Financing strategy rethought
For startups, financing is a continuous challenge that extends throughout the entire innovation cycle. The financing requirements are completely different in each phase. Those who need funding in the initial phase for the start-up and initial product development will later face other tasks: market entry, digitalization and growth. These phases each bring their own needs, and the corresponding funding opportunities must be recognized and utilized in good time.
The problem: Many founders do not address these requirements early enough. They often start with the resources and knowledge that are available to them at that time. This is understandable, but can quickly lead to valuable funding opportunities going unused - funding that could accelerate growth or even ensure the survival of the startup. When funding programs such as eXIST, Gründersbonus or other options are tied to deadlines, timing is crucial. Those who do not recognize the opportunities in time often leave money on the table.
In this article, we look at the different phases of the innovation cycle: from the initial idea to founding, product development and market entry to scaling. We show why a well-thought-out financing strategy is essential in each of these phases in order to make the most of all available opportunities. It also becomes clear that it is not enough to rely on individual funding programs alone - a holistic strategy that combines various instruments is the key to sustainable growth.
A case study of a young founder (at the end of the article) who missed important funding opportunities due to a lack of planning shows how quickly opportunities can be lost and what startups can do to avoid such mistakes.
The different phases of a startup and their specific funding needs
Startups go through several phases in the innovation cycle, from the initial idea to scaling. An early understanding of the financing requirements and the available options is crucial to making the best use of funding and supporting sustainable growth. The following shows which financing options make sense in each phase.
Idea (pre-incorporation)
In the first phase, the basic idea is developed and initial feasibility studies are carried out. The focus is on technology validation and concept development, covering technology readiness levels (TRL) 1 to 3 - from basic research to proof of concept.
Financing options:
Pre-Incorporation Grants: Funding for academic (e.g. eXIST) and non-academic projects (foundation bonus) that begin before the official company foundation, such as special university programs to support innovative ideas or feasibility studies (proof of principle).
Incubators & accelerator programs: These not only offer financial resources, but also infrastructure, mentoring and networks to further develop the idea.
Bootstrapping & Family & Friends: In this early phase, it is common to use your own resources or financial support from your personal environment to cover initial expenses and maintain flexibility.
Incorporation
The company is formally launched with the founding. This phase is about securing the first financial resources in order to prepare the next steps and lay the foundation for later success. The focus is on validating the business idea and initial experimental developments, which typically corresponds to TRL levels 3 to 4. This checks whether the product is technically feasible and whether a first functional prototype can be developed.
Financing options:
Incorporation Grants: Grants such as start-up grants or other start-up grants offer financial support for young companies in the initial phase (proof of concept). They help to finance initial developments without putting a strain on equity.
Business Angels & Family Offices: Private investors such as business angels or family offices bring not only capital, but also valuable know-how, networks and often many years of experience into the company's development. Their support can be crucial in getting the startup on the right track.
Venture Capital Invest Grant: This grant is aimed at investors investing in early-stage companies and doubles private investments to reduce financial risk, making it more attractive for business angels and family offices to get involved at an early stage.
Crowdfunding & Family & Friends: These sources of funding are also relevant to strengthen the financial base. Crowdfunding makes it possible to attract initial supporters for the project while also obtaining market validation from potential customers. Financial support from private circles (family & friends) can help to start the company without major financial commitments.
Strategic Business Angels & Work for Equity: Strategic business angels are more than just investors - they also bring valuable expertise, networks and operational support. In this phase, they can work in the form of "work for equity" models, where they provide their work (e.g. consulting, strategic management or operational support) in exchange for company shares - this is the case with Arise Innovations, for example. This helps startups not only financially, but also by providing the practical support they need to develop and build the company. These models are particularly valuable because they reduce the financial risk for the company while providing access to experienced mentors and specialists.
In the start-up phase, it is particularly important to plan the financing strategy precisely and to combine the various options sensibly in order to generate as much capital as possible while retaining control over the company. The mix of funding, private capital and strategic investments creates a solid basis for the next development steps and increases the chances of success.
