VC-Funding: "It would have been difficult without our investors"
Bootstrapping, going to the bank or getting investors on board? Sooner or later, founders have to decide on a method of financing. In our three-part series of interviews, entrepreneurs report on the advantages and disadvantages of their choice of financing. To begin with, David Neisinger, co-founder of ArtNight, reports on why he decided on venture capital funding (VC funding), what effects the strategy had on corporate development and shares his most important tip for founders who still have to answer the financing question.
Co-Founder of ArtNight
Realtainment brings people together for real-world experiences. This is currently done through four brands: Art Night, Bake Night, Shake Night and Plant Night. David founded the company in 2016 together with Aimie-Sarah Carstensen, initially for the German-speaking area. Realtainment is now active in five European countries.
Managing Partner of FLEX Capital
FLEX Capital is a private equity fund founded by Peter Waleczek and other serial entrepreneurs that invests in profitable and growing companies from the German Internet and software medium-sized companies. At FLEX, Peter is an expert in strategy development and financial management.
David, together with your founding team, did you consciously decide for VC financing?
David: We looked at different financing options. It is important to me to emphasize that I have never seen it as a reason to celebrate once you have won investors over. This is a nice confirmation of your own business model, but as a founder you have to make a conscious choice whether you want to choose this financing method. VC financing has advantages, but you also sell shares of your company.
We wanted to be independent of investors, but gradually saw how important investors are for our business model. We could grow from our own cash flow, but we made a conscious decision to accelerate our growth and get VC financing.
We then made a conscious decision to accelerate our growth and to get VC financing.
What have been the greatest benefits for you that have resulted from the VC financing?
David: Apart from the fact that we were able to grow faster, we also wanted to bring in external know-how. That is why we decided on a mix of angel investors and venture capital. As a result, we now hold less percent of our own company, but have the advantages described.
Thanks to the investors, we also got through the Covid pandemic, which hit us hard. After all, our business model is to bring people together. As our investors believe in our mission, now more than ever, they have poured more money. Without them, it would have been very difficult for us.
Thanks to the investors, we also got through the Covid pandemic, which hit us hard.
Was there a moment when you thought a different funding strategy would have been better?
David: I'm not a person who thinks in “should, would, could”. I think it was the right way for us and I'm happy about the way it is. But everyone should be free to decide for themselves and their business model. Raising venture capital is often overly celebrated. The bootstrapping way is a very valid way for many business models. From my point of view, there needs to be more appreciation for this tougher path, which is not as triumphant as venture capital financing.
The bootstrapping way is a very valid way for many business models. From my point of view, there needs to be more appreciation for this tougher path, which is not as triumphant as venture capital financing.
How did the financing strategy affect the quality of your product?
David: It had positive effects for us in several ways. We used to be able to bring talent on board that we would otherwise not have been able to pay for. Such financing is a signal to the outside world that makes it attractive for top talent. The financing also had advantages for our product. We were able to afford development for our digital platform, which now has a lot of automation built into it. We would not have been able to finance this without investors.
How have profitability and growth developed due to the financing strategy and what is your forecast for the future?
David: We decided on the VC path and thus on a growth path. We are ambitious. That's why we chose investors like Acton Capital and MVentures. Of course, the growth has come at the expense of our profitability because we are reinvesting heavily. But our investors don't put any pressure on us. The cooperation is very cooperative. We have also designed the contracts in such a way that we as founders stay in the driver seat.
What advice would you give to entrepreneurs who are just about to make this decision about a financing strategy? What should you watch out for?
David: I would say: talk to other founders. Founders always like to give advice because they know what it's like to be at the beginning. And don't just speak once. You don't make a financing round and then stop, but after two or three financing rounds you are faced with the question of whether you want to go in the direction of profitability or whether you want to add a larger financing round on top of that. That's why I recommend simply writing to founders on LinkedIn. It doesn't matter whether you already know each other. I myself exchanged a lot with entrepreneurs, acquaintances and friends.
Talk to other founders. Founders always like to give advice because they know what it's like to be at the beginning.