How does SpinLab help to identify and avoid toxic corporate structures?

90% of startups fail overall. The fact that many startups fail due to disputes within the team, a lack of capital, technical problems or low customer demand seems logical and is well documented statistically. However, deeper down and not immediately visible, it is often problems in the shareholder list (capitalization table or cap table for short) that can lead to the end. By providing resources and expertise, SpinLab, a leading European accelerator, helps startups not only to raise capital, but also to understand and effectively manage their cap table. This approach ensures that startups are well prepared to attract investment and strategically plan their business structure.

Challenges in Cap-Table-Management for Startups

Startups often face complex challenges in the area of cap table management, a critical aspect that is often underestimated. Every new investor will first look at the list of existing shareholders in a due diligence process. And this is where surprises often arise: former co-founders who are no longer with the company, professors who were somehow involved in the development of the technology, universities and research institutes as well as strategic partners who are taking too big a slice, or even consultants who previously provided support in return for shares: Many old shareholders can be a thorn in the side of new investors.

Investors are not interested in dealing with the past in the form of share distributions, but in value creation in the future. Ideally, therefore, only those shareholders should be involved who will continue to increase the value of the company in the future by providing further capital, a relevant network or expertise. All other shareholders are quasi legacy assets, so-called “dead equity”. Too much dead capital demotivates the founders and active shareholders, as a large part of their hard-earned added value ends up in the pockets of passive co-shareholders who have only helped temporarily. Exactly how much is “too much” is in the eye of the beholder, i.e. the potential investor.In addition, there are many imaginary thresholds and industry standards, for example that the founding team should still hold more than half of the shares after Series A financing or that strategic investors cannot easily obtain blocking minorities even after follow-up financing.

Although adjustments to the shareholder structure are possible to a certain extent, in practice they are always nerve-wracking, time-consuming, often emotional and generally expensive. Shareholder shares cannot simply be given away or sold below value, because in addition to the costs of legal advice and notaries, the tax authorities also look closely to see whether a gift tax might be due. Incidentally, the latter is a circumstance that should be discussed politically, as the state income from such corrections is more of a trifle in economic terms, but leads to the closure of promising start-ups more often than you might think. The experience of SpinLab and the venture capital fund Smart Infrastructure Ventures shows that it is estimated that at least a quarter of all early-stage start-ups already have a toxic Cap Table due to such problems and are therefore "uninvestable".

SpinLab - the gateway to customized financing solutions for startups

A lack of management of society structures can also cause problems in capital acquisition, evaluation, investor relationships and can even lead to legal complications. Particularly in the early phases, when various financing rounds are taking place, it is crucial to maintain a clear overview of the distribution of shares.

Mistakes or uncertainty in Cap Table can destroy the trust of potential investors towards the start-up and make the process of capital seeking harder or even impossible. Careful Cap Table management is therefore essential from the outset to ensure transparency and avoid jeopardizing future growth. Given the crucial role that a well-established cap table plays in the success of a start-up, the complexity of the issue and possible corrections as well as certain non-transparent market standards, it is clear how valuable SpinLab's support is in this area. Spinlab supports founders in recognizing and solving such problems and opens the doors to a wide range of financing options that are crucial for the growth of young companies. In addition to connections to well-known venture capital funds such as Smart Infrastructure Ventures, Grazia Equity, LBBW Ventures Capital, Porsche Ventures and Technologiegründerfonds Sachsen as well as capital market experts such as Pava Partners, SpinLab offers access to important institutional investors.

This diversity allows startups to find the most appropriate source of finance for their specific needs and stage of development, and to avoid making mistakes. After all, a first successful financing round is often soon followed by the next one, and not every supposedly great deal is sustainable in the long term, especially if inexperienced investors, such as first-time business angels, were in charge.

In addition, SpinLab actively works to put together tailor-made financing packages that offer start-ups not only equity and debt capital, but also strategic support and advice. The financing matching process is enriched by SpinLab's deep insight into the start-up landscape and understanding of individual business models. Particularly noteworthy is the success of companies such as MagnoTherm or mementor, which have received not only financial support but also strategic advice through SpinLab, which has contributed to their significant growth and success. These success stories demonstrate how start-ups are accompanied and supported on their individual growth path.

SpinLab offers Startups a variety of networking opportunities

Access to a large network is a key advantage that SpinLab offers its start-ups. With the annual HHL SpinLab Investors Day and exclusive Investors Dinner, SpinLab creates platforms where start-ups can gain direct access to potential investors, venture capital firms and business angels. These high-profile events are not only networking opportunities, but also serve as a showcase for innovation and business ideas. In addition to these events, SpinLab encourages regular, targeted meetings between start-ups and investors to facilitate closer collaboration and understanding. This not only establishes financial relationships, but also builds long-term partnerships that are crucial for the startups' future. SpinLab's recognition as a Digital Hub by the German Federal Ministry for Economic Affairs and Climate Protection and its inclusion in the European Digital Innovation Hub Initiative (EDIH) underline its central role in the European startup ecosystem. In addition to building strong external relationships, SpinLab attaches great importance to ensuring that startups retain their independence while gaining access to essential resources.