up founders. But donors are becoming more demanding.
For startups, the search for willing investors becomes more difficult after a good number of years. According to funding agency BayStartup, this is due to the increased demands investors place on young companies. “The situation has become more difficult,” said managing director Carsten Rudolph of the German news agency. According to Rudolph, the 2022 financial year, which ended on September 30, was a record year with funding of €81 million, €13 million more than in 2021.
Bavaria and especially the region Monk they are a popular place for start-up founders. The funding agency, which is backed by the state government, brings companies together with donors. Flixbus is a well-known example of a company BayStartup supported early on.
“Especially for start-ups that aren’t yet generating sales, initial discussions with investors are becoming much more difficult and time-consuming,” Rudolph said. «If, on the other hand, a start-up has already made its first sales, that is, it has already demonstrated that there is a market, it can still find investors».
Venture capital funds are well stocked and have investment pressures. “But it is clear that the demands on startups are increasing and valuations are declining. We therefore advise startups that are in the very early stages to quickly achieve initial sales,” said the head of Baystartup. “In my opinion it will be difficult in the coming months without market validation.”
BayStartup mainly supports early stage companies. In addition to the funds, private donors play a leading role: they contributed 37 million of the 81 million euros. According to Rudolph, without these private investors, seed funding for start-ups would not work.
Regardless of the tougher conditions, Rudolph is optimistic that young companies with good business models will continue to find investors in the future. “The waves of layoffs that we are seeing in the Berlin start-up scene mainly affect companies without a real business model. Some market corrections are within the bounds of what can be expected.” Compared to the 2008 and 2001 crises, the good news today is “that the venture capital landscape is now very well ordered.”
According to Rudolph, the end of the zero interest phase on the financial market does not play an important role for investors in young companies. The reason is that lenders are hoping for much higher returns. “Lenders see opportunity in an initial investment for something really big, at a multiple of ten or more,” Rudolph said. “It doesn’t matter if the interest rates are 0% or 1.8%.”
Compared to the USA, for example, the search for investors for start-ups in Germany has always been quite difficult, especially for companies that have already completed the first phase of their foundation and want to continue growing. “The largest funding rounds always happen with US investors participating,” Rudolph said. “To do this, however, the start-up must have already reached a certain level of maturity. Most investments are already in the double-digit millions.”
(dpa)
