• Name the three forms of external financing mentioned in the lecture. For each of those, name the three outlined definitions according to Hahn (2014):

    Equity capital:

    • Having a share implies to co-own the companies
    • Control rights, co-determination rights, information rights
    • Direct participation in business success & failure

    Mezzanine capital:

    • Repayment obligation, profit linked interest
    • Optional control rights, co determination/information rights
    • Potential participation in failure

    Loans/Borrowed capital:

    • Repayment obligation, interest payment
    • Investors do not hold any shares
    • No participation in business success

  • Name all categories of internal financing for funding a start-up:

    Self-financing: money of founders they put into startup

    Bootstrapping: operating a business model where you can finance growth and development with revenues and profits that you make

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  • What is the definition of risk according to the Gabler Online Wirtschaftslexikon (2020)?:

    A risk is an indication of the possibility that with some probability a loss may occur in connection with a decision or an expected benefit may not materialize.

  • What is the legal definition of Bankruptcy? Name the main liability of the management, according to the Insolvency code:

    Bankruptcy (or insolvency) is a legal status of a firm that cannot repay the debts it owes to creditors.

    Liability of the management: if company enters a crisis, company (CEO or CFO) must act and inform the authorities after 3 weeks.

  • What are the three reasons for insolvency (InsO §17-19)?:

    • Illiquidity - A debtor is generally assumed to be illiquid if he/she stopped making payments. But illiquidity can occur much earlier. A debtor is illiquid if they are unable to meet their payment obligations when due.
    • Imminent Illiquidity - A debtor can file an insolvency petition if illiquidity is imminent - if it is likely to be unable to meet its existing obligations to pay on the date of their maturity.
    • Over-indebtedness - occurs if the debtor's assets (measured based on liquidation values) no longer cover its liabilities.

  • The risk of the investors depends on the type of investment: Categorize the different types of external financing (Diagram 1). Name two key points each:

    • Equity capital: highest risk, lowest rank in case of insolvency
    • Mezzanine Capital: medium risk. Lower ranked than borrowed capital in case of insolvency, but also has higher interest rate than loans
    • Loans/borrowed capital: lowest risk, highest rank in case of insolvency

  • Fill out the Start-up Financing Cycle in detail including the Start-up Life Cycle (Diagram 2):

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    Top line - three stages of Life Cycle:

    • Early Stages: company founding and idea formulation
    • Expansion Stages: National and International Expansion
    • Later Stages: IPO and restructuring

    Bottom line - Financial Cycle:

    • Seed Financing
    • Start up-Financing
    • Growth Financing
    • Bridge Financing
    • IPO
    • Management Buyout

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  • Early-Stages: Why is it difficult for start-ups to obtain loans according to Hof (2017)? Name all the mentioned aspects:

    • Lack of securities
    • No track record
    • Irreversibility of R&D costs (sunk cost)
    • Risk of failure
    • High uncertainty about market opportunities
    • Unknown founders skills and quality of product

    → Company has no history and it is not guaranteed, that the company will perform well and will not pay back.

  • What are the characteristics of the Idea phase according to the lecture?:

    • Idea generation, prototyping, feasibility studies, team building etc.
    • No revenues, no profits/moderate losses
    • Financing from own cash flows is not possible

    → Idea Phase: financing with own cash, no profits and only expenses, idea generation and prototyping, product concept

  • What are the characteristics of the start-up phase according to the lecture?:

    • Company foundation, product development reaches production stage, first marketing concepts, partnerships
    • First revenues, first small profits/high losses
    • Rising capital requirements

    → Start-up phase: first revenues, more capital needed, company foundation, production stage, first marketing and partners

  • What are the top five motivations of Business Angels for Investing according to Brandenburger et al. (2012)?:

    • Supporting young entrepreneurs
    • Contribute own professional experience
    • For fun
    • Potentially fruitful investment
    • To play a role in the entrepreneurial process

    → Business Angels want to play a role in startup, support new entrepreneurs generation and make profit

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