A startup needs money! This is a valid, simple statement right? But where does the money come from? Well, first of all there is organic and in-organic growth. Organic growth, (bootstrapping) explains the processes of founding a company without external funding. Basically the founder is supporting the entire endeavor with his or her private assets and savings.
This normally works quite well if the founder has the financial buffer until the company reaches a special stage where it needs higher sums of money from external investors to scale.
In such cases, a variety of external funding may be appropriate. For seed stages and everything in the later stages (Series A, B, etc.), I personally think that Venture Capital companies can be a great asset.
For really young companies in the stage of pre-Seed or right after the founding process, Business Angels, family offices, and startup accelerators can also provide money to help these early phase companies grow. Nevertheless, there is one method of external funding that is strongly underestimated – public grants.
Let’s hit you with some good news first: There are around 2000 different grants provided by the German government, the EU and regional governments like the Free State of Saxony, or the City of Leipzig.
This high number comes with the disadvantage that founders often feel overwhelmed by the large variety of grants. There are two forms of public subsidy. One form is the granting of liquid funds with a subsidized interest rate and guarantees. The other form is non-refundable cash / grants.
I am talking here about non-repayable grants. As a general rule, the funding agencies require from the applicants a share of their own in the financing, usually 50%. Exceptions are (startup) projects initiated by science and industry. In these projects, the own contribution represents the invested time of the persons.
The guidelines in these grant programs are very strict and must be observed under all circumstances. Basically, it is reduced to reporting and proof obligations that what the beneficiary has promised will be kept. It should be reasonable and feasible. In principle, any person wishing to set up a business can submit his or her own application to the funding institution.
However, it is advisable to take advantage of an advisory service before and during the application in order to save time and effort. As an example, we at the SpinLab helped startups to receive over 5,800,000 Euros in grants to date.
Saxony in particular offers attractive grant programs for startups in the context of state policy and innovation focus.
The funding period currently expires in 2020, which means that some programs are currently only available on request. We are at the side of those wishing to set up their own business, providing advice and assistance, and we are also helping to keep Saxony's startup climate attractive for the next funding period from 2021 onwards.
This article aims to facilitate the process of finding the right grant for you and your company.
In order to do so, I conducted research to find out, which are the most important types of grants in Germany with a specific focus on Saxony. First of all, I will focus the startup grants in Leipzig, Saxony and Germany. In a second part I will focus on the EU grant programs.
Here’s my list of the 7 top grants available to founders and startups in the region
1. EXIST Scholarship (BMWi)
The EXIST program is a famous and well known initiative from the Federal Ministry of Economics and Technology (BMWi) that aims to help students or research associates make a scientific idea become reality.
The first one On average, 59% of all Saxonian applicants successfully receive the funding. Over a period of 12 months, the founders receive each between 1000-3000€ a month (depends on the level of education; Master, PhD) and up to 30.000€ for material expenses. On average, EXIST gives away 120.000€ per funding.
On average, 59% of all Saxonian applicants successfully receive the funding.
Requirements for the application:
- The applicant for the grant should be in the second half of studies or the graduation of a research assistant should not be more than 5 years ago
- The number of founders should not exceed three
- The startup project needs to be innovative and somehow related to technology
- The idea needs a strong USP
- The university needs to be part of the startup network and provide the founder with one mentor and a place to work with the commitment to use the infrastructure for free.
Normally, the university applies on behalf of the founders for the EXIST grant. In the process of applying, both, the university and the founders are equally involved. The following 6 steps need to be done in order to apply:
- The founders hand over their concept paper to the university
- The founders nominate a mentor from the university
- The responsible startup network conveys a suitable coach who supports the founders
- The university needs to proof that they are part of the startup network
- The founders needed to attend a consulting appointment with the founding initiative of the university
- The university forwards the application to the lead partner “Jülich PTJ”
Jülich PTJ has been assigned to conduct the whole evaluation process of the applications for the EXIST program. In case your application is successful, your university receives the money and passes it to you.
What happens after one receives the funding?
During EXIST you need to attend several compulsory seminars in order to present a draft of the business plan. The final business plan needs to be ready at the end of the 12 months period. Additionally, it is possible, but not obligatory to found the company within these 12 months.
Key notes regarding EXIST:
- Some elements have to be considered when applying. For example, the "Innovation" part should be highlighted very carefully.
- The idea and/or the product should be related to science. Industrial property rights are beneficial, but not a prerequisite. There is no harm in planning patenting.
- A homogeneous team is absolutely necessary for an approval, which clearly consists of know-how owners, which is suitable for the rollout of the project.
- Often the decisive factor for a subsequent improvement is an external assignment of, for example, software development. Here a planned paid employment of a know-how owner at the later time can be beneficial.
- A project can be economically viable if it is shown by a well thought-out business case with a sufficiently evaluated market and competition, as well as comprehensible financial planning. Excessive Excel spreadsheets are a disadvantage. It is worth getting to the heart of the matter. Ultimately, innovation must solve an existing problem and offer real added value to a sufficiently large market.
