Lena Gaede

3 ways for startups to start a business – funding solutions for low capital startups

Every business starts with an idea, that’s for sure. So far so good, but no business can be implemented without money. And as harsh as it may sound: there isn’t any magic and contrary to popular myth, nobody is waiting in the wings to throw money at you just because you have a new and exciting business idea. So, how then to find the money to start your business? Instead of collectively burying our heads in the sand, CODE_n examines three ways on how to fund your business.

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Janina Benz

Crowdfunding goes green – Econeers supports an energy transition from the grassroots

Michael Brey - Corporate Communications at Econeers

Michael Brey – Corporate Communications at Econeers

The story behind Econeers
We have started Econeers in October 2013 as sister-platform of Seedmatch, the German market leader in crowdfunding for startups and partner of CODE_n. So we have transferred our experience as well as  the proved concept of crowdfunding to the prospering field of renewable energies and sustainability. That was because we discovered large similarities between both concepts: The energy transition in Germany has been basically driven by civil investors right from the start. Almost 50 percent of the renewable energy facilities are paid with private money. Since 2001 over 880 energy cooperatives have been founded by citizens intending to strengthen their independence from large energy groups. So starting a new crowdfunding platform with a focus on clean energy projects in order to create an easier and more efficient way of civil participation was just a logical consequence for us. More…

Janina Benz

Raising Startup Funds – A Merging of the Minds?

After coming up with the concept of the “next big thing”, funding is the first big challenge facing every technology startup. There are living expenses. There may be legal and administrative expenses in incorporating or registering a business. And, assuming the initial development work is successful, entrepreneurs will need an office and employees. But where do you start?

Different Funding mentality in Europe and US

Different Funding mentality in Europe and US

Historically, we’ve seen different approaches in Europe and the US in the funding of startup ventures, with the US focusing more heavily on private equity and risk-based investment and Europe tending to place a greater emphasis on loans and governmental or institutional involvement.

In the US, entrepreneurs begin by maxing out their credit cards. Then they’ll do the rounds of angel investors to fund the business through proof of concept to first customer acquisition. Once the proposition is market-proven, they’ll hit the venture capital trail. This has been the typical route to market for America’s best-known technology success stories – Facebook, Twitter, Google, and the like. This approach has significant upsides for investors if the business succeeds, but if the business does fails, those businesses, and their investors, lose everything. It’s a high stakes game that ebbs and flows with the market.

In Europe, seed money has traditionally come from family members, followed by bank loans and grants from public bodies – a theoretically safer approach, but also one that offers a different kind of incentive to investors, one that is decidedly not “get-rich-quick”. Talentsoft, a French cloud-based talent management solutions company, has blended US and European approaches with investments coming from the European arm of a US venture capital firm and from a French government institution.

While this public-supported approach is available in the US through organizations such as the small Business Administration, they tend to be more popular with conventional businesses looking to fund expansion than with technology entrepreneurs looking to fund innovation. US entrepreneurial risk sits firmly in the private sector, whereas Europe expects public institutions to partner in innovation.

Crowdfunding becomes important in the funding procedure

Crowdfunding becomes important in the funding procedure

But all this is changing with the advent of crowdfunding, led by Kickstarter and Indiegogo. The current crowdfunding record is held by smartwatch innovator Pebble, which raised $10,266,845 from individual donors who asked for nothing more from the company than a free watch – a far cry from the significant equity expected from a typical VC investment. But this approach has its downside for entrepreneurs, however, in that if the stated fundraising goal is not met, the entrepreneur gets nothing. Ubuntu Edge found this out the hard way when they used crowdfunding in their quest to raise $32 million to develop a Linux-based smartphone; they hit a wall at $12.8 million, and that was the end of that.

The latest twist to crowdfunding, epitomized by RocketHub, exchanges the Kickstarter reward system for true equity. This, however, brings the additional complication of having to comply with investment regulations in any country in which the entrepreneurs and their investors have a presence; the jury is still out on how palatable the additional regulatory oversight will be to both parties.

It’s clearly a crowded marketplace for any entrepreneur seeking to take their business to the next level. In future posts, we’ll take a closer look at individual paths to successful exits by both European and US startups.

Vassilis Nikolopoulos

And what about fundraising?

Vassilis Nikolopoulos

Vassilis Nikolopoulos, PhD
CEO and co-founder, Intelen

Fundraising is a magic concept for every entrepreneur. It describes a difficult and tedious procedure of raising money to develop a venture and support all growth stages.If you ask me about that, after raising two rounds so far for my startup from six different investors (and hopefully more…), I would say that your initial objective should be bootstrapping and not fundraising. This will give you self-confidence, focus and will push you to the limits to finish your MVP (Minimum Viable Product) in order to get feedback and your first pilot customers. Fundraising is a tedious and time-consuming operation that eats your time as a co-founder from other important tasks, such as product validation and initial customer acquisition.

Fundraising comes after you have a prototype that can be used for customer feedback and can validate a business/revenue model, according to the LEAN approach. The initial money you will be asking for, from angel investors or early stage VCs, should go to one important objective: scaling up!

