I met with Ferdinand Mühlhäuser (FM), the Lead Director Germany at Founder Institute Berlin (FI Berlin) in the end of November 2020. Online. Via our laptop screens. We spoke about the unusual year 2020 and the impact the new normality has had on the FI Berlin; the value-added of the accelerators and the landscape of startup support organisations.
[For Part I of the blog, please see here]
These days pre-seed and seed stage startups have a lot of options for support – incubators, accelerators, funds, mentor networks, friends, families, tools. How do you see it, what should a startup base their decision on in joining any of these organisations?
FM explains: “I would say, the support is beneficial when it offers a good structure and guides – in the beginning – to navigate through the biggest questions and problems.” Where a startup uses purely mentor networks, friends and family, the founders could miss out a structured feedback. Good structure is, however, instrumental for the first time founders.
At the later stage demands of the startup change as by then, vision, the basic setup and most of the processes and tools should be in place. Then the mentor networks and funds or accelerators offering mainly network support could be more suitable to the requirements of the startups.”
Today, having Linkedin and many opportunities to meet people and network, is a network still the most powerful tool of incubators and accelerators in supporting startups?
“I do not think that Linkedin replaces personal connections and introductions,” answers FM “It is always better to have somebody interested in your success or incentivised to support you with an introduction.” While the leads can be identified via Linkedin by the startups themselves, accelerators or incubators would conduct introductions in a structured way. FM adds: “That is what I am doing daily– trying to match the graduates from my batches with people who could help them.”
What is your opinion on investment in general – should startups be lean and bootstrap as long as possible or take investment as soon as they can, to be able to develop and scale faster? When should they definitely NOT take investment and crowd their cap table?
Every founder thinks that the only way for a startup to make it, is by bringing in an investment. FI does not focus on this as a singular goal. Investment should not be the only thing the startup should concentrate on.
FM elaborates: “The startup should see, if its business model is funding- and VC-friendly and whether scaling the business is overall possible. If a potential to high scalability is built into the business model, but without investment, scaling the business would be very slow, then this is a good indicator to strive for getting an investment.”
The question is, when? A startup should have a good understanding on how long it is possible to bootstrap, i.e. how long the money lasts and what goals can be reached during that time. Where there is actually a good scalability path, then once the product-market fit is proven, it would be a good point to get an investment. One should be wary of running a non-profitable business until the last moment and only ask around for getting an investment when bootstrapping money has run out. Where the startup has a luxury of running a profitable business and grows steadily, it has a freedom to choose, when to take on investors. FM adds: “Taking the decision to go into fundraising is very individual. In each case a closer look should be taken to advise on the best timing for an investment. One should not delay that decision too long as the startup would at some point get ‘too old’ and too uninteresting if it is moving at steady growth path, but could be moving at a scalable way. So do not wait 5-6 years, but rather take the decision within 1.5 -2 years.”
(To be continued)