Startup funding: tips on corporate financing and promotion

If you want to start a business, you will need a certain amount of initial capital. The amount varies from case to case: Some startups need very little money at the start, while others must have five- or six-digit financial backing right from the beginning to set up their business.

Either way, a company needs to establish accurate, long-term business financing. This will make it easier to assess the amount of money required for each area of business. The finances required for a startup are composed of both equity and debt.

Few founders have made enough capital available to start their business them­selves, which is why external lenders often have to be convinced to invest in the business idea. There are different ways to attract lenders and investors, but generally, a com­pre­hen­sive business plan is required. This applies in par­tic­u­lar when it comes to bank loans and other in­sti­tu­tion­al subsidies. However, some content startup founders are satisfied with a simple financial or liquidity plan at the outset. You should consider how much time you will be able to spend, and how you will come up with this plan. 

Startup funding differs from the sub­si­diza­tion of con­ven­tion­al companies, meaning that startups often operate in a new market, or in a market which does not yet exist. In a less stable business sector, donors can quickly become clas­si­fied as risk-averse. Fi­nanciers are es­pe­cial­ly reluctant to invest when there is no proven business model yet in the targeted economic sector.

However, there are a number of other ways to acquire startup funding. Our overview gives you clues that might be relevant to your company.

Equity refers to capital that the founder or owners of a company provide when funding a startup, which remain as an asset in the company. Since your startup will not be prof­itable during its initial phase, you should first be asking: do you have any money that you want to invest in your startup? If not – are there other startup financing options for external equity ap­plic­a­ble to you?

Many founders use their personal assets as a con­tri­bu­tion when funding their startup. Whoever can finance the operation com­plete­ly out of their own pocket retains the greatest possible self-de­ter­mi­na­tion – but also stands to lose most of their own assets should the company fail. In most cases, external money is required to fund a startup initially. It is par­tic­u­lar­ly necessary to get funding quickly if the business model requires greater in­vest­ment, many employees, and/or a com­pre­hen­sive in­fra­struc­ture.

Some founders turn to family, friends, and/or ac­quain­tances to secure startup funding. They may be able to help fi­nan­cial­ly by lending a limited amount.

Anyone who chooses to borrow from the private sphere can often do so without interest and may have the option to repay the sum over a flexible period – which has a clear advantage over a con­ven­tion­al loan. However, loans from friends or family members are delicate in their personal nature, and can lead to disputes. You should therefore make sure that you go through all the repayment scenarios together and make clear agree­ments with the lenders – best made in writing. In general, however, your sponsors need to be aware that startups fail rel­a­tive­ly often and that you will not be able to repay your debts im­me­di­ate­ly.

If you borrow money from your circle of family and friends and bring it into the startup under your own name, it counts as your personal equity at the company. It is also con­sid­ered to be an equity in­vest­ment if you give the creditor shares in your company equal to their financial con­tri­bu­tion – the dif­fer­ence is that that person then becomes a startup partner.

As a matter of principle, you have the op­por­tu­ni­ty to win over share­hold­ers for your startup. Initially, these can be those already mentioned, people who are familiar with you (family members, friends) or business contacts.

Startup financers are specif­i­cal­ly known as ‘angel investors’. These fi­nanciers not only provide the company founders with the startup funding they need to invest directly in the de­vel­op­ment and economic power of the startup, but they can also generally help with the de­vel­op­ment and/or expansion of the company. In return, these fi­nanciers usually require company shares. In many cases, the share­hold­ers also gain the ability to make co-decisions in the strategic di­rec­tions of the startup operation, limiting your self-de­ter­mi­na­tion. In this instance, it is mainly about how you cooperate with the partners and whether they share your ideas with regards to the company.

In addition to public startup funding, there are various private sector startup centers – sometimes known as business in­cu­ba­tors, some as ac­cel­er­a­tors, company builders, in­no­va­tion centers, or new business centers. You will have to become a member of these in­sti­tu­tions to gain any benefits from them. Depending on their ori­en­ta­tion, startup centers promote different kinds of startups (some centers only support tech­nol­o­gy-oriented startups or student/graduate startups, for example). However, what they all have in common is the fact that they can take advantage of, and nurture, startup companies that qualify for their programs at an early stage. As a rule, startup centers offer financial, advisory, and in­fra­struc­ture as­sis­tance: they con­tribute capital to the startup (for which they’re usually given company shares) and provide coaching and support for the es­tab­lish­ment and growth of the company. Ad­di­tion­al­ly, they can often help with getting further capital and contacts in the industry, as well as suitable premises for companies (offices, factories, storage rooms etc.). This article from Forbes outlines basic methods of acquiring startup funding, including in­cu­ba­tors and company builders.

