You can present a business plan to the state's investment bank and apply for several financial aides, including:
* 1.5 years of universal basic income for you plus up to 2 other people. It's a tiny amount of money, but the point is to free you up to invest your actual time an money into the business. You do not have to pay this back.
* up to 20k EUR in "consulting fees", for which the bank will contribute up to 50%. Again, you don't have to pay it back, but obviously you need money for them to match.
* discounted loans, amount depends on business plan outlook
I've worked with an accelerator that helps founders write the required pitches and plans for this program. And while the majority don't make it (because they mostly realize their idea won't actually hold up to business planning scrutiny), some do. And those don't become hyperscaling unicorns, they become normal companies, growing organically as stable, solvent employers in the region.
Every once in a while a VC would stick its head in and encourage the startup to take on VC funding, and for an even smaller percentage (one in my time doing this), this worked. But for me, the organic growers are the best success story.
And even in Germany hiring someone for that would probably amount to paying 500-1000€ for the whole registration of the company instead of doing everything yourself and only paying the 100-200€ notary fees. It's not as bad as you might think.
> I will never try it in my home country.
May I ask, where would you try it? As I understand it, it's not really possible to found in a different European country while you're still living in Germany.
Not much more crazy than tax returns or internal accounting you need to do in any jurisdiction.
But yes, running any organization is a lot of work.
Of course, it helps if you have a bit of an idea of legal concepts and accounting, but to be honest, that also makes sense, since you are starting a business.
This is not to say that we should not work to make it less bureaucratic in Germany (and other countries).
I agree that applying to loan and grant programs within Germany, and especially EU, are a super pain in the ass. I definitely see some potential there.
It's just everything else that's dreadful.
Go to your hometown administration, pay 35 Euro and leave 15 minutes later with a "Gewerbeanmeldung" which enables you to start doing business right away.
The catch is that they're usually very bureaucratic as it's public funds, and the more corruption, the more rules there are. Someone might say, come in from New Zealand to get a grant, then the condition becomes "must be 51% locally owned". A conglomerate creates a sister company to get the grant and then it becomes, "parent company must be less than 3 years old and have under $500k revenue". The rules just keep stacking on until agile is basically banned lol
Companies funded this way were actually one of my income sources when I was freelancing, but sadly most don't continue on unless there's a Series B later on.
Which ones?
Because each award solicitation is closely aligned to the industry needs associated with a given agency (DoD, DHS, HHS, NSF, DoEd, DoEnergy, DoCommerce, USDA, EPA, DoT, NASA), you are on a fast-track if you can get into Phase I.
It's a ton of paperwork and bureaucracy --probably even more so under current administration-- but still a great alternative/addition to VC that doesn't take equity and forces you into technical clarity.
Germany has a great success story by the name of the "Mittelstand" (SME businesses), which means a big part if the market are small to middle enterprises. This is far more consumer-friendly and innovative, as more competitive as it's not relying on a few big players like in the US that might also collude with each other.
That’s why MS Office continues to dominate after decades.
Reason why I'm asking is that in Finland(where I live) these startgeld terms seem like a dream come true for entrepreneur. To give you an example;
1) Tradiotional bank wants collateral for the loan. For a 5k€ loan, 5k€ in deposits are needed. 2) There a lots of Swedish/Norwegian "loan-houses" advertising their services for companies, with interest rates are somewhere between 23-30% per annum.
This might be different from state to state. There are also EU grants you can apply for, which might contribute to employee salaries. Those are somewhat difficult to navigate and apply for, but sometimes worth it to bridge the salary gap between a "normal" German company and FANG.
Then there are also more scholarships based on other criteria, e.g. your state or if you are at an university, many universities also have some sort of entrepreneurial scholarship which will then also help you get the larger scholarships afterwards.
I looked into programs like this but they seemed to require so much bureaucracy that I'd be better off without them :(
Last time I checked and looked for different support scheme all that was offered in Berlin was some 90s style support for office equipment (we are fully remote) support or 1/2 salary on an intern.
Truly pathetic back in the early 2024.
Berlin has different programs. An equivalent scholarship is available through ESF+ funds: https://www.foerderdatenbank.de/FDB/Content/DE/Foerderprogra...
I've also been part of HTGF and bmp funded startups in Berlin, and those two are the most active players in seed funding, if more traditional capital-for-equity is what you're looking for. Both are also experienced with augmenting their investment with EU and state (IBB) funds.
Eww, no.
