On Startup Funding and Innovation during a Pandemic
The year 2020 was tough, but Cashlink still had many successes to report despite the COVID-19 pandemic. This also applies to the startup financing scene. Although we have already evolved our product and and no longer only offer pure startup funding anymore – we still want to talk about it today, as it is a topic that has been close to our hearts since the early phases of our startup. What we offer now, are services like API solutions for banks or platform partners, which in turn support innovative startups. An example would be our customer WIWIN, which is driving funding with our integrated software as an investment platform. Last year they were behind one of Germany’s biggest public STOs, with the sustainable banking startup Tomorrow collecting a total of 3 million euros in 300 minutes.
Thus, it would be foolish to neglect the impact the startup funding industry still has to date. And who better to interview on this topic than expert Peter Fricke from the Deutsche Börse Venture Network, which we are proud to call our partner. Hence, we are happy to have the opportunity to interview him today, enjoy his insights!
Cashlink: Dear Peter, we are pleased that you are our guest today, talking about digital securities in startup financing. Since many, but not all of our readers certainly know you, why don’t you introduce yourself briefly?
Peter Fricke: Hi everyone, my name is Peter Fricke and I am heading the Venture Network of Deutsche Boerse. Main purpose of this growth network is to connect founders and startups with suitable growth investors. Today the network has more than 200 companies and 450 investor members around the globe. Prior to that I had several positions working for the derivatives part of Deutsche Boerse, Eurex, in Frankfurt and Asia-Pacific.
Cashlink: Do you think that startups have a particularly hard time obtaining venture capital right now due to COVID-19?
Peter Fricke: I think this can not be generalized and is highly dependent on the business model they have and the industry they are in. Surprisingly deal volume did not drop significantly, though there have been many internal investment rounds. Generally speaking, there is still a high amount of dry powder in the market, as the risk-aversive attitude of some VCs lead to the reduction of their average ticket size to limit potential losses. They are more likely to tie follow-on investments to the achievement of certain milestones, and proven and resilient business models (f.e. slightly later stage startups).
Cashlink: As an expert in the various phases of a startup, how do you assess the capital requirements and access to capital in each phase?
Peter Fricke: Again, this can not be answered universally. But it basically boils down to how much money they need for the next stage of their development, how much money they actually collect and how many shares they are willing to give up for that capital. As each funding round binds a lot of resources, especially for the management team, it is definitely advised to watch the burn rate carefully and to spend the capital consciously. Lastly, startups should be aware of the different types of venture capital investors and the different stages they each invest in. Matching your funding needs to their investment criterias (f.e. average ticket size) can expedite the process a lot!
Cashlink: In 2019 the DBVN formed a cooperation with Cashlink: To what extent does a digital participation in a company solve the capital challenge startups face?
Peter Fricke: Digital participation in a company does not only increase the fungibility, but also increases the liquidity in the investment market. It helps to address a larger pool of investors due to the dilution of voting rights. Additionally, as Cashlink offers a highly standardized solution, it is highly efficient.
Cashlink: In your opinion, how will digital startup participation develop in the next five to ten years?
Peter Fricke: 10 years is a fairly long period but within the next five I would say that it will become a meaningful alternative to pure equity investing in particular to attract new types of investors and for employee participation. Traditional VCs will probably continually want to have real equity in exchange for providing not only a substantial amount of capital, but expertise and a network on top.
Cashlink: Dear Peter, thank you for this interview.
Peter Fricke: My pleasure and all the best for the future.
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