2. Technology founder grant (SAB)
This Scholarship for technology-oriented, innovative companies supports students, former and current research associates who are willing to found an innovative company.
Who is allowed to apply:
Private individuals, who are part of a founder team of at least two persons. The applier has to be a part of one of the following groups:
- Graduate of a university / university of cooperative education
- Academic staff of a university
- Former academic staff with a graduation not older than ten years
Additionally, the main residence or the secondary residence needs to be in Saxony and the company needs to focus on one of the following two areas:
- Innovation regarding the product or process (technical) that will be implemented in own environment
- New, innovative services with a huge use for customers and a clear USP
Last but not least, some final requirements
- The company is not allowed to be founded already,
- At least one of the founders needs to have some knowhow in economics,
- The company is a small company,
- At least 15% of the expenses needs to be assigned to R&D
- The founders have not been supported by this scholarship ever before
- And the sponsored person needs to have a leading position in the founded company
Some key notes regarding Technology founder grand (SAB):
First of all, a permit requires patience. The processing of an application takes about 8-12 weeks. This also includes the obligatory queries of the processors. This is a good thing, because it allows you to formulate your point of view and your idea in detail and to take into account the help of the processors in the application.
3. InnoStartBonus (SAB)
The Inno Start Bonus can be used for spin-offs from a company or for founders who are not eligible for the previously mentioned “technology founder grant (SAB)”. The program is structured like a competition.
First, an application with a description of the innovative idea is required. A panel of experts evaluates the ideas received twice a year and decides whether they are eligible for funding. Once the decision has been made, an application must be submitted to the SAB, which will be processed within a very short time (approx. 4 weeks).
The This program only covers the living costs of the founders.
- Individuals aged at least 18 with their main residence in Saxony
- For founding teams max. 2 members
- 1000 Euro / month
- 100 Euro bonus for children of the founder
- 2 founders grantable
- Max length 12 months
- The grant is paid out in equal monthly payments for the first six months. The payment of the second six months will be made in one payment. The condition for the second payout is the company's formation.
- The company must not have been founded at the time of approval.
- The company to be newly founded must have its registered office in the Free State of Saxony.
- The promotion can be taken up only once, a promotion for different establishment projects is impossible.
Key notes regarding InnoStartBonus:
Founders from universities can also apply if the research share of the idea is less than 15%. Due to the fact that the jury takes place only twice a year, it is advisable to submit the idea at an early stage and to examine alternative financing options at the same time.
4. Innovationsprämie (SAB)
For a company to actively innovate, they often require research and development services, which they themselves can’t perform. For this reason the “SAB Innoprämie” offers grants for small and medium-sized enterprises to work together with external research and development service providers.
Expenses on external scientific work prior to product, process, or service innovation such as:
- Market research
- Feasibility studies
- Material studies
- Studies on manufacturing technology
Expenses on external implementation-oriented services focusing on technical assistance and technology transfer, that primarily serve an advisory function and the main goal is to bring the product, technique, service to the market
- Construction services
- Design services
- Product tests for quality assurance and environmental compatibility
- Laboratory services
- Preparatory measures for certification
- Purchase of machinery, equipment, hardware and software
- Internal expenses of the applicant (e.g. personnel, material and travel expenses, expenses for sales and advertising)
- Fees and consultancy expenses in connection with the protection of intellectual property
- Research and development Services that were done in-house
Small and medium sized companies in commercial sector (including craft enterprises), the culture and creative industries as well as freelance working engineers are eligible to apply.
Headquarters or a permanent establishment in Saxony
Requirements for Research and development service providers:
- From universities, non-university research institutions, and from the private sector
- National or international provider
- Cannot be a family member, employee, or a affiliated company
- Research and development services must not include student and scientific papers which is the subject of examination, or student projects within the framework of education and training units (seminars, courses, etc.)
- For external services, a maximum of 50 percent of eligible expenditure
- Up to two innovation bonuses per year
- 20.000€ per year
Key notes regarding Innovationsprämie (SAB):
- Applications must take place before starting the project to be financed.
- Any signed delivery or service contract in regard to your project is seen as start
- Start your project after you’ve gotten accepted
- You can download the application form here
5. Market Launch of innovative products and designs (MEP) (SAB)
As soon as a product has reached MVP / prototype status, the MEP program of the SAB should be considered.
A marketable design of a product and its introduction to the market can sometimes consume a lot of money. This is where the MEP program takes effect and supports the directly allocable costs during the introduction phase with a grant.
Up to 150.000 Euros (75% split for founders)
What could be funded?
- Product design as well as supporting (external) design services
- Production of a marketable mass production samples or a zero production series
- Actions dedicated to prepare the market launch, such as standardizations and certifications
- Development of a product-related sales / marketing concept, implementation of market surveys and quality/quantity tests
- Creation and production of product-specific advertising materials
Key notes regarding Market Launch of innovative products and designs (MEP) (SAB):
Normally, the program should also include an application for a staff position in Marketing and Design.
Personnel costs are usually the largest cost item in this context. If this position is remunerated at the level of the valid collective agreement, an additional bonus of 10% can be applied for.
