Here's a model that exists in Germany, which I like:
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.
It's also connected to so much bureaucracy that you almost need to hire someone for that alone, because you wont have as much time for your actual business. Founding a company in Germany is so much unnecessary paperwork its crazy. Single handedly the only reason I will never try it in my home country.
I agree that the process is unnecessarily complex, but I also think hiring someone for that would be the wise choice in most places anyway.
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.
I have founded multiple companies in Germany and in the US. Sure, in the US you have services like Stripe Atlas that make it a bit easier. But still, I would not say it's much crazier registering a company in Germany compared to the US.
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.
Some still do it. And while I would never start my own company in Germany. Working at a startup in Germnay is going pretty well for me so far. 1.5 years in.
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.
That's a bit exaggerated. I did have a company, and while it did come with bureaucracy, the vast majority of my time was spent on what you expect a founder to do (sales, marketing, product, etc.).
These things do work and created a few unicorns here in Malaysia.
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.
This is somewhat akin to the U.S. government's SBIR grant program. Phase I (generally $250-500K for a year)to develop and pilot novel tech. Phase II ($1M) to develop scalable tech. And Phase III to go-to-market. (I'm being intentionally brief here as there is a lot of variability between participating agencies).
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.
That just sounds like traditional small businesses. Which is cool but re-branding them to "startup" seems silly. The US has 35 million small businesses and maybe 1 million would qualify as startups.
Good to see startup strategies which help build stable, solid middle-sized companies.
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.
Small business owner here. Only works if you can carve out a niche. Lots of software areas have clear scaling benefits and then you just can’t compete as a small company.
That’s why MS Office continues to dominate after decades.
Parts of this feel a lot like Canada's SRED program, which is intended to be a subsidy for technology research but the expected bureacracy has spawned an industry of consultancies that work solely to find marginal & questionable activities within companies that qualify. It can be worth it for a company to jump through the hoops - especially if they get something while another company does all the work - but it's an incredibly inefficient way to grow tech businesses.
SRED and other grants/tax rebates is lifeblood for small tech companies here. Also, you know you're a senior dev when you make the yearly pilgrimage to meet with SRED consultants with architecture diagrams in hand!
So KFW (state investment bank?) has a thing called StartGeld (startup loan). I've wondered about few practicalities
1) What sort of collateral does bank expect from you?
2) Can you really get 125ke or more like 10-20ke?
3) Interest rate is a single digit number?
4) Can you really get 10 year payback periods?
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.
Not sure which one the original comment is talking about, but look into "Gründerstipendium" / "EXIST Stipendium".
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.
No that's for a full GmbH. You can start with an "UG", which realistically needs maybe 1500 EUR to get registered and up and running. Then, a certain percentage of the profit is contributed towards the 25k (of which in turn only 12.5k have to be deposited in cash) each financial year. If the threshold is met, you can convert from UG to GmbH.
Can non-German citizens apply (citizen of another EU-country, though)? I am planning to move to another EU country and Germany is one strong contender, and this would make it even better.
Not for these specifically, but most of them are funded by EU grants. The current ESF funding period runs until 2027, so you'd need to research which pathways to funding exist in your country and how to apply.
I posted a bunch of links further downthread. There are also likely non-profit/public institution in your state that will help you navigate this. Of course they can't write the business plan for you :)
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.
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.
I would love to see the actual long term statistics for this program and others like it, because from the outside looking in, it seems to produce a lot of zombie companies and companies that are wholly structured around financing themselves through more grants and other public programs.
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 are you looking for in particular? The model is geared towards slow, sustainable growth. And that growth might also not need to exceed a certain level. So you're unlikely to hear about many of them. Not all are in tech or software, many are focused on German-only (or DACH region) research, industrial development, etc. I think that's fine.
Entrepreneurial success they definitely have, it's just not in-your-face tech/digital stuff, it's lots of Mittelstand companies focusing on niches, like in high-precision machines that are then used for precision manufacturing (optical lenses, chemistry reactors, etc.).
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].
German bureaucracy is a constant hindrance. Your first year in business is pure compliance work, and waiting for various paper-based processes to complete.
Have you heard of Rocket Internet? It's one of the most successful models in the world. They may avoid the US market and such, but most of the unicorns in Malaysia are backed by Rocket. And most of the people who stay and start their own, backed by YC or whoever, are usually ex-Rocket. They hit 10% growth per week, even at unicorn sizes.
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.
> And yet Germany still doesn't seem to have much more startup / entrepreneurial success than any other European country. What gives?
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).
Bureaucracy is crazy in Germany. Forget about doing anything online, paper and in person only.
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.
Only applies to people with a degree. Institutionalised nepotism. Just like how your chamber of commerce keeps out the competition. Typical western decay/corruption. Closing the ranks and drawing in other peoples money.