Another option for corporate financing is venture capital (‘VC’, also called risk capital). This is off-exchange equity capital, with venture capital companies (af­fil­i­ates) acquiring company shares in a company that is regarded as liable to risk. These VC companies often take a bigger role in­flu­enc­ing business strategy and business decisions than business angels or private business in­cu­ba­tors would. This is due to the high sums of money they inject into a startup. However, startup investors rarely take an active interest in companies that are still in a very early stage – they tend to act later than large-scale investors would. The goal behind their in­vest­ment is usually to reap the benefits of a prof­itable sale of the startup shares. This article from medium.com provides an overview of venture capital providers for startup founders in the USA. Classic VC companies are active in the financial sector and normally have more capital than business in­cu­ba­tors, or wealthy private in­di­vid­u­als. Another form of risk capital that the founder of a startup can obtain is Corporate Venture Capital (CVC), which is awarded to startups by large cor­po­ra­tions and af­fil­i­at­ed groups. By funding a startup which is active in similar sectors, cor­po­ra­tions can diversify their offering.

Loans are commonly used to secure startup capital, con­sist­ing of funds that are to be repaid within a certain time and are usually subject to an interest rate. Usually loans are taken out from financial in­sti­tu­tions.

Bank credit is one of the most common ways of funding the start of your company, however, many banks can be reluctant to provide startup funding, as their en­tre­pre­neur­ial plans are often clas­si­fied as being more risky than tra­di­tion­al business models.

Another reason why banks cannot afford to provide credit to many startups is because the founders usually do not have suf­fi­cient col­lat­er­al. However, you should not write off the pos­si­bil­i­ty of a bank or credit in­sti­tu­tion im­me­di­ate­ly.

In the United States, there are in­sti­tu­tions set up specif­i­cal­ly with the aim of providing funding for business startups. The most well-known and reputable of these in­sti­tu­tions is the Small Business Ad­min­is­tra­tion. The SBA runs a number of loan programs, the most well-known of which being the 504 Loan or the Certified De­vel­op­ment Company program. This loan is provided by an SBA-approved lender (generally, a bank) and the proceeds may go towards founding your startup or small business.

There are different coun­selling and advisory options for en­tre­pre­neurs. The U.S. Chamber of Commerce provides in­for­ma­tion and as­sis­tance to companies in almost all in­dus­tries. The Chamber of Commerce has branches all over the USA, as well as a number of affiliate or­ga­ni­za­tions which may also be able to assist you. Many uni­ver­si­ties also provide as­sis­tance for those seeking in­for­ma­tion on founding a startup, or acquiring startup funding. Public subsidies are par­tic­u­lar­ly at­trac­tive, and are aimed at startups. If you can suc­cess­ful­ly apply for these funds, you will not only receive help with the financing of your startup company, but also (long-term) guidance. State funding for startups usually offers better terms and con­di­tions to startup founders than loans from private companies. To receive state funding, an ap­pli­ca­tion is required for each in­di­vid­ual program. As is often the case, you are also required to do some per­sua­sive work: Those applying for funding have to introduce them­selves and their team, and then justify why they deserve the money. However, the effort required to make your case can be massively reduced if you have a strong business plan that you can base your ap­pli­ca­tion on, or be able to tweak certain aspects to meet the ap­pli­ca­tion re­quire­ments. A suitable tender always provides a good change to improve your startup fi­nan­cials, so it is always worth sending an ap­pli­ca­tion. The most commonly available subsidies can be divided into funding programs and com­pe­ti­tions.

If your company is picked to par­tic­i­pate in a funding program, you will usually receive a loan that is char­ac­ter­ized by low interest rates and/or long-term ma­tu­ri­ties. The start of the program is often con­sid­ered to be a grace period, where the repayment of debts is suspended. Support programs for startups tend to be spe­cial­ized in certain sectors. They are often available on a federal as well as a regional level (usually with reference to a state or a city). In addition, the Small Business As­so­ci­a­tion has a lot of in­for­ma­tion on corporate finance and financing on its website. For example, you can find various support programs for startups in specific areas, such as those starting a high-tech startup.

