Plans for start-ups often fail due to lack of money

The most important reason for which start-ups are often planned but not launched is a lack of money. Other important reasons are the prospect of an unstable income and attractive job offers by other existing companies. These are the findings of the latest study by the German Association for Information Management, Telecommunication and New Media (BITKOM). In the course of this study participants of the Multimedia start-up competition organized by the Federal Ministry for Economic Affairs were interviewed.

In 64% of start-up plans which were not put into practice there were no financiers for the new company and in 33% of cases people were afraid of having unstable incomes. According to BITKOM, this clearly shows that start-ups in Germany have to be provided with better financing opportunities. At the same time, two thirds of all company founders get along with relatively small amounts of money of up to 40.000 Euros.

According to the study, a majority of potential company founders, however, do not succeed in gaining access to loans, venture capital or public grants or loans. Two out of three would-be founders turned down had to make the experience that their ideas did not convince investors or were not appreciated by these. However, new business ideas with a potential often difficult to communicate are inevitable in the high-tech business.

Another obstacle, according to the study, is insufficient collateral. In 33% of all cases this is the reason for which a business idea does not materialize. The same percentage applies to cases in which the financing volume planned is too small for investors. Sometimes a big amount of money can more easily be obtained than a small one.

87% of those companies which are in fact launched are financed by their founders own money. Just 31% of start-ups are supported by public funding, e.g. start-up funds and specialised banks. The third most important source of funding is relatives and friends (22%), followed by banks (17%) and private investors (13%). Venture capital financiers (6%) and other kinds of funding are less important.

Therefore BITKOM demands to improve the conditions for private equity funding. Fiscal incentives are said to be a suitable means in order to do so.

The study is available for free-of-charge download. GERMAN