The incentives are just bad all around. The “LP”s are lawmakers and politicians, but in the best case only insofar as the program is popular or contributed to economic good vibes that keep them in office and lawn. The "GP"s are bureaucrats with no skin in the game except for avoiding fraud and impropriety and keeping their management chain happy (ultimately reporting to politicians who can also have worst case incentives of directory the money towards, ahem, personally expedient things).
Then on the other side, clearly it is such a bureaucratic program that regular entrepreneurs struggle to navigate it. The accelerator you mention is spending potential teaching/helping time towards the goal of building a sustainable business on figuring out how to get money from the program (normally accelerators GIVE you money) - presumably they are coinvesting or taking a cut somehow, which ultimately means they are basically getting paid to shuttle people through the program [0]. And founders are spending time they should spend building and validating their product, or fundraising from people with skin in the game (who care about the important things and not so much whether form 47b was stamped by a notary), on figuring out how to get a grant.
In my opinion this kind of funding should be split between a much lower-bureaucracy and overhead public program (eg UBI) and the private sector. That makes the overhead for security “operational” startup expenses like housing/feeding the founders very very low, and directs “capital” startup expenses like buildings, equipment, and employees’ initial salaries more efficiently [1]. Or you can tax middle class workers less (you guys have really high payroll/VAT) and give them more control over their retirement money so it’s easier to build a solid amount of personal wealth to start a business.
IMO there is a misconception with new founders in general, including me when first starting a company, that you should spend a lot of time fundraising and need to get a big check to get started [2]. Programs like this make it worse because you spend crucial time building the company and your skills as a founder on passing some well-defined hurdle like “get the big grant” or “get accepted into program X” - it is your first major task as a startup founder - only to then be faced with the fact that almost *no future company task will be that well-defined*, and the realization that *you spent a lot of time “buying more time” to get to profitability when you could have just worked on that to begin with*.
[0] Unless you are a lawyer, in the US it's seen as corruption when private parties serve as paid facilitators and gatekeepers to public programs.
[1] One of the reasons it's hard to start a mid-sized company is that "traditional" lenders only want you to borrow things like equipment and buildings that you can get almost all the value back from if you fail, VC only want you to spend money on things with the possibility of yielding huge returns, and PE just have better opportunities than taking a chance on Joe Schmo. So if you can reach ramen-profitability without VC and only need traditional loans to get started it should be much easier to start a medium sized company.
[2] Obviously raising money can be essential or really beneficial, and it's a "founder task" but I think many people forget that it's not an end-unto-itself, but a way to get you from point A to point B. The only people who should truly see it as an end-unto-itself are people who just want to pay themselves and their friends with no intention of starting a sustainable business (that is also called fraud or scamming). Everybody else should just see it as a step on the path towards a sustainable business, and not a legitimizing mark/right of passage. Actually, if you take VC money on a convertible note to spend on stuff that you could have financed traditionally or didn't really need you are essentially giving away tons of upside with little change in downside.
What gives is that it isn't a primarily marketing-driven consumer-facing entrepreneurship so you don't hear about Peter Huber Kältemaschinenbau, or Rational AG-like companies[0].
[0] https://www.chargeurs.com/wp-content/uploads/2020/01/The-Bes...
I would anecdotally put Germany at #3 globally just for Rocket alone, with US and China ahead of them.
There's lots of successful non-Rocket startups from Germany too, but most are boring stuff like agriculture, grocery delivery, pet stuff, etc. We normally don't take note of startups until they're Stripe-sized or something.
Too much bureaucracy.
Many people in Germany do hate it; there even exist quite some people in Germany who would really deeply from their heart love to see the politicians dead who are responsible for the whole bureaucratic mess (which are lots of politicians).
EDIT: nicbou gives a similar point: https://news.ycombinator.com/item?id=43609839
Founding any form of limited company is expensive and complicated. Want to put a website online? Have fun putting your full name and address in the imprint. Want to offer some courses that teach X? Yeah, no, you need a license for that, mate!
Also being self-employed you lose most social benefits. You need to get private healthcare, you need to save up for retirement and so on. Getting back into public health care later on can be a bit complicated.
So my advice is to keep working part time on a job that gives you health insurance and everything and work on your company in your free time.
Germany is also one of the least friendly countries for expats. And I say that as a native Germain. Officials will refuse to speak English to you. Yes, refuse. Most people know how to speak English but often can't be arsed to do so. Plus general xenophobia and people being very tight-knit and not open to making new friends.
What these companies have in common is that they start small and then grow organically. The main issue from a VC point of view is not that these aren't good companies but that it can take decades for them to turn into big companies. But from the point of view of the people founding these businesses, it's a good, honest way to succeed in life.
