A few weeks ago we announced a significant financing for our companies Lieferheld and Deliveryhero. See press release. The financing brings us to a total fundraise of EUR 15 Mio within the first 12 months. This is the largest financing for Team Europe so far. I am very proud (mainly on the teams who pulled this of). In this context I want to share a few thoughts on financing with you.
There are a few things I am quite proud of in my entrepreneurial career. One of them is, to have bootstrapped spreadshirt. that is, it was launched without any financing. Not a single EUR was invested. We did not even pay fees to open a bank account – the first transfers have been on my private account. There was no invest in IT – my co-founder Matthias programmed everything himself. And I was living of state-walfare and student loans. That was back in 2002 – and just three years later we bootstrapped ourself to an international presence and a teamsize of 150 people. With an own office in the USA – USA, how cool is that? (= Wie cool ist das denn?
There we have been one of the first clients of Facebook – buying ads with them to sell t-shirts. And enabling us to see the model early enough to co-found studiVZ for the German market with one of our spreadshirt interns. This intern does not like to have me as a co-founder. He thinks it diminishes his role and his overarching serial success – so, he rather calls me an investor. I invested 5K, and my co founder at spreadshirt another 5K. so, the start capital was 10K EUR. The entity was a UK limited – since back then a German limited liability entity (and when you launch a start up with one of your interns, you want to limit liability would have required 25 K – money we barely had in 2005. In fact, since I never payed myself salaries above the basic living expenses during my first years at spreadshirt, I got the 5K from my bank overdraft (paying 10% or so interest on it).
So, it is possible to start a business with very little and almost no money. Spreadshirt is just one example. StudiVZ was started with little, (although we ended up raising a few mio from the Samwers and Holtzbrinck before exiting 14 months after incorporation and 10 months after launch). Mymuesli was barely any money as well. Same for Gameforge. So, there are a lot of examples. They sound very romantic, the pure thing. But they are also childs of their time. Back in 2002 when spreadshirt was born, nobody would leave consulting or investment banking to “join the internet”. In 2005 nobody would “kill” a field with a lot of financing – simply because there was none available. And that which was available, was very little and mattered much less then execution – at spreadshirt for example we had two competitors, eQuisto and ePresso, both financed with round about half a million each. Both did not survive. Also StudiVZ whch was launched for 10K had a 500K competitor – called “Studylounge”, but nobody remembers it, since it did not survive the first 12 months.
I’m not saying it’s not possible to bootstrap today. It is, and we will see more examples in the future. But for some models it got less likely to bootstrap – times changed. My first experience of the power of capital was brands4friends. we raised a Million just on powerpoint and barely incorporated, followed by another 5 just barely after launch. Together with the distribution deal we had arranged with studiVZ, this enabled us to outcompete allegedly strong existing players (in that case – samwer backed – buyvip which was in germany earlier and larger).
The latest example everybody will be familiar with is groupon. In principle, it is a model that would allow for bootstrapping. But once somebody comes in with a lot of capital, he will suffocate the bootsies. as happend in Germany with approximately 20 – 30 clones dying in the first year, while the two best financed – cidydeal and dailydeal – survived and made it to start up textbook glory.
sweet capital, cash, money (close your eyes and listen to the famous pink floyd song at this point – or youtube it).
Tell me about your great overarching execution skills, when you have EUR 50 mio at hand. Of course fundraising is an important part of execution – but I guess 50 Mio makes live a lot easier for a start up…
Seriously, above a certain trashold a good capitalzation becomes a self fullfilling prophecy and is a major success factor for a start up. And no matter if the business model is proven or not. Capital helps in both cases – for proven models probably even more. A good capitalization allows for focus (fund raising eats a lot of management time) and speed (obvious). It also allows for one or the other mistake – increases your margin of error. And anybody who tells you he never does any mistakes (all the more under severe time and other preassure) is a lier. But obviously increasing margin of error does not mean, that one can spend capital foolishly. The execution skills need to be above average, otherwiese the cash will quickly evaporate and it becomes a curse – a start up that is scaling before it knows what to scale, makes mistakes while on very high speed – and forces it selef into continuous fundriasing.
Anyway, in the right space – esp. when it comes to execution businesses – capital allows to create a lot of value very quickly. The Samwer brothers are the best example for that – see citydeal which allgedly had EUR 50 Mio in the first year, or Zalando, which raised undiclosed amounts which are celarly north of EUR 100 Mio. And is a larger comapny after 4 years than it’s once role model Zappos after 10 years. Kudos!
I personally rather don’t want to end up in a spot where I have to compete without capital against a very well capitalized competitor. Therefore a lot of my time nowadays goes into fundraising and investor relations. Alas, the VC landscape in Europe is quite weak (but that is an other post).
One last (long) side-note about capitalization and cash. it’s geared towards all those people, who think money is evil. They tend to be overrepresented among readers of blogs and they are overrepresented in Germany. Being skeptical – if not even outright hostile – to capital is a German speciality and trait. I don’t think it does us any good. It comes from the “68thers” movement in Germany. a left movement against the establishment in the late 60ies. They decided to change the society via a “march through the institutions” (Marsch durch die Institutionen). i.e. a significant part of an intellectual idealistic leftist generation in Germany, decided to change the world in becoming teachers, lawyers, bureaucrats, politicians etc. themselves. The green party is a late brainchild of this time. Kind of a clever movement and idea. But at some point overshooting – yes, capitalism has a few very bad connotations – especially when questionable wars are fought (as happened in Vietnam or parts of middle east). But it is a mistake to put all of capitalism in that bucket! Are you guys aware how much good capital and outright capitalists are doing? Is Bill Gates really an evil man? Not only did his products create a lot of value, also is he a big philantropist. And look at the German capital elite and all the foundations (Stiftungen) they created! They are much more common then negative examples of only lavish lifestyles… However, the world needs to be simple and for the 68ers who marched through the institutions all capitalisms was evil. I can tell, I have been educated at a german Gymnasium. It was a kind of interesting experience – they literally brainwashed us kid’s into this ideology! i guess 60-70% of our teachers stressed the topic throughout their curriculum. Only the smartest & strongest characters could resist and came out unaffected
Dear brainwashed kid’s (and now grown up’s) of my generation and probably the following generation – let it go! Money is not evil. Think of it as energy. Money is nothing else then a representation of ressources. It’s an exchange mechanism for energy – being the electrical one, or the brainpower one, or the biological in the factor manual labour. Energy is hardly evil, is it? Think of it as ADP/ ADHP in our bodies (I hope I got the abbreviations right, Biology classes have been a long time ago…). Energy can be used for good or bad causes – but it’s hardly negative per se. If you believe that, than all mankind is outright evil, and you are dangerous
Thank you for reading, and now back to business and to changing the world!