I live in a country (Germany) that is famous for having a lot of "mittelstand". These are basically family owned businesses. Some large German companies fall under this. Aldi and LIDL for example, which are super market chains that at this point have a global presence. And some large companies (Bosch, Siemens, VW, etc.) are actually a multitude of smaller companies. Much of the German economy is smaller and bigger specialized companies doing their thing. Only some of them are public companies.
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.
I see your point, but at the end of the day you look at the 30 biggest companies in Germany by market cap and they are essentially the same after decades which is not really a symptom of a dynamic economy (for good and bad).
If you were the sole proprietor of the 1000th largest company in Germany, you'd be fabulously rich. If your objective is personal enrichment then it doesn't really matter whether you have 10% of a huge pie vs 100% of a smaller pie, and the latter may be easier.
Only psychopaths with other people's money to burn want to produce OpenAI or Space X.
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.
I do like the idea in general and feel there's a lot of room for improvement between the (VC / bootstrapping) extremes.
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.
That is what I was wondering as well. Where can I find investors willing to invest up to $1M with an expected 2-3x ROI on typical VC terms? In particular, for pre-revenue ventures. And how can you keep that 90%+ equity with 10 angel investors?
Yeah, unless they're your friends or rich uncle, these investors don't exist.
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.
> 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
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
I can't speak for YC, but as an operator: the primary reason to go to YC is to smooth a path for later fundraising, and if you plan to fundraise, you need something like a 10x trajectory, because VC portfolio math doesn't work for companies without it.
For smaller amounts of monies such as £250k or £1mm, it is much easier to get funding, since a decent amount of countries offer tax relief to the investors for example in the UK through EIS, SEIS, or even VCT. These offer advantages to angels over the VC's.
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.
Also almost always angels profit either from secondary in next rounds from VC or acquisition or IPO. In general it is very hard to return back 2-3x in say 2-3 years without going to VC for next round.
I'm guessing you know this, but for those new to the terms: what this post describes as the "VC route" and the "bootstrap route" are usually referred to as "growth businesses" and "lifestyle businesses" (i.e. pays for the lifestyle of the founders).
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 ;)
But the percentage we're really interested in is "what percentage of tech based startups are VC vs. bootstrapped." Especially in, say, the Bay Area. I don't know what that figure is, but I'd like to know.
Not common in Silicon Valley, but much more common in the rest of the country.
There’s an archetype for bootstrapped tech businesses:
- highly vertical specific
- couple hundred million TAM
- founder started the business in their 30s and is now in their 40s
> even a relatively small deal would produce a life-changing outcome for the founding team.
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 is exactly what I am doing. I started another startup in February 2024. After a year, I crossed $1M in annual profit with three employees. I am not planning to scale humans. Profits are growing, and we don't need to hire more people. LLMs and scripting automation are doing the work of approx. 20-30 people — this wasn't possible before.
> 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.
At least some years ago, browsing HN's comment section felt like it was a different world, separated from reality. I think some people need this kind of grounding reminders every once in a while.
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!
'Be a normal person/company and do normal person/company things,' isn't talked about very often, and it can be useful to be reminded that it is a pathway that can lead to success.
It's not a "regular" company, because it's still raising angel investment, presumably from the tech/startup ecosystem.
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.
I run a small 20 year old service business in the US. Just getting a $300K line of credit from a bank required a lot of paperwork and both the company and me personally being on the hook. It took about a month to secure. In contrast, on a different occasion a secured a personal home equity line of credit for $100K in a bout 5 minutes.
That’s pretty much what I took away. I guess the difference is that in my mind a “regular” company gets its funding via a loan. The post is from someone who got into YC.
But yeah “building for profitability” sounds a lot like… good business!
It's obviously better to raise the optimal amount and no more. But things are not always so clean, and the best time to raise is when your company is killing it, not when you're running out of cash and trying to make it to profitability.
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.
If you raised $18MM total in two rounds and then sell for $18MM, you're going to walk away with a signing bonus for the new company and little else, right? You can't generally sell in order to distribute the proceeds of an investment round to the company operators.
I am mostly imagining the "happy middle" scenario where you raise $1m and sell for $10m in cash, but modified to assume you raised $10m and spent $2m of it, and then got the $10m in cash from the acquirer, and still have $8m in the bank account, you would give back $10m to your investors per the liquidation preferences and then split the remaining $8m.
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."
Yes, this is what every venture capitalist says. You aren't doing a startup unless you want extreme growth, which requires our services and cuts us in. Building in a capital efficient way that generates substantial wealth for founders, but without giving VCs a cut of the pie, is, of course, "not a real startup," and often also slandered as a "lifestyle business" for low-ambition people.
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).
It is the definition of the word. Nowhere does pg say you can't start a non-startup business.
>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.
Readit News
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.
There's a very big key difference from standard small business here
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 :(
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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.
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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 ;)
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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.