IfM Bonn reports that approximately 360,000 new businesses opened in Germany in 2024. One of the key factors driving this increase compared to the four years prior is the uptick in the number of fresh commercial enterprises, which has risen to 258,000. This upward trend illustrates not only the dynamism of the country’s founder ecosystem but also the growing significance of startup financing.

In this article, we explain what startup funding involves, ways to estimate the money required for a new venture, and the main routes of raising it. We also share practical tips to help entrepreneurs prepare thoroughly for an upcoming funding round.

What’s in this article?

• What is “startup financing”?
  
• How to determine the funding needed for your new business
  
• Ways to finance a new business enterprise in Germany
  
• What else matters when it comes to startup financing?
  

What is “startup financing”?

Startup financing is all about securing the capital needed to structure a business. It’s a core component of the founding process, encompassing several methods that can help founders turn a concept into reality and set their company up for long-term success.

In Germany, raising money poses numerous challenges for founders. The required budget depends on the type of operation, industry, and chosen growth strategy. Especially at the beginning, founders rely on suitable sources of funding to cover initial costs for staff, marketing, and office equipment.

Access to funding plays a fundamental role in the business’s success. Nine out of ten startups fail in their first year, usually because demand is too low or financing decisions miss the mark. Insufficient capital frequently leaves founders unable to execute their plans or forces them to abandon their venture at an early stage.

Securing proper funding is also a way to minimize business risk. With solid financing, founders can plan how to build the venture and then follow through, without relying solely on personal savings in the first phase.

How to determine the funding needed for your new business

Before establishing a business, it’s necessary to determine the amount of funding required. There are a variety of different considerations that play a role here, varying according to the legal formation chosen and the underlying concept. It’s a good idea to incorporate a detailed financing section in the overall business plan to map out expected outlays. The following list summarizes key cost categories:

• Startup costs: Registering your business, filing with the Commercial Register, paying dues to professional bodies, legal and notary fees, startup advisors, tax advisors, patent registrations, or licenses
  
• Real estate costs: Purchasing land and property, or paying rent and utilities
  
• Office equipment and business tools: Furniture, computers, IT expenses and software, phones, printers, lights, purchasing or leasing vehicles and machines, consumables such as printer cartridges, pens, or paper
  
• Personnel costs: Salaries, wages, and social security for employees
  
• Material and production costs: Outlays for raw materials or services needed to manufacture goods
  
• Branding and communication drives: Spending for developing a CI (corporate identity), name, and logo for the venture, web development, online and offline marketing
  

Liquidity planning is a core aspect of determining your financing requirements. Ensure you have sufficient funds to cover your ongoing liabilities at all times, and set aside a reserve in case of unforeseen expenses.

Ways to finance a new business enterprise in Germany

There are various options available for financing your new business in Germany. Below are some of the most relevant methods:

Equity capital

Founders sometimes use their own assets—a route known as “bootstrapping”—but this approach requires sizable personal savings. Another alternative is borrowing from friends and family or starting a business with someone. The advantage of the latter is that your partner(s) contribute not only equity but also labor and know-how.

Equity-based funding avoids external lenders and eliminates interest on borrowings. Taking on this kind of private risk is often viewed positively by lenders and potential partners or investors, as it demonstrates the level of faith you have in your idea.

The downside is the higher level of personal risk, and the ability to grow and expand is limited.

Bank loans

Many founders turn to banks for loans to support new ventures. Whether funding is granted depends largely on the founder’s credit history. Lenders will also take a look at the business plan to assess the likelihood of success and the capacity to meet future installments.

Bank loans provide seed capital, facilitating easier planning. Another upside is continued autonomy: lending institutions do not automatically acquire a stake or the right to steer the business. However, founders can benefit from the bank’s expertise, receiving advice on areas such as financial planning, risk management, and strategy.

Banks release funds only after a thorough review, a procedure that entails borrowers completing extensive paperwork and submitting substantial documentation. The main drawback is the ongoing interest and installment payments, which can place a financial strain on the business. Founders also need to note that certain loans serve specific purposes—for instance, an investment loan cannot cover an electric bill.

Public subsidies

Public grants and subsidies offer an additional route to fund a young enterprise. Founders can apply for promotional loans through KfW or state-level investment institutions. A principal lender usually disburses the money and decides whether to integrate a promotional element into the overall package.