There's nothing wrong with the principle of starting a company to make money from whatever it is you do at whatever scale you are doing it. But it should drive your decision making as to whether or not you give chunks of your company away to an investor. It might stop being your company if you do.
Also, if you go down this path. Stop calling yourself a startup. It scares away customers. They don't want to hear that you are a flaky wannabe that is still figuring it out. They want to hear about your other customers and how awesome whatever it is you are selling is. They want to be re-assured that it is safe for them to enter into a multi year customer relationship with you. Projecting that you are new to all this company stuff and might not be around in six months is exactly the wrong message for them. They don't want to hear about what you are going to do, they want to hear about what you have done already. The stuff that gets VCs horny will scare away customers. If you are pitching customers and VCs at the same time, make sure you have two very different pitches. And if you are going to pitch VCs, it actually helps if you have customers. The more business you have the stronger your negotiation position.
I think it is very hard to compete in the market where lot of things are subsidized by VC money. The new VC backed companies have more money for marketing, subsidized sales wherein older orgs are hard to move.
Esp. for german orgs, they are very hierarchical, getting an innovation out is hard. Add union to the mix. Their margins are razor thing. It is a struggle. I can imagine back in the day, they moved the innovation needle.
Lot of these companies are often bailed out by the government as they employ alot of people.
But it’s how you produce a lot of other things.
I think if you want to produce a sustainable business that lasts a long, long time, and provides a good product to a lot of customers, and employ a lot of good people and provide them with a good living, you want to do this, not that.
However, the middle path from the article presumes the existence of VCs willing to join you on that path. The article waves this away with:
> angel investors are generally more open to a 2-3x ROI
For a $1M round you'd need to find 10-20 such angels (assuming $50k-$100k average check size) willing to accept small upside, for which you'll have convince them there's commensurately smaller risk. This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
Do not underestimate the value of YC brand and being able to present on Demo Day gives you. A random Jane from Ohio building her tech company would have a lot harder time finding those 10-20 angels, to put it mildly. I'd be more careful when extrapolating path-dependent success into a general strategy.
That said, my gut feeling is there's room for the next Paul Graham to fill that space - somehow.
When the OP raised money, it sounds like he was still planning on going the VC-funded route, and that's the assumption investors would have been operating under.
In the end, they were probably okay with a 2-3x ROI because they expect most of their investments not to work out, and 2-3x is better than 0x. But I doubt they would have invested if the plan all along was to aim for a 2-3x return.
> Do not underestimate the value of YC brand and being able to present on Demo Day gives you
Except to get into YC you also need to have very good traction and a plan to 10x that quickly
The two exceptions to that I’ve seen are: 1) you’ve had a good exit before, 2) you graduated from Stanford, Yale, Harvard, or similar
So for people with neither of the above, finding 10-20 angels might actually be more doable than getting into YC. Although, once you’ve done that, YC is a lot more likely to take you in
In addition the whole point of this piece is that you are generally looking to grow slower, thus having smaller capital requirements and burn rate.
Stepping outside of the VC startup bubble, we see small self-funded businesses are the norm. It's the neighborhood businesses all around us.
82% of all US business have <10 employees https://forstarters.substack.com/p/for-starters-10-the-three...
99.976% of new businesses don’t raise venture capital. https://forstarters.substack.com/p/for-starters-32-start-wit...
As a big believer in the need for syndicated worker's coops, I think this basic distinction is a pretty great radicalization tool against the current system ;)
I run a SaaS with a business partner and this is basically our thesis for getting rich. My saying around this is "This amount of revenue/profit will cause a company of 500 or 1000 to go bankrupt, but it will make a company of 5-10 filthy rich"
> This amount of revenue/profit will cause a company of 500 or 1000 to go bankrupt
Or more likely it would make them fire 995 out of 1000 and the remaining 5 could be almost as rich as you 10, and they have advantage of spending for few years on marketing and better development.
Richard (CEO): Because... to make money?
Russ: No. If you show revenue, people will ask how much, and it will never be enough. The company that was the hundred x-er, the thousand x-er, becomes the two x dog. But if you have no revenue, you can say you're pre-revenue... you're a potential pure play. It's not about how much you earn, it's about what you're worth, and who's worth the most? Companies that lose money. Pinterest, SnapChat, no revenue. Amazon has lost money every fucking quarter for the last twenty fucking years and that Bezos motherfucker is the king. There's no revenue. No one wants to see revenue. Go!
Richard: Oh, um, I just thought that mainly the goal of companies is to make money.
