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"Nonsense. Botch. Crying around"
: The founders and investors
Johannes Kliesch
and
Marcus Diekmann
Photo:
Private
No time? Here is the executive summary:
Start-ups strive for the highest possible rating.
It's cool, but doesn't do anything.
At least not if you don't want to be ruined by rising yield expectations.
For years nobody was interested in that: not founders, not investors.
Now that money is getting tight, it's falling on everyone's feet.
There is a risk of implosion because the valuations were just not one thing: valuable.
Two things help against this: less greed in the market – haha.
And a founder type who is more an entrepreneur than a KPI optimizer
Okay, two pieces of news, the bad first: The German start-up scene has been chasing a completely wrong goal for over a decade.
A pretty crazy one at that.
After all, you can hardly call it anything else when rows of start-ups optimize their growth curve in the direction of bankruptcy.
Which goal do we mean?
That of the greatest possible evaluation, of the financing rounds exhausted to the pain limit, of the maximum sums, which are understood as a goal in themselves and celebrated mindlessly.
Admittedly, we in Germany are a long way from Silicon Valley ratings.
In the grasslands of entrepreneurship here, there may indeed be 30 unicorns roaming the streets in 2022, and it's unlikely to be a much larger herd.
But that doesn't change the fact that our eyes, our ambitions and thus also our ratings have been getting bigger and bigger for years.
In 2016, all financing rounds in Germany together had a value of 2.2 billion euros.
2022?
According to the EY start-up barometer, a total of 9.9 billion euros flowed despite the crisis and war!
After the crazy year 2021, this is by far the second highest value of all time.
And two years ago there were only 8 major deals with a value of more than 100 million euros, in the past year there were still a whopping 19. That's a hockey stick on a meta level.
Ever heard of "capital service ability"?
Oh oh …
It's nice at first.
Sounds great, gives everyone involved the good feeling of really making ashes.
And there are a few points on the coolness scale too.
50 million collected, 100 million collected, 200 million collected -
yey.
As founders, we know that great feeling when investors call you some great numbers.
You immediately start to think: Isn't there more to do?
It's natural.
But it's not always the smartest thing.
Sure, there will be tangible values behind some of these totals.
Even if: What's next?
Every round of financing not only has this slightly annoying side effect that the next one has to be bigger.
But also that the increase in value should be tangibly justified.
At some point in the life of a start-up, however, there comes a moment when growth fantasies alone are no longer enough.
And that is the moment when the wonderfully official concept of "Capital Service Capability" has its big appearance in the financing drama of the German start-up scene - and not as a funny sidekick that provides comic relief.
Let's play it through: A start-up with a financing round of 100 million euros needs an EBIT of 10 million euros in such a do-or-die moment (and that's what it is) just for the standard return expectations of the investors to use.
How realistic is that for most?
Exactly.
And in no time at all, the hoped-for exit turns into a door that the insolvency administrator politely holds open.
Why the scene produces so much bullshit
The hoped-for exit - in our opinion, this is exactly where the problem lies: to the extent that money was thrown at start-ups, the market lost its actual goal: to build companies that are actually valuable, even beyond a few rounds of financing.
From a macroeconomic perspective, an exit is not a sensible business goal.
We are founders and investors ourselves;
every week we get an average of 50 offers to put our money into something.
90 percent of them - at least - are not worth the PowerPoint slides they were nailed onto.
And the other 10 percent usually want sums for investments that make you think the decimal point is in the wrong place.
Seriously: This absolute, insane cult of a high rating is to blame for the fact that the German start-up scene produces so much bullshit.
Everyone wants to start a business, but nobody wants to take the risk of building a company from scratch.
That's not going to happen with the economic miracle.
There are many culprits: It's not just all the founders who prefer to sell rather than build up.
The venture capital investors have used this type themselves - quite often they have even explicitly cast such people on some business ideas lying around (you have to look at that first!).
In their delusion, the financiers themselves also cheered the eighth Onlyfans for vegan plumbers with "Shut up and take my money".
And their VC bonanza has been fueled by jubilant reports on social and journalistic media, which trumpet every new record funding as if big money alone was a value in itself.
Which really helps
Now what?
Lost everything?
Of course not.
Yes, that set Germany back as a start-up location.
And yes, ahead of us may be a wave of bankruptcies, a tough time full of forced sales and restructurings, failed follow-up financing, missed business goals and the confetti of shredded growth stories.
Because the times of flamboyant financing are drawing to a close, meanwhile the vultures are croaking from the incubator roofs: Inflation and the Ukraine war are having a macroeconomic impact, and the turnaround in interest rates on the capital markets means above all rising return expectations for venture capital - which brings us back to the ability to service debt .
After all, no one puts their money into start-ups if they only get a few measly percentage points more returns than in far less risky asset classes.
And no,
the call for regulation, state aid or the like, which is already being heard here and there, is and remains: nonsense.
botch.
howling.
What really helps are neither state intervention nor appeals to stay cool next time and not to let such overheating occur in the first place.
Greed is far too strong a driving force for that.
What really helps is one thing above all: real entrepreneurship.
At first glance, this may sound too easy.
But seriously, a lot would have been achieved with that.
Today's founders are far too often business school types who understand their business administration, are procedurally excellent and know what distinguishes OKRs from KPIs.
That is also very important.
But that doesn't replace the unconditional will to succeed - and that's usually not found in people who could just as easily make a career in corporations.
It's where people take their own risk instead of playing with VCs' money.
Why things will get better after the wave of bankruptcies
Don't get me wrong: there are dozens, hundreds of start-ups in Germany that work solidly, create real value and have realistic valuations.
They probably make fewer headlines, and there's probably less Sequoia material among them.
But definitely the next generation of companies that will shape German entrepreneurship.
These startups will fare better through the coming downturn than the overbred valuation monsters.
Which in turn means: After this wave of bankruptcies, the German start-up scene will be healthier, better and more sustainable in the broadest sense.
more realistic.
And that would be the good news.