These programs typically offer lower interest rates and longer maturities than standard bank loans. Many include an initial repayment holiday, so no installments fall due in the first couple of years. Another benefit is that, in many cases, founders often gain access to advisory services or networks run by public bodies.

A notable drawback is the amount of formalities involved—applying for promotional loans often requires a significant amount of bureaucracy, with numerous hoops to jump through. Funds can take several months to arrive, and some portions could come with specific restrictions.

Advance financing

Advance financing is a quick way to access capital based on future sales. Unlike traditional loans, founders don’t have to submit comprehensive business plans or front up collateral. Support is calculated using historical turnover and projected sales.

Stripe Capital illustrates this type of solution. It offers revenue-based financing, allowing founders to secure a loan or merchant cash advance in minutes, without the lengthy processes typically associated with traditional bank loans. One of the main advantages is flexible payback: enterprises remit a fixed percentage of their daily revenue, meaning repayments scale with the business’s earnings, so lower earnings equal lower repayments. Founders can also benefit from Stripe’s expertise and payment-based data, which helps to tailor each financing solution to the individual business.

That said, advance financing mainly serves as intended to be a short-term solution, so it doesn’t always suit long-term capital needs or larger investments.

Investor capital

New enterprises can also raise money through external backers, offering shares in return for the investment.

The advantage of giving investors, such as venture capitalists or angel investors, stakes in the business is that they often bring valuable expertise, a network, and strategic support, alongside fresh funds. Another core benefit is the absence of repayment obligations, so finances face less strain than under bank borrowing.

On the downside, founders give up a portion of ownership. That gives investors the right to determine the company’s direction and influence its business, at the expense of the founders. They generally expect a strong return, which can add extra pressure to succeed. Another drawback is the time-consuming process of acquiring capital. Finding suitable investors, conducting due diligence, and negotiating can all take several months to complete.

Crowdfunding

Crowdfunding is a method for founders to raise money from a large number of individuals, collectively referred to as the “crowd.” These campaigns typically run on specialized online platforms, where founders present a concept or project and solicit financial support. Friends, family, and external backers frequently form a large part of this group.

One major benefit is access to a vast pool of capital for building their venture. This boosts the business’s visibility before it hits the market. They also act as a test of market acceptance ahead of a full rollout. Unlike with investor funding, this route does not necessarily involve giving up shares.

On the other hand, crowdfunding often requires considerable effort in terms of marketing. Founders need to promote their idea to attract sufficient supporters effectively. The financing can still fail, however. If the campaign doesn’t reach its goal, supporters lose their contributions, and founders receive nothing. Another downside is that crowdfunding campaigns often require founders to offer up something in return—free products, exclusive offers, and discounts all increase your startup costs.

What else matters when it comes to startup financing?

Starting on the right foot in business takes more than securing money—you also need to think about the following:

Realistic planning

A common mistake is underestimating or being overly optimistic about the level of capital required. Founders frequently miscalculate the financial resources needed, which can lead to liquidity bottlenecks and unforeseen issues. A detailed business plan that maps out expected expenses is, therefore, fundamental. Cover everything from formation to initial operating costs to marketing and staff expenses, and run a realistic cash-flow forecast that accounts for unexpected spending.

Forward-looking tax planning

When looking to fund your new venture, factor in future tax liabilities. It’s a good idea to engage a fiscal advisor at an early stage. That way, you can be sure that you’ve covered every base when it comes to taxes. Some of the most important categories include value-added tax (VAT), income tax, corporate income tax, and trade tax. Making provisions ahead of time and regularly creating reserves can prevent unpleasant surprises and make it easier to handle higher tax arrears without running into financial straits.

Prepare your pitch

If you’re looking to acquire capital from investors, banks, or through crowdfunding, you need to be able to present your idea clearly and convincingly. Write an elevator pitch that explains the model and vision in just a few sentences. Focus on the upside of your proposal, so that potential funders can see right away why it’s worth investing in your business. A well-prepared pitch also helps in many other situations, such as winning customers, giving talks and presentations, or at networking events.

Savings

To receive solid startup financing and healthy development, look for potential savings from day one. There are numerous ways to cut spending at this stage without jeopardizing quality or future expansion. It might make sense to rent office equipment or to purchase used items, for example, instead of investing in expensive new purchases from the start. Equally, during that initial phase, founders can also rely on free or affordable online tools to make their organization more efficient. These savings help keep within budget and create financial flexibility for other growth initiatives early on.