It has only been a few months since we announced an extensive cooperation with the oldest packaging firm in the world. Now, the global market leader in flexible packaging is holding stakes in one of our subsidiaries. Reason enough for us to say a few words about the funding of technology Start-Ups in Germany.
As you know, we are using this blog partly to talk about the background of the life of a start-up. A crucial topic, one we mostly only talk about in the case of success, is the funding. Nowadays it is with very few exceptions virtually impossible to establish a functioning business. Ort o put it like this: you can’t make money without money.
The investment culture especially in Europe is the reason young CEOs and CFOs cry themselves to sleep at night. While the twohundredth dating app overseas still acquires contributions so vast they would cause even established middle class entrepreneurs in Europe to break out in tears, the reality in Europe is more like 20 years ago when the banks were still responsible for business funding. All that in a time of unprecedented amounts of available capital with the lowest interest rates ever.
Don’t take this wrong: the seed and early stage investors do exist. Incubators, business angels, funds and so on – everything is there. Just think of Berlin. However, the following figures say it all: In 2014 $26 billion have been put into business funding in Silicon Valley alone. In Germany, on the other hand, funding barely reached a mere $3 billion in the same period of time.
This means you can be sure that in Europe, only Start-ups with the best connections, the most promising ideas and the most professional realization have a chance of solid funding at all.
Start-ups, in the technology sector in particular, need exceptionally much capital to fund their way to the first functionaing prototype. A few software engineers are usually not eneough. A variety of specialists, from different fields and sometimes highly paid, is needed – like at Biofabrik – to work together in the team. For a long time.
In this stage, the risk-concious managers of non-American investment firms hold back just as much as the banks back then. Whoever knows to put their vivion into clear words and illustrate is benefit for society in three sentences, should let the crowd fund this stage in our opinion. Crowdfunding platforms, like the German Seedmatch professionally realize the campaigns on demand from conception to operation.
We as well acquired a seven digit amount with self-organized crowd funding within a period of eight weeks. Money, we surely would would have had to negotiate with investors for months while probably having to give off high two digit percentages of the company. For small investors on the other hand who, with some calculated risk but high chances of return, invest their money, the only crucial factors are a meaning, professionality and the ability to sell the idea. They are the new drivers of innovation – a trend that will reinforce itself in an environment of low interest rates and cheap money. Start-ups that turn tot he crowd, are rewarded with straightforwardness, complete honesty and a first proof-of-concept. If the crowd doesn’t buy it, an investor wouldn’t either. This form of funding is sufficient for the early stage up to the first
prototype.It is pleasent, modern, and by now entirely established even for higher amounts.
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When the prototype shows the first signs of functionality, the principle is proved and documented with numbers, entirely new possibilities open up for start-ups even in Europe. Given, of course, you developed something the world is craving for and your business plan is electrifying, you can start to gain professional money.
Although the prototype of our White Refinery has performed is proof-of-concept some time back already, a redesign to the size of a vending machine seemed worth an additional year of development. Consequently a system was being created that not only converts plastic waste into energy but creates demand for an even higher number of potential buyers.
With a functioning prototype which solves a real problem, even we have the means to tackle the next phase:
- We could have gained real equity capital via M&A consultants and additionally approached investors. In this stage, however, it is still “expensive” to acquire professional money, because the risk of market entry is still relatively high.
- Even private clients at the were willing to pay in advance – surely one oft he most clever forms of fundingwithout giving off shares in this phase. And, by the way, a common one in the American market, which we seek to emulate.
- However, we decided to go a third way.
With the worldwide operating danish Schur Star Systems we decided to prefer a strategic over a purely financial partner although we could have collected higher amounts for the same share of ten percent of the subsidiary Biofabrik White Refinery GmbH than we did. In agreement with the buyer, the effective amount will not be published.
There have been more than one reason for our decision: Firstly, the Schur concern with its 13 international corporations and sites on four continents has itself a high demand for our Waste-to-Energy systems. The company envisions a waste free production while using the energy from the rejects that before have been disposed of generating costs. A perfect symbiosis.
It enables us to try out our technology without the pressure of an external client in all parts often he world and to bring the system to perfection for the various application scenarios. At the same time the company provides us with the possibility of a charge-free presence in many cities and fairs all over the world, and our potential buyers with demonstration systems in operation.
Last but not least, Schur is with ist 800 employees one oft he biggest engineering companies in the branch and therefore can take over tasks in engineering, serial production and later in the support at outstanding conditions. Things we urgently need for a fast worldwide expansion of the technology.
Until the middle of the year 2017 the prototype of the White Refinery will be developed for the introduction into the market and delivered to the first sites for operation. Subsequently, we will expand the sales and distribution in the European market, secure serial production capacities and start production. In this phase we will leave the Start-up and with it the difficult part of business funding.
A functioning and endurance tested prototype, at that point already a pilot production, an established sales network and the proved demand will open up the storied market of business funding. But let us talk about that when we are done doing our homework.
Until then we are grateful for our improved reputation and the strengthening through a partner like Schur; and promise to keep you updated on the latest successes and setbacks (you know, we write about that, too). If you are still not a part of our network, become a fan of Biofabrik on Facebookor subscribe to our newsletter.