Russ: Yeah, no no no, that's not how it works. I don't want to make a little bit of money every day, I want to make a fuckton of money all at once. ROI. ROI!
— Silicon Valley, "Bad Money" (2015). https://www.youtube.com/watch?v=BzAdXyPYKQo
A more common route for non-tech-startup companies is to get money via debt - in other words, borrow money from a bank or financiers. That's a different model to with different risk/reward characteristics, but it's how most non-innovative entrepreneurship is done, I believe - things like building restaurants, buildings, etc.
This is indeed a "middle path" in terms of raising money by selling equity, but selling a smaller amount of it for less money, which keeps more ownership stake and control in the hands of the founders, but necessitates slower spending cause they raised less capital.
> A more common route for non-tech-startup companies is to get money via debt - in other words, borrow money from a bank or financiers.
What do you think angel investors are if not financiers, and what do you think those investments are if not debt?
The only difference is that in the software- and software-adjacent world everyone expects a 100-fold return on their investments.
They have to get loans and founders are usually on the hook if the venture fails.
This is different from what the article advocates.
But yeah “building for profitability” sounds a lot like… good business!
This seems like pulling a fast one on VCs if you then pivot to bootstrapping a nice family business. That ain't why they threw $1m at your PowerPoint.
In "dragons den" style traditional business they'd offer you $50k for 50% at that stage. Maybe.
I think one option this approach ignores is the ability to raise, but not spend profligately and not give up board seats.
E.g. if you raise $10m, but still have $8m in the bank, a $10+8m exit is still possible. You do lose whatever percentage on top of liquidation preferences you sold, but the $10m in insurance can be helpful.
Another thing to keep in mind is that once you have competitors, the pace at which your invest and ship is not entirely up to you. If your competitors raise more and manage to ship more or out-market you, your product is going to get squeezed out of the market.
Slack is sort of the prime example in my mind here of a pretty unimpressive product dominating the space through fundraising. None of their erstwhile competitors had good outcomes because Slack just sucked all the oxygen out of that space and the only company who could really compete with that turned out to be Microsoft.
You are in a worse boat than if you had only raised the $1m and then sold for $10m, but the founders probably still walk away with ~5-7m pre-tax (depending on how much equity the $10m cost you over 1-2 rounds), and you're in a better position than if you had run through the $1m and hadn't quite gotten to a thing worth $10m.
"A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth."
PG is great in many ways but he's not the person I'd turn to for an unbiased opinion on what counts as a "startup."
The founders I'm particularly impressed with are the ones who have such a nuanced understanding of capital efficiency that they do not require VC, and only take money much later in the cycle when they can basically dictate terms and want hundreds of millions for liquidity or whatever (see, e.g., Joe Mansueto).
>The founders I'm particularly impressed with are the ones who have such a nuanced understanding of capital efficiency that they do not require VC, and only take money much later in the cycle
That isn't "understanding capital efficiency" it is called having enough capital already.
It sounds good for me as a founder, but from investor point of view, this is pointless. Why taking a huge risk for 10%?
I would easily consider a positive impact along with risk and returns when making an investment decision. Not everyone would, and not everyone should, but it is a part of the funding landscape.
Going from 10M to 20M is not a big stretch, and that would net me 1M already. More than gold appreciation I believe.
If the company goes to 20M in 10 years, that sounds great, but is only a 7% compound rate of growth. I can get that with much less risk by investing in the S&P 500. And don’t discount the risk. It is critical. A small business has a very large chance of 100% total loss. Compare that to the 500 index, which has a very small chance of a 50% loss, max.
To count for risk, I would look for a doubling (10M to 20M) in at least 2-3 years, min.
You also have to think about liquidity. If you want to cash out, who is going to buy your shares at the price you want? This might not be as easy as you might think. I can liquidate 500 index shares in seconds. It might take a year or more to find a buyer for your 10% at the price you want.
I'm not sure that's true today. Author is a one-time founder that had some success. He exudes selection bias. Note: i'm not poo-pooing him that "oh he's only founded one company". Don't read into it that much. I'm just expressing that he has the standard hubris that any one-time successful founder would have. After that single success he's already enlightening us with his wisdom.
Of course there are such businesses, but "most" of those aren't startups. I don't think PMF is a term that even applies to such SMBs. PMF implies scale and repeatability of the sales process -- becoming a unicorn is baseline now.
A) Largely only want AI when they are blocked, and not all the time B) Want to consider options (which is how writing happens all the time, IMO)
Is really what sets your product apart. So I'm curious, how did you get these insights? Were you a writer and instinctively knew of these, and so you dogfooded your own product? Or did you do a YC style feedeback loop to writers to find this differentiator?
