Mag. Edeltraud Stiftinger
Managing Director Austria Wirtschaftsservice
Alternative financing for innovative entrepreneurship
Access to funding is a key driver in the creation, survival and growth of innovative new ventures. These typically technology-focused startups are expected to generate a significant boost for the economy in terms of growth, employment and competitiveness. In Austria, outside capital is still the primary method of funding, given the country‘s Mittelstand structure and large share of small and medium enterprises (SMEs). Bank loans apart, the market for alternative funding options is rather small, especially when compared to countries such as the United States. Yet, young and innovative ventures are rarely able to obtain a bank loan, given their lack of securities and the strict equity regulations.
Accordingly, venture capital is the chief source of funding for innovative startups that have a high growth potential. Private investors invest their own money in a business while institutional investors, in managing the (previously collected) money of a fund, act as intermediaries. Based on a due diligence procedure, venture capital (VC) funds and business angels provide capital (frequently combined with know-how) to promising new ventures, in return for a stake in the business. VC funds invest for a specified term (up to ten years) and then sell their stake at a profit.
Business angels, on the other hand, are a new phenomenon that is playing an increasingly important role on the market. They concentrate on the early stages, the start-up and seed phases of a firm, when there is relatively little need for capital and when VC funds are not yet interested enough to take a stake. In addition to providing funding, business angels contribute the requisite sectoral know-how, experience, credibility, contacts and networking.
Austria understands the importance of venture capital in adding dynamism and innovative power to its economy. On behalf of the Austrian Federal Government, Austria Wirtschaftsservice (aws) has developed a wide variety of measures to stimulate the Austrian venture capital market. aws supplies the venture capital necessary to foster the founding and growth of innovative projects and arranges contacts between startups and investors. Its purpose is to extend the offer of alternative funding options and improve access to them:
aws Founder Fund
The aws Founder Fund is Austria’s leading venture capital fund. It acts as a co-investor by taking a stake in startups with a high growth potential during their founding and initial growth phases and continues as a long-term partner by providing knock-on and follow-up financing.
aws Business Angel Fund
The aws Business Angel Fund is the result of a joint initiative taken by the European Investment Fund EIF and aws, the latter acting on behalf of the Federal Ministry of Science, Research and Economy and the Federal Ministry of Finances. Endowed with € 22.5m, the Fund doubles the investment volume of experienced, independent business angels, thereby achieving a total financing volume of up to € 45m. Since its establishment, the Fund has entered into co-financing agreements with business angels for a total volume of € 12m.
Venture Capital Initiative
With its Venture Capital Initiative aws aims to stimulate the local market for early phase funding and provide incentives for international investors to commit to Austrian businesses. The Initiative helps mobilise private venture capital to finance the startup and growth phases of new research- and technology-focused firms by co-investing in them together with venture capital investors. Its funds are furnished by the National Foundation for Research, Technology and Development.
aws Equity Finder
aws Equity Finder is the foremost Austrian platform for presenting and contacting startups and SMEs in search of networking with alternative investors. It offers a direct path to crowd funding and crowd investment platforms, business angels, early-stage and founder funds, and venture capital firms. For potential investors, the aws Equity Finder provides quick and free access to innovative ideas and firms without any preselection. At present, some 650 firms and 380 investors are registered with this platform.
aws i2 Business Angels
Austria’s only independent, nation-wide network of business angels, aws i2 Business Angels has been running a national angels matching service since 1997, acting as a meet-and-match platform for business angels and startups/established SMEs in search of equity capital.
Business angels participating in the scheme can draw on the services of a highly specialised aws team that offers independent, customised analyses and preselections in terms of technology, proprietary rights and commercial prospects.
To businesses in search of equity capital aws supplies professional, sound and clearly structured access to an exclusive circle of business angels. Austrian angel investors furnish equity as well as the all-important entrepreneurial know-how and contacts.
Every year i2 receives some 500 enquiries from ventures in search of equity, and their requests are processed and developed for the 250 business angels participating in the network.