Com­pe­ti­tions for general en­tre­pre­neurs and startup founders do not just focus on winning financial support. In addition to money and material prizes (such as coaching, guidance, and con­sult­ing), pro­fes­sion­al feedback on the business model and media attention for the company are often up for grabs. These benefits may lead to new contact op­por­tu­ni­ties. Forbes once again provides a concise article con­cern­ing startup com­pe­ti­tions. Nowadays, there are many startup com­pe­ti­tions, with very different re­quire­ments. Some refer ex­plic­it­ly to certain stages in which a startup needs to be in (e.g. still in the planning stages, already es­tab­lished). Fur­ther­more, there are different types of com­pe­ti­tion, such as the idea or business plan contest. Grasshop­per.com provides a com­pre­hen­sive list of the best business com­pe­ti­tions currently running in the Unites States.

Crowd funding, crowd lending, and crowd investing are still rel­a­tive­ly new financing pos­si­bil­i­ties for companies. A ‘crowd’ is a group of people who want to co-finance a par­tic­u­lar project, using in­di­vid­ual con­tri­bu­tions.

Crowd­fund­ing (also known as crowd­sourc­ing) is about winning people over with your ideas, and con­vinc­ing them to give you their money to implement them. This approach is par­tic­u­lar­ly suitable for financing specific projects or products, but not nec­es­sar­i­ly for general startup financing. In the startup context, crowd­fund­ing pro­ceed­ing to create a product prototype or for the de­vel­op­ment of specific software is not uncommon. Crowd­fund­ing usually takes place on a crowd­fund­ing platform such as Kick­starter or Indiegogo. On these websites, the campaign founders can set up a project page, where they present their idea and indicate the target amount for the campaign. Usually, this target amount must be reached within a certain time – if the crowd­fund­ing goal has not been achieved by then, all donors will have their con­tri­bu­tions returned to them because the campaign is con­sid­ered un­suc­cess­ful. If the crowd­fund­ing succeeds, backers receive something in exchange for their financial support. It is rarely a monetary rec­om­pense, but rather a small gift or token related to the project. Top-level fi­nanciers, on the other hand, often receive high-quality, unique tradeoffs. If there is no reward or thanks offered to the sup­port­ers (even something like the donor’s name being included on the website) then this is known as a ‘crowd­do­na­tion’.

Crowd­in­vest­ing is a modified form of crowd­fund­ing. The focus is on monetary in­vest­ment from various donors, who can support a company being founded with small amounts. Just like crowd­fund­ing, the hope is that many different sup­port­ers will come together to reach the financial end goal. If a startup is suc­cess­ful­ly es­tab­lished by crowd­in­vest­ing to the point of being prof­itable, investors can expect com­pen­sa­tion for a per­cent­age of their con­tri­bu­tion. There are also various platforms for launching a crowd­in­vest­ing campaign (eg. Com­panis­to or Wefunder) Some are a com­bi­na­tion of crowd­fund­ing and investing. The chances for general startup promotion are usually higher at crowd­fund­ing websites like Kick­starter and Indiegogo. 

Crowdlend­ing is another similar model, which works much the same way as a tra­di­tion­al loan. The loan is provided by several creditors (often in­di­vid­u­als) and then bundled into a loan. Ap­pli­cants usually receive the loan with an interest rate (if the loan does not have an interest rate, it is referred to as social lending). However, interest rates for crowdlend­ing loans are rel­a­tive­ly high compared to other tra­di­tion­al loans. There are several online platforms for securing crowdlend­ing funds. Par­tic­u­lar­ly popular in the USA are LendIt and Lending Deposit. Crowdlend­ing is an at­trac­tive option for those people and companies who need a loan, but have no chance of securing a tra­di­tion­al bank loan.

Similar phases can be observed time and time again when it comes to the startup financing. From that, it is possible to create a model for the typical stages of de­vel­op­ment of startups, which differ sig­nif­i­cant­ly from the founding and long-term strategy of regular companies.

Only in the rarest of cases would a startup be financed entirely by one in­di­vid­ual’s means. Support from several in­de­pen­dent financial sources is far more common: various donors, whose combined capital fund a startup over a long period, are not uncommon. If the startup is suc­cess­ful, it will tran­si­tion through different stages of funding, whereby it receives in­creas­ing sums of money each time.

A dis­tinc­tion is made between the early stages (seed phase and startup phase), the expansion stages (growth phase, bridge phase), and the later stages. What are the reasons for these financing phases, and what kind of donors can be found in each of them?