Product development (R&D / innovation)
During this phase, the technology is further developed, prototypes are built and functional tests are carried out. The aim is to achieve a market-ready version and thus prepare the transition to the next phase. The TRL values here are between 4 and 7 (from technology development to demonstration in the relevant environment).
Financing options:
Research & Development (R&D) / Innovation Grants: European, national and regional programs, such as EIC Accelerator, Horizon Europe or ZIM, support technological development.
Loans & subsidized loans: Low-interest loans help finance the costs of research and development projects.
Capital increase through investments: Equity capital from venture capitalists (VCs) or business angels offers not only financial resources, but often also strategic support.
Convertible loan: A flexible financing instrument that is initially granted as a loan and can be converted into equity when required.
Go-to-market
In this phase, startups prepare for market entry and focus on acquiring the first customers. Marketing measures and setting up a sales system are the main focus. The technological maturity levels here range from 7 to 8 (technology in the test phase to market readiness).
Financing options:
Promoting market entry measures: Grants specifically designed for marketing, sales and internationalisation support market entry.
Loans & Subsidized Loans: Financing to support market entry and scaling to facilitate the transition to operations.
Strategic partnerships: Collaborations with established companies or strategic investors can help facilitate market entry and increase reach.
Digitization
Once the product is on the market, the focus is on digitizing business processes to enable efficiency improvements and scaling. The TRL values here range between 8 and 9 (optimization and market readiness).
Financing options:
Funding for digitalization: Grants such as "Digital Now" support the implementation of digital technologies and digital transformation.
Loans for digitalization projects: Special financing for the implementation of digital projects and the improvement of business processes.
Bootstrapping: Investing with your own resources to maintain full control of the business and maintain financial flexibility.
Scale-up
The final phase focuses on growth. Production is expanded, new markets are opened up and the company becomes an established player. The TRL value here is 9 because the technology is already in commercial use.
Financing options:
Promoting revenue growth: Grants that help support revenue growth, particularly in projects where end customers are eligible.
Private Investments & VCs: Growth financing through venture capital is particularly important in this phase to cover large financing rounds.
Convertible loans & credits: These instruments make it possible to finance expansion without diluting equity too much.
Crowdfunding for growth financing: Crowdfunding can be used to reach a larger community and raise additional funds for expansion.
Each of these phases requires a different financing strategy, and it is crucial to know and use the right options early on to maximize opportunities and avoid financial bottlenecks in order to put the startup on a sustainable growth path.
Different types of funding and sources of financing in detail
Startups have access to a wide range of funding and financing options, each with different advantages and disadvantages depending on the phase, industry and specific needs. The right combination of funding, investor capital and alternative financing is crucial for success. The following section takes a closer look at the various options and shows when and for whom they are particularly useful.
Academic vs. non-academic funding
There are both academic and non-academic funding programs aimed at different target groups and purposes.
Academic funding: This is aimed at projects with an academic background, especially from universities or research institutions. A well-known example is the eXIST start-up grant, which is specifically designed for university graduates and academic staff. It supports start-ups based on research results with financial resources, coaching and access to networks. Academic funding is particularly suitable for technology-intensive start-ups that draw their innovative power from scientific research and require intensive pre-development.
Non-academic grants: These programs are open to a wider range of entrepreneurs, regardless of their academic background. These include regional and national grants. These grants aim to support technological innovation and business creation and growth and are often less tied to specific academic requirements.
Investors (business angels, VCs)
Investors play a central role in financing startups, especially in the post-foundation and growth phases.
Business angels: They not only invest capital, but often also offer strategic advice and access to networks. Business angels are often active in the early stages of a company and can provide valuable support through models such as "work for equity" without the startup having immediate financial outlay. This is particularly useful for startups that are not yet generating revenue but want to benefit from the business angels' expertise and contacts.
Venture Capital (VC): VC firms invest large sums in startups with high growth potential. In return, they receive company shares and often a certain amount of influence on the company's management. To avoid excessive dilution of the founders' shares, startups should plan carefully when and how they will involve venture capital financing. A comprehensive strategy can, for example, provide for several smaller financing rounds in order to increase the company's value at different times and thus create a more favorable negotiating position.