In every fundraising pitch, what should be stressed is not the technology, which already exists out there, but rather how the product or service can be scaled up as fast as possible and how it will follow a specific go-to-market strategy, already defined by your team.

An investor is not looking at the present, but the future. He uses your pitch and product to project his personal portfolio investment life-cycle, analyzes the risk of its current investment portfolio, calculates some financial and investment metrics and makes decisions based on that. So what you need is a good story to simply describe your idea, a well differentiated product with some initial customer contracts, a good emerging market that will help you evolve and take a good market share, and a pretty straightforward go-to-market plan to scale up your product quickly and efficiently.

When we feel ready to go for a fundraising campaign for our startup, we should be ready to justify and present the above arguments. In general, fundraising takes a lot of time from the co-founders, so we have to be sure that our product and progress are not left behind. The CTO should have a dedicated team to move on with development in a semi-automated way. Continuous progress is another key that we have to show to our potential investors. Investors and VCs always evaluate progress and milestones as a part of a continuous startup assessment.

The Intelen story so far…

Intelen started fundraising back in 2009, after winning its first international recognition in the Guidewire Innovate!100 Contest as a finalist. After that, some more international awards came up in 2010 for Intelen’s innovative prototype product on energy analytics and social game mechanics for energy efficiency (Red Herring Global, silicon valley launch, OECD eco-innovation, Siemens World Smart Grid Innovation Contest, etc).

This opened many potential doors and gave Intelen publicity and credibility for its innovative methods; but this also created many expectations and put pressure on the whole team to finalize the products, start acquiring customers, form a high level advisory board and produce a great success story for the fundraising. International recognitions and innovation prizes do not give you funding or money and do not create revenues. Happy customers do…! But, they create expectations you have to meet, and you have to continuously prove your point of differentiation and your will to succeed to people and potential investors. This is what Intelen did and still does, after two seed rounds. Create a success story and show people your agility and fast progress. Then, prove that you have an extremely well differentiated product, acquire satisfied customers, and as soon as your team progresses you are another step closer to success!

In general, when we fundraise we should:

1. Have a 1-2 page executive summary for the investors and a good financial projection (in the seed stage) 1-year ahead. No need for a big business plan, nobody is going to read it.

2. Have a good pitch deck to present: focus on scaling up and go-to-market strategies and use your success story!

3. Organize your development and company progress well: the co-founders will be very busy with fundraising.

4. Demonstrate agility and the will to go global: present contracts and initial satisfied customers. Also use this feedback to adapt your price models. This will give you good and accurate financial projections.

Be ready to meet any expectations you create around you and to work hard in order to prove that you can evolve, learn, adapt and stay agile!

Janina Benz

Key success factor crowdfunding – CODE_n initiates live funding at CeBIT

The bestowal of the special crowdfunding award at CeBIT was a big success. Why did we do it? Because even the best idea or the most innovative product does a startup absolutely no good if it doesn’t get out there, to the people. It takes money to get the word out. And financial means aren’t always easy to come by, especially considering the ever-increasing demands associated with implementing new technologies. In fact, preparing market-ready products eats up much more of startup budgets today than it did just a few years ago. It has been getting more and more difficult for small, young companies to get their hands on the capital needed to see their ideas take off. We wanted to introduce our finalists to a new topic, and show them yet another way to find potential investors: crowdfunding .

Crowdfunding describes the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations. It can also refer to the funding of a company by selling small amounts of equity to several investors.

A lot of people asked us how this cooperation came about. We wanted to offer our finalists the opportunity to familiarize themselves with crowdfunding opportunities. That’s why we turned to Jens-Uwe Sauer. He was a member of the CODE_n jury in 2012, and, as Founder and CEO of the German crowdfunding platform, Seedmatch, he brought a world of expertise to the table. Just what we needed for our little endeavor.

Working together, we came up with the idea of hosting a live crowdfunding event, right at CeBIT. According to Jakob Carstens, Head of Marketing at Seedmatch, the winners were selected according to very specific criteria:

“In our selection of the startups for the special crowdfunding award, we sized up t More…

John Groetting

What do YouTube, Tumblr, Airbnb and Flickr all have in common? Each of these companies was founded by a designer.

„How do I get all of my favorite cookbooks into the nice, compact form of an iPad?“ This question inspired John Grøtting to found his own business. Caramelized is a smart cookbook for the iPad – amazingly compact and with intuitive kitchen aids integrated.

Caramelized - smart cookbook

Caramelized – smart cookbook

On Monday Caramelized, also a CODE_n12 finalist, published the news that they received a crowdfunding round on seedmatch. We were wondering about the story behind and how is the team handling the startup pressure? Caramelized CEO John was so kind to write a guest blog about his experience in this biz.

John Groetting - Founder and CEO of Caramelized

John Groetting – Founder and CEO of Caramelized

Have you ever bought a product and found yourself compelled to tell a friend about it? That company has definitely put lots of work into creating a product that has qualities that have motivated you to do advertising for them. And you gave them money for that. The better your product can excite your customer, the less you have to invest in advertising. Furthermore, the less you can spend on development, the more you need to invest in design.