Whoever is founding a startup needs a certain amount of startup capital in order to get the ball rolling. How much you need for those first steps depends on your business idea. It is therefore important, first and foremost, to define your business plan early and be aware of your early stage financial options (seed financing phase).

Only af­ter­wards in the ‘startup phase’ do you actually develop the final product (product or service you are offering). Ad­di­tion­al­ly, you also deal with or­ga­niz­ing the processes necessary to market the product.

Every company begins with a business idea. During the seed phase, company founders devote every­thing to laying out every detail and spec­i­fi­ca­tion of it. The better your business plan, the easier and quicker it will be to secure startup financing and sus­tain­ably promote your startup.

Market and target group analyzing con­tributes to the de­vel­op­ment of a forward-thinking business model. In addition, dis­cus­sions with people already involved in the area can help you review and solidify your business idea.

In the seed phase, you should also take a careful look at your team. Above all, you should assess whether you need more employees or expertise for the im­ple­men­ta­tion of your startup. After all, it is not the business plan alone that convinces investors and lenders, but the people behind them and their expertise. Your chances of being awarded a subsidy increase con­sid­er­ably if the team has all the necessary skills, and presents itself com­pe­tent­ly to potential investors.

Es­tab­lish­ing contacts in your industry is another important step when creating your startup. You can profit from the ex­pe­ri­ence of others in terms of corporate financing and a number of other areas. As a founder, you might even encounter someone so en­thu­si­as­tic about your business idea that they come onboard fi­nan­cial­ly or as an employee or con­sul­tant.

What’s more, it is important that you start off by ex­plain­ing how much money you are likely to need to implement your idea. Well planned and re­searched financing is not just a matter of being pro­fes­sion­al, but also shows your investors how much their con­tri­bu­tion makes up of the total amount needed. Always keep in mind that sub­si­diz­ing an unfounded startup is always a high risk for investors. That is why you should always be as trans­par­ent as possible and convince them that your project has a good chance of success.

The seed-stage usually lasts ap­prox­i­mate­ly one year. The money needed during this period is quite man­age­able compared to later de­vel­op­ment stages. Depending on the re­spec­tive industry and the product, you can aim to raise between $50,000 and $500,000. This is the bracket generally required by startups during the seeding phase. However, the search for funding during this period is generally the most difficult, since initially you will not make a profit and it is rare for founders to have much in terms of col­lat­er­al. Classic forms of acquiring startup financing for a company during the seed phase are:

• Your own capital: Some en­tre­pre­neurs use their own money to invest as equity in their startup. However, it is unlikely that their money will be enough to finance the seed phase entirely, and it is also rare for a founder to use all their savings funding their startup.

• Family, friends, and willing wealthy donors: In­di­vid­u­als within the family and friends circle can also help fi­nan­cial­ly to increase equity. However, share­hold­ers who are impressed by your company concept may also want to invest in it. This group is also known as ‘Family, Friends and Fools’ (FFF). The term ‘fools’ is meant jokingly: If fi­nanciers provide money for startups (e.g. because they are so impressed with the business idea or they found the founders to be likeable), they tend to overlook the startup’s weak­ness­es and/or risks.

• Angel investors and private business startup centers: Startups can source monetary as well as advisory support through angel investors and/or startup centers. Angel investors invest in companies where they see a lot of potential and act as mentors for the founders. Aside from providing equity, they also provide their knowhow and network con­nec­tions for the startup’s benefit. In return, they get company shares and become co-owners of the startup.

• Public funding programs and grants: Founders can also apply for funding aimed at startups. Many of these funds come from public funding schemes designed for startups, or private sector in­sti­tu­tions. There is also the option to par­tic­i­pate in a business plan/idea com­pe­ti­tion for those in the seed phase.

• Financing through the crowd: Crowd­fund­ing, investing, and lending can form the financial backbone of your startup. If you opt for one of these campaigns, you should make sure you are properly prepared. The pre­sen­ta­tion of your project on the website should be detailed, but not too far-reaching and, ideally, should contain a high-quality video or images.

The beginning of this phase marks the beginning of the startup proper. At this point, every­thing revolves around making your entry into the market as seamless and pro­fes­sion­al as possible. To achieve this, you will need to develop your product further and start producing the prototype. You will also need to expand any necessary in­fra­struc­ture (de­vel­op­ment, research, pro­duc­tion, sales etc.). During this phase, you will usually decide whether to design the product yourself or hire an external designer, and whether to handle the dis­tri­b­u­tion yourself or outsource.