Crowdfunding and bootstrapping
These forms of financing are particularly interesting for startups that either want to maintain their independence or are not yet able to attract larger investments.
Crowdfunding: This form of funding allows startups to raise capital through a large number of smaller contributions from individuals. Crowdfunding is particularly suitable for testing market interest and building a community that supports the product even before it enters the market. There are various crowdfunding models, including reward-based crowdfunding (e.g. Kickstarter, Companisto) and equity-based crowdfunding, where backers receive shares in the company in return. However, running a successful crowdfunding campaign can be time-consuming and requires a well-thought-out marketing strategy.
Bootstrapping: This is where founders finance their startup from their own resources, donations, and ongoing income without involving external investors. The biggest advantage is complete control over the company, as no company shares have to be given up. However, bootstrapping is often associated with slower growth, as financial resources are limited. This strategy is particularly suitable for business models that can generate cash flow quickly and do not require extensive upfront investments.
Loans and alternative financing
Debt capital can be a useful complement to equity financing, especially if certain growth targets are to be achieved quickly.
Loans: Startups can access various types of loans, including government-backed loans, which are often offered on favorable terms. Subsidized loans such as those from KfW Bank in Germany or programs from the European Investment Bank offer startups access to capital for R&D projects, digitization or internationalization. Repayment can be partially facilitated by grants that help cover part of the project costs.
Alternative financing instruments: These include, for example, convertible loans, which are initially granted as loans and can later be converted into equity. These are particularly flexible and allow startups to receive capital without immediately giving up shares. Revenue-based financing, where investors receive a fixed percentage of sales in return for their financing, can also be an option that is particularly suitable for companies that already have a stable cash flow.
The combination of these different types of funding and sources of financing is crucial to meet the specific needs of a startup at each stage. The optimal financing strategy should be flexible and adapt to the changing environment in order to maximize opportunities and avoid financial bottlenecks.
What makes a tailor-made funding strategy so crucial
A tailor-made financing strategy is crucial for the success of a startup. Since the needs of a young company vary considerably depending on the stage of development, industry and business model, a one-size-fits-all approach is often not enough. Instead, a flexible strategy tailored to the specific startup is necessary, which allows it to respond optimally to current and future challenges. Here are three crucial aspects that make a tailor-made strategy so important:
Needs analysis
Every startup is unique and has individual needs that depend heavily on the type of company and its current stage of development. For example, a technology-based startup working on a new medical diagnostic method will have very different financial requirements than a young company building an e-commerce platform.
A thorough needs analysis is the first step to identify the right funding sources and funding programs. This takes into account aspects such as the capital intensity of the business model, the expected market entry, regulatory requirements and growth potential. A precise needs analysis ensures that the financing strategy is aligned with the actual needs of the startup and that the right measures are taken at the right time.
Long-term planning and flexibility
An effective funding strategy must not only cover a startup's current needs but also anticipate future financial requirements. This requires long-term planning that extends well beyond the next funding round.
Arise Innovations helps startups not only address their current capital needs, but also secure funding for future development phases. This includes preparing for larger investment rounds, identifying suitable funding programs that can be used in later phases, and setting up a business model and business plan early on that also takes unforeseen market developments into account. Long-term planning enables startups to respond flexibly to changes without missing out on important funding or financing opportunities.
Dynamic adaptation of the strategy
In the dynamic startup world, market conditions and company needs often change quickly. A rigid financing strategy can easily become a problem here. It is therefore important to regularly review the financing strategy and adapt it to new circumstances - be it by taking on new sources of financing, reallocating resources or tapping into additional funding.
Arise Innovations offers startups and investors the support they need to dynamically adapt and continuously develop their financing strategy. Data-driven analyses and regular reviews help to take current market conditions into account and avoid financial bottlenecks at an early stage. This adaptability not only keeps startups able to act, but also enables them to take advantage of growth opportunities when new possibilities arise.