6. “Innovative Gründer” given by the City of Leipzig
Do you consider your company as innovative and are willing to locate your business in the aspiring Startup City of Leipzig?
In the context of the “Mittelstandsförderprogramm” of the City of Leipzig, innovative founders can receive up to 4000€ as a bonus.
- Small founder teams with a future company location in Leipzig
- The company must not be founded more than three years ago (decisive is the date of the business registration / registration in the commercial register
- Idea needs to have a technical /innovative /creative-innovative component or leads to the merger of several small companies
- An obligatory founders consulting (e.g. SMILE, Accelerator program, Chamber of Industry and Commerce etc.) has to be conducted successfully
- The company is the main business of the founder
- Creation of jobs in mind
- Generally, a first rent or purchase of a property shall be realized (max. 3 months before)
- Companies who are excluded from this grant are listed here: http://www.leipzig.de/mittelstandsprogramm
Applications are accepted during the whole year at the “Amt für Wirtschaftsförderung” in Leipzig for free. Per year, up to 20 companies can receive the bonus, based on an evaluation of experts who judge applicants 4 times a year.
Criteria for the judgement of the startups are:
- Level of innovation
- Usage for the customer
- Market potential
- Concept of the company
- Relevance of the location
This 4000€ represent a great and comparably low-effort way of getting funds from the city of Leipzig thanks to its drive towards a more innovative future.
The information sheet for this grand can be downloaded here.
7. Investment grant for innovative founders (BAFA)
This program exists to help young companies receive more investments by supporting investors. A private investor can get 20% of the issue price of his investment back if the investment is held for at least three years.
The investor has to provide at least 10.000€ to the company. If the investment is tied to the achievement of a milestone, then each payment has to be of at least 10.000€.
- Company has to have less than 50 employees
- Company has to be younger than 7 years
- Has to be a corporation with headquarters in EU
- At least one branch office (registered in the commercial register) or a permanent business establishment in Germany
- Maximal Annual sales or Balance sheet total of 10 Million Euro
- Has to be innovative (one of the following has to be true):
- Belongs to a innovative industry
- Has a patent not older than 15 years, which is directly tied to the business concept
- Has received funds for a research or innovation project in the last 2 years prior to the application
- If none above apply, then you can get a short assessment by an official expert of the BAFA (can only be done after application)
Applications are done on their website. After entering all required information and sending the application off electronically, you will have to print and sign it. Then after attaching all required verification documents send it to:
Bundesamt für Wirtschaft und Ausfuhrkontrolle Leitungsstab Presse- und Öffentlichkeitsarbeit
Frankfurter Str. 29 - 35
- Trade register excerpt
- If headquarters not in Germany -> trade register excerpt for branch office, or Business registration of the permanent establishment
- In case of patent -> copy of cover or title page of patent specification
- If funds for research and innovation were received -> copy of notification of approval or commitment which indicates that the support relates to a research or innovation project
- If funded by EXIST or similar programs -> copy of notification of approval
The program, when granted, is valid for 6 months and can be extended if needed.
- Participation of the investor in the founding of a company
- Investor has to send his request first
- After the conclusion of the memorandum/ articles of association/participation agreement, is the company required to submit an application
- The company has to explain, that it is a newly established company in which an investor is involved in the founding
- The investors application number must be provided
- Complete application must be submitted to BAFA no later than three months after the investor submitted the application
Each company can receive funds for investments up to 3 million Euros for its share expenditure. Since the subsidy pays for 20%, each company can get a maximum of 600.000€. But remember, this money goes to the investors.
Key notes regarding Investment grant for innovative founders (BAFA):
- Follow-up financing can be subsidized
- Convertible loans can also be subsidized, as long as the application of the company and investor was done before the loan contract was made and the conversion is done in 15 months
- The Investor can have either the Form of a GmbH or UG (Unternehmensgesellschaft)
It is very important that the business purpose of the innovative company to be founded includes elements for classification into the product categories considered innovative.
An example of an application: „Die Entwicklung, das Hosting, der Betrieb und Verkauf sowie die Lizenzierung von Softwarelösung mit der Bezeichnung „xxx“.
Die Softwarelösung berät xyz bei zyx. Außerdem ist Gegenstand des Unternehmens der Erwerb, das Veräußern sowie die Verwaltung von Beteiligungen jeglicher Art, insbesondere an anderen Unternehmen.
Weiterhin übernimmt die Gesellschaft Managementaufgaben und weitere Dienstleistungen für Unternehmen, an denen sie beteiligt ist.“
Recently, convertible loans with a maximum conversion horizon of 15 months and, very importantly, follow-up financing have also become eligible. The amendment of the guideline is very exciting for investors who only need a UG (Unternehmergesellschaft cf. de.wikipedia.org ) as the legal form.
This makes all kinds of meaningful subsidy constellations possible.
Public Grants in Germany can be a mess to navigate, we hope this helps clear a path for you
I hope to have given a little insight into the most important grants for founders. In the second part I will discuss the possibilities of loans and guarantees as well as EU funding. If you’ve got any questions, comments, or concerns on any of this please let me know in the comments below.