Aside from product de­vel­op­ment and upgrading your in­fra­struc­ture, you will also need to focus on customer ac­qui­si­tion. You can start launching and ad­ver­tis­ing your first marketing campaigns. You should also plan in detail how the startup will be financed over the coming years of this phase. Creating a timetable for this will not only allow you to orient your­selves and evaluate your financial situation at any time, but also helps you acquire new fi­nanciers and creditors.

It is still too early a stage to re­al­is­ti­cal­ly expect to be prof­itable. The pre­vi­ous­ly mentioned necessary in­vest­ments will likely result in your startup still being in the red, which is why it is so important to find investors who share your vision and believe in the concept.

The startup stage typically ends with the launch of your product. For some companies, however, this de­vel­op­men­tal phase doesn’t end until they reach the profit threshold, or start ‘breaking even’. Your startup has reached this stage when the costs and revenues generated equal your man­u­fac­tur­ing and dis­tri­b­u­tion costs, so that you are not making any profit or loss.

Overall, the startup phase generally lasts 1-3 years. The costs during this phase will likely increase, as you will need to spend more money on new employees and campaigns, as well as de­vel­op­ing and producing your product. To be able to cope with these ex­pen­di­tures, you should make an effort to get involved in startup pro­mo­tions, which usually come from similar sources as those in the seed phase:

• Startup spon­sor­ships: Angel investors and private startups are often willing to take on existing companies.

• State subsidies for already es­tab­lished startups: Even though many public funding programs and startup com­pe­ti­tions are aimed at companies that are not yet on the market, there are some similar options for already es­tab­lished companies. Although there are few that cater specif­i­cal­ly to existing startups, some programs and business plan contests also accept ap­pli­ca­tions from startups that are already active in the market for a specific time (e.g. one year). As a rough guide, a business should not be older that 1 or 2, maximum 3 years to have a chance at getting public funding.

• Funding from the crowd: The startup phase is also ideal to gain startup funding from people who are inspired or impressed by your company. Es­pe­cial­ly with funding from the crowd, you benefit from the fact that potential sup­port­ers/investors do not consider their con­tri­bu­tion as risky after the initial foun­da­tion of the company.

• Venture Capital: Some VC companies only invest during the initial seeding phase, while others are willing to invest during later phases. It is always worth applying for VC funding, as it can take up to 12 months for the final decision to be made as to whether they will finance your company.

After suc­cess­ful­ly entering the market, your next goal is expanding your startup. This period, known as the expansion phase, is again sub­di­vid­ed into two stages: the growth phase and the bridge phase.

During the growth phase, the first thing you need to do is establish your product on the market. In order to ensure its avail­abil­i­ty, you will likely need to expand your dis­tri­b­u­tion and pro­duc­tion. You will also need to invest more in marketing, to make the product more widely known. If this succeeds, then demand will also increase, which will in turn increase the turnover of the startup.

It is not uncommon for the size and number of com­peti­tors in your field to be con­stant­ly in­creas­ing. This is often the case when a startup is created in a new market area that did not exist before, but is now well-es­tab­lished and full of imitators. The rule of thumb here is: The more com­pe­ti­tion there is, the more capital your startup will need. Usually, you can only offer your product ef­fec­tive­ly and secure an advantage over your com­peti­tors with a broader budget at your disposal. Therefore, you should invest more money in pro­duc­tion, sales, and marketing during this phase.

Many startups expect the company to make a profit during the de­vel­op­ment stage, however, there are many who won’t be in profit until much later on. If a startup wants to suc­cess­ful­ly penetrate a market, it is going to involve many costs and is unlikely to pay off until a later date. It is not ab­solute­ly necessary to reach prof­itabil­i­ty during the growth stage.

However, the sooner you reach prof­itabil­i­ty, the sooner you are in a better position to obtain ad­di­tion­al funding that you will need to expand your business. Once again, higher equity will make the company at­trac­tive to a larger circle of donors. At that point, there will be even more companies and credit in­sti­tu­tions in­ter­est­ed in your startup. Income sources often used during the growth phase include

• Loans: As soon as your business becomes prof­itable, the chances of securing a loan from ordinary banks increases sig­nif­i­cant­ly.

• Angel investors: Startup sponsors are usually also involved in the growth phase.

• Venture Capital companies: VC donors are usually more willing to par­tic­i­pate in the further startup financing with large sums of money if it can be hedged fi­nan­cial­ly. The cor­re­spond­ing in­vest­ments are usually within the range of $1million.

