Starting a Business in Berlin

68 69 Starting a Business in Berlin A Beginner’s Guide How to set up venture capital Establish contact and conduct preliminary audit Open discussi- ons and submit a letter of intent or term sheet Carefully check, analyse and evaluate the company (due diligence) Conclude an agreement and set up the financing Minimum requirements for venture capital investment ls Innovative business idea with positive growth prospects (scalability) ls Impressive management/team of founders ls Professional business plan in the form of a pitch deck ls Realistic estimation of the market and competitive environment, as well as the growth in sales/earnings ls Consistent financial plan complete with break-even calculation ls Legal form of a corporation – GmbH or UG (limited liability) Alternative: Funding-based investment companies An alternative to private investors can be found in the form of publicly funded investments – such as those awarded by IBB Ventures, High-Tech Gründerfonds (HTGF) and the KfW-Co- parion-Fonds – or investments from the Mittelständische Beteiligungsgesellschaft zu Berlin-Brandenburg (MBG), in which chambers, associations and banks, for example, are all shareholders. HTGF supports technology companies in the start-up phase (up to three years after setting up) with a convertible loan or ls Silent partnerships and subordinated loans (mezzanine capital) Mezzanine financing is characterised by its subordinated status and high interest rates. Unlike for equity investment, companies do not need to surrender any information or control rights. In basically any legal form, the investor can participate as a silent partner as a result of their capital contribution. On account of their participation in profits, they become a creditor of the company but have no visible involvement in it as far as outsiders are concerned. In the case of a subordinated loan, the lender grants an inte- rest-bearing loan to the company, for which neither collate- ral nor a declaration of resignation are required. This makes the loan of an equity nature without losing any shares. ls Convertible loans (mezzanine investment form) These are subordinated loans than can be converted into equity at a later stage. In most cases, the interest is defer- red and included in the loan amount, which is converted to equity at a later stage. Where start-ups are concerned, venture capital can be split into different phases. The pre-seed phase frequently makes use of mezzanine investment forms or convertible loans from family, friends or business angels. In the seed and start-up phase (also known as ‘series A’) direct investments from business angels (private investors), incubators/accelerators and start-up-phase venture capital companies (VCs) are becoming increasingly popular. In the growth stage and beyond (also known as the ‘expansion stage’, ‘later stage’ or ‘series B/C/D’), you can primarily expect to find direct investments from VCs or private equity providers. Financing Models  ihk-berlin.de/ financing-models CHAPTER 6