But your small business that a VC has bought part of does.
Spend less than you earn. Maybe get an SMB loan if the numbers work. This approach is older than the tech industry.
There is still plenty of opportunity to build a business that sells to customers who are collecting those angel checks (directly or indirectly). But that is dependent on at least some businesses being funded by angels.
The way I am trying to do this now is to only ask for money if I can obtain at least one paying customer who is willing to vouch for me. If I can't market an MVP to at least one small shop, I don't know why a non-fraudulent business partner would want to work with me. In any case, I wouldnt feel great about that relationship.
I've done the burn someone else's fifteen million bucks thing on tech stack shiny rabbit chases. It's really not a fun time in retrospect. Mostly just a sick feeling all the way to the bottom.
It really comes down to being willing to start small and grow within your means (even if that means a SMB loan or small investment).
But if you can’t find even 1 customer then it’s likely you’ve started building without talking to actual customers.
How exactly is a VC—or any investor, really—supposed to make money from a startup that’s aiming for a “middle of the road” outcome? That just doesn’t add up. In that case, wouldn’t it make more sense to invest in something safer or more traditional?
From what I understand, the very definition of a startup is tied to ambition. Founders need to be aiming for the moon—or at least something close to it. If you’re not taking big risks with the potential for big rewards, can you even call it a startup?
VCs aim for 1 out of 50 investments to return 100x what they put into it, and the rest of them to die quickly and stop taking their attention. A company kicking off 5% returns every year is counterintuitively worse than flaming out immediately.
If you’re using the term “startup” in a tech/VC context: Yes, high growth is core to the definition.
Just today I learned that the unzip program hasn't had an official release since 2009 (!) and everyone ships a different set of patches for it.
Relevant xkcd 2347 [1].
That sentence (yes, ONE sentence) is some of the worst I've seen.
"[S]ome", as in 'plural'? Perhaps 'one of', may be better?
VCs won't be interested if you're aiming for a $100M outcome because what you aim for is generally loftier than what you hit. If you're aiming for $100M you might sell for $25M or $50M, which is generally uninteresting to VCs.
As a founder you care very much which of your companies succeeds, as you only have one.
yes it does. https://paulgraham.com/growth.html
> —say, less than $1M—
why not go for an SBA loan then instead of VC?
There's the 'crab' model, but this isn't for startups. They're old, companies like Yahoo who have a moat and can't leave it. They're at evolutionary peak or rather a local maxima. They're too difficult to change and a major change would make them too vulnerable.
Ironically he is now a VC - but a very successful one.
This has happened a lot in games. Now, VCs have almost stopped pre-seed and seed funding in this industry. The global annual VC funding in games is about $1B, about 1.5 Call of Dutys. This is down from around 12B in 2022.
One could say they threw the baby out with the bathwater because while many executives were abusing the found-scale-exit business model and taking investors' money, many were also not. It's pattern-matching through and through, very little due diligence.
The smartest person and the dumbest person I've met professionally are both investors.
And VC’s invest in companies to get a 100x return.
Which almost by definition means, if you run a startup - you need to get it to become a unicorn for it to be successful.
Otherwise, why take VC money … and just bootstrap it instead.
One (seen elsewhere in these comments) is any small business. I personally don't like that definition because there is a pretty big difference between a local coffee shop and the thing we all mean when we say "startup".
The other one which is more common here is a company that is currently small, but the business model involves getting much much larger. There's a blurry line between a small business and a startup with this definition, but it seems to be a "you know it when you see it" type of thing.
Companies like Mailchimp and Atlassian (in their early days) clearly qualified as startups even though they hadn't raised VC. You might say they're outliers, but so are the VC-backed companies that reach that level of success. If a small company is growing quickly and on pace to become a multi-billion dollar company, it seems weird to say they're not a startup just because they didn't raise money from the right people.
Even the Paul Graham essay defining "startups" the way he saw it said "VC funding" wasn't required: https://www.paulgraham.com/growth.html
It's just that many mentally associate "startups" with VCs and software tech because that's often how rocket-ship growth happens.
That “startup” was an indicator of not being an incumbent in the space and using technology to disrupt things.
But in an increasingly tech-first world, it does beg the question what separates a tech first SMB from a startup.
Most startups are still traditional business model. Every company was once a startup.
My local supermarket was funded by the people living in the community, each buying a few shares. I don't think any of them expected 100x return.
I disagree.
Would you consider your neighborhood restaurant a "startup".
Startup for many people implies "high growth".