Some companies which have made it up to this point and are still able to make a profit then move on to the ‘bridge phase’ (or ‘bridging phase’) by preparing to enter the stock exchange. Ac­cord­ing­ly, this de­vel­op­ment stage is also referred to as a pre-IPO phase (Initial Public Offering – the first time that a company places se­cu­ri­ties on the stock exchange).

Prepa­ra­tions for an exchange run require fresh capital. But even if en­tre­pre­neurs do n ot decide to enter the stock exchange at this point, they will still need capital to buy back shares from their share­hold­ers.

In addition, companies in the bridging phase must continue to deal with their position in the market, and make further in­vest­ments to solidify it. As com­pe­ti­tion usually increases during this phase, di­ver­si­fy­ing your products is usually a sensible idea – it will help your products and your expansion into new markets succeed.

The necessary capital is often paid to companies towards the end of the expansion stage from such sources as:

• VC companies: Startups that are in the bridge phase can also attract new venture capital providers (often corporate venture capital companies). However, these rarely exert heavy influence on the company and do not fulfill much of an advisory role. Since investing in a company during this phase is far less risk-sensitive, they are often referred to as a private equity company rather than a venture capital providers.

• Borrowed capital from banks: As the startups cred­it­wor­thi­ness increases, tra­di­tion­al banks are now more willing to grant you a sub­stan­tial loan.

• Bridge loans before the stock exchange: If a startup decides to enter the stock exchange, it can be financed through in­sti­tu­tions such as in­vest­ment banks or in­vest­ment funds. 

During the ‘later stages’ of startup financing, the company is now firmly anchored in the market as an es­tab­lished company, or even a market leader. During the final phase, funds are used to expand the company’s offering (new products, expansion into other countries, etc.), in terms of marketing measures as well as company man­age­ment, or for the re­struc­tur­ing of the startup.

If, for example, the founders are in­ter­est­ed in parting ways with the company, this is an ideal time to sell. This is then referred to as the ‘exit’ or final phase of the startup.       

However, if the founders choose to remain with the company and develop rather than sell, the maturity phase begins. Financing options are quite diverse at this point: pro­gres­sive­ly searching for further investors and lenders is just as much an option as the increased ac­cu­mu­la­tion of self-generated capital. If the stock exchange launch was suc­cess­ful, profits were also generated.

Exactly what the later stages of a (former) startup looks like cannot be de­fin­i­tive­ly described. Any company that has made it to this point is looking back on a history of suc­cess­ful corporate finance.

Despite the various financing options for startups, some founders de­lib­er­ate­ly choose to fund the startup entirely by them­selves. If the company is created without the aid of external investors, this is known as boot­strap­ping.

Typical startup investors, such as angel investors, in­cu­ba­tors, or VC companies expect a tradeoff or reward (such as influence over the direction of the company) in exchange for their financial and advisory support. Startup founders who do not avail of their as­sis­tance are able to retain complete autonomy and control over their corporate decisions. They also reap full benefits of any profits.

In most cases, companies that finance them­selves com­plete­ly are more efficient than other, ex­ter­nal­ly-financed en­ter­pris­es. Due to the scarcity of money, un­nec­es­sary costs are avoided.

Anyone who uses the boot­strap­ping strategy and manages to build a prof­itable company also increases their rep­u­ta­tion as a founder and en­tre­pre­neur. If you find yourself in need of external funds later in the process, or for a new project, you will be more likely to secure them with a suc­cess­ful rep­u­ta­tion. Investors and lenders also have greater con­fi­dence in founders who have already been suc­cess­ful with a business model founded from the ground up. Business partners and clients are also likely to be impressed.

Those who do not wish to be dependent on external investors and who want to build up their own company alone, or with their co-founders, usually require more patience and per­se­ver­ance. As a result, the company’s capital needs to be largely self-sus­tain­ing until a large amount of money becomes available through revenue. However, some business ideas require more capital, es­pe­cial­ly in the expansion phase.

In addition, the risk of loss when boot­strap­ping is higher: if founders have to provide all the startup funding them­selves, and then sub­se­quent­ly find them­selves in the red and have to file for bank­rupt­cy, they are solely re­spon­si­ble for the costs. Ac­cord­ing­ly, there can be a lot of pressure when it comes to self-financing a company. In addition, you cannot benefit from the advice and ex­pe­ri­ence of external investors when boot­strap­ping.