Arise Innovations' role in developing a comprehensive financing strategy
Arise Innovations helps startups develop customized financing strategies that combine all available options in a meaningful way and are tailored to the specific needs of the company. This is not just about choosing the right funding programs, but about integrating different forms of financing to create a sustainable growth strategy.
Identification of the best sources of financing
Arise Innovations helps startups to identify the most promising sources of financing by carefully analyzing various funding opportunities and financing methods. The specific needs and goals of the company are taken into account - be it the use of funding programs for research and development, tax incentives or strategic investors. The focus is on finding the right combination of funding, investor capital and alternative financing in order to optimally exploit the company's potential.
Integration of different forms of financing
One of the strengths of Arise Innovations lies in the ability to bring together different forms of financing in a coherent plan. Funding, investor money, tax advantages and loans are combined in such a way that they optimally support the various development phases of a startup. Care is taken to make the financing flexible in order to be able to react to future changes without missing out on important growth opportunities. This integrative approach ensures that financial resources are not only secured in the short term, but that the company also has a stable foundation in the long term.
Success factors
Practice shows that a holistic financing strategy can significantly increase the growth opportunities of startups. Through the strategic use of our investor network and a successful business angel round, supplemented by government grants for research and development, our customers can not only accelerate their development, but also maximize their growth potential without giving up too much equity. Such practical examples show how a well-thought-out financing strategy can make the difference between stagnating growth and a successful market entry.
Case studies and success stories
An anonymized example from practice shows how a lack of early planning of funding opportunities for startups can lead to major challenges – and how an adapted strategy can help to overcome these problems.
A young founder and the missed GO Bio funding and TransferBONUS from the IBB
A young founder approached us after he had already founded his startup with the resources and knowledge he had at the time. The original decision to start the company quickly was motivated, among other things, by the need to protect intellectual property (IP). However, it was only as time went on and his network expanded that the founder realized that he had missed out on the opportunity to receive millions in GO Bio funding - an opportunity that would have been crucial for the development of his product and its market readiness.
With the formal founding, he no longer met important criteria and exceeded deadlines, as many funding programs are tied to time frames that are usually within 12 months of the founding. Without the funding, the founder quickly reached financial and technological limits when developing the product and testing its marketability.
How Arise Innovations helped
Arise Innovations worked with the founder to develop a new, customized funding strategy to fill the gap that had emerged. The strategy included several measures:
Identification of alternative funding schemes: Although the GO Bio funding was no longer an option, other funding opportunities could be used to support further development. These included support for the acquisition of equity capital combined with grants for research and development, as well as regional funding available for specific technological innovations.
Strategic Business Angels & "Work for Equity": In order to bring additional capital and know-how into the company, we are involved as a strategic business angel, who brings in operational knowledge and support through a "Work for Equity" model without having to spend immediate financial resources.
Use of tax incentives and convertible loans: In order to improve the equity ratio, tax advantages and convertible loans were integrated into the strategy. These instruments helped to increase financial flexibility without diluting the company too much.
Through this combined strategy, the startup was not only able to compensate for the lack of funding, but also to open up new growth opportunities and drive forward the further development of the product.
Funding strategy as the key to long-term success
A well-thought-out financing strategy is crucial for startups at every stage in order to be successful in the long term. From the initial idea to scaling, requirements are constantly changing, and the right combination of funding, investor capital, tax incentives and loans is often the decisive factor for growth and sustainability. As the case study presented shows, it can have serious consequences if funding opportunities are not recognized or used in time. A comprehensive strategy, on the other hand, ensures that financial resources are used efficiently and opportunities are seized before they expire.
The key is to react flexibly to changing conditions and to continually adapt financing to the company's current needs. Every startup is unique, and that is precisely why a tailored financing strategy is so important. This is the only way startups can tap into the right sources of financing at the right time and thereby set the course for sustainable growth.
If you want to ensure that your startup takes advantage of the best financial opportunities at every stage, it is important to develop a comprehensive strategy early on.
Contact us to receive individual advice and to develop the best financing strategy for your company. Together we will find out which options make the most sense for you and how you can most effectively achieve your growth goals.
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