Obviously, none of these companies would have worked without engineers, too. But, too often highly innovative technology teams struggle to find a problem for their solution.

What does great design bring to a startup?

1. Focus.

2. A memorable product.

I love the excitement of being in a startup. But, it is easy to drift off into a sense that you can conquer the world. That confidence that helped you take the risk of creating a startup tends to do that to you. But, if you have goals centered around consumer needs, then it becomes much easier to set priorities and to discuss them objectively.

In our team, we locked in on the notion that how we cook hasn’t innovated at the same pace that consumer electronics and computing has. So, our mission became to perfect the way that we cook. This is obviously a very lofty goal, which we very much intend on fulfilling. But, how could we avoid spending 10 years in development before releasing a product?

Think big but execute in well chosen steps!

I am a firm believer in creating big, hairy, audacious goals and then executing it tons of tiny steps. At each step, reevaluate the goals and adjust. Iterate frequently. This will also require rapid prototyping skills. When I say rapid, I mean within one hour. Most functionality can be prototyped and tested within one hour. We do tons of sketching on paper, creating storyboards in meetings. This is a great means of brainstorming. I can sketch out the flow through 5 to 6 steps of interaction in our interface within a couple of minutes. Then the team loves it, hates it or gives great ideas on how to improve it.

Reflection is a must for each feature!

Force everyone to fight for any new features. This will do three things. Firstly, it will prevent feature-bloat, which will create delays in delivering your product, which is already way beyond its completion date. It will make everyone deeply analyze each feature, making any features that come through the process much better. And, it helps you avoid having to remove that feature later, when you realize how unnecessary it was. It is so much easier to add a feature than to remove one. If you remove a feature, there will be those two or three customers who loved that feature and are being really noisy about its removal. You have enough well deserved stress. Don’t put that on your shoulders, too.

Priorize your effort

Your very first product doesn’t need to be feature rich. You want to create an MVP (“Minimum Viable Product”). Spend time defining what are the absolute fewest features that you could possible include in your product at launch. This is your MVP. You will probably have to do this two or three times. Each time reduce further. Resist the temptation to add. I know how hard it is. There is that big juicy feature that probably only adds a couple days to your effort, but will make it so much more yummy. Don’t. You want to get something out there and then gather feedback. With that feedback you can much more accurately prioritize your next steps.

Get Feedback from end-users

As part of this iterative process get as much feedback from your end-users as you can. We have a very thankful product and it was easy to get feedback. On Facebook I asked our 100+ fans if anyone wanted to join us in our test kitchen. I quickly got volunteers. I met a few people for lunch and showed them our app (sidenote: our app is a new platform for digital cookbooks. Think: iTunes for cooking) and asked them to pick out two recipes that they would like to cook. No instructions. That helped us to learn more about how people thought the app should be used. Then we set up an appointment where they would visit us and cook with our app. We brought the groceries. On the arranged date they came to our house. Again, no instructions. We were merely observers.

For my partners and I, this approach helped us be very objective about our pre-release product. We talked about how people used it, what their questions were and what seemed to be missing. It very much guided our priorities. From initial idea to product launch we took 24 months. The first 6 months I iterated on paper and built prototypes using PowerPoint. I was still working at another company, so my working time was usually 10pm to 1am. It was sufficient to get positive feedback from industry experts and to convince two amazingly talented friends to start a company with me. Then, my partner Jörn built a quick prototype on the iPad, so that we could see what it would look like on the device with real interaction. That was huge. Suddenly, it all seemed so real. For each feature that we wanted to add, I did lots of storyboards and designed the interface in Photoshop, once we settled on the interaction flow. This meant that Jörn was only adding features that had been iterated upon before programming. That saved so much time. I could do hundreds of variations in the time that it would take to program one variation.

As we built, we tested with users. Then at a certain point, we scrapped our code and started over. This iterative process is great for growing feature by feature. But, it will lead to a product that can’t be cleanly programmed. So, with this very robust “prototype”, Jörn re-architected the whole app. He knew what computing processes were slow and how we would want to scale the app. In a few weeks, we had a totally new code base. It looked exactly the same, but it was really zippy. Everything seemed to react better and it was much more stable. For Jörn, it was also easier to add new functionality.

Don’t underestimate the look and feel

The iterative process also gave me time to work out lots of little visual details that would make the overall app much more attractive. Don’t underestimate the affect of good visual design on sales. If your customers find your product attractive, then they will not only be more likely to purchase, but they will also be more likely to recommend it to others. This multiplies your customers very quickly. It taps into peoples’ emotional responses, rather than their purely rational responses.

If you have a designer on your team, they will be the advocate for the consumer, bringing in insights about their needs. This will lead to a product that will have the right features, rather than having lots of features. You can build tons of loyal fans with just one single feature that is amazingly executed. Focus. Get your customers excited. These same principals work for funding. We have decided to use the crowd funding platform Seedmatch, because we believe it is particularly well suited to a consumer-orientated product like ours.