The Future Of Innovation Lies In The Building Up Of Start-ups

Dr. Gunter Festel

As start-ups close the gap between academic research and the commercialisation of the research results, which, in innovation processes, represents a serious barrier. They facilitate the transfer of research results into products, for example as academic or industrial spin-offs, as they have an advantage of flexibility and short development times. As a catalyst for the commercial success of new innovative technologies, start-ups are of essential importance.

Bridging the gap with an innovative business model

Business angels and venture capital companies are normally focused on already founded companies, so they are unable to help fill the gap should insufficient start-ups be founded. Furthermore, new technology based companies usually lack business know-how, i.e. the recipe of how to found a company and how to make their business grow, as the founders are usually highly research orientated innovators. Therefore, the technology-focused outlook prevailing among entrepreneurs represents a major problem in the founding process of start-up companies and the later co-operation with investors.

Founding angels as innovative business model in which founding teams are supported financially and operationally before the founding of the start-up could help to bridge the gap. They act as the driving force for the foundation of new start-ups by supporting scientists from the generation of the idea to the building up of a company. The engagement of founding angels is compensated not monetarily but through an equity share of the new company as a member of the founding team. This business model is already being successfully implemented in the UK and the US, and meanwhile there are also some examples in Germany and Switzerland.

Best practice for founding angel investments

Practise shows that a number of important points have to be considered with the founding angel’s business model. All founders, including the founding angel, should receive the same equity share. A discussion as to whether scientific expertise or commercial expertise is worth more leads inevitably to a failing of the project. The founding angel, like all other founders, should not receive any compensation (e.g. salary) from the start-up company until the company reaches breakeven. The founding angel should be in a position to give cash injections, if necessary, which are to be seen as shareholder loans, so as not to change the ownership structure. The founding angel usually takes on the role as interim CEO or CFO, but should hand over the position to a full-time CEO/CFO as soon as possible. The impression must not be formed that the founding angel is in search of a long-term position or is looking to keep his head above water financially through the start-up. Should this be the impression then the chance of finding investors quickly is very small.

Article © 2009 Dr. Gunter Festel. All rights reserved.

about the author...

Dr. Gunter Festel

Dr. Gunter Festel

affiliation:   Festel Capital

position:  President

country:  Switzerland

area of interest:  Financing concepts

contact author

keywords for “The Future Of Innovation Lies In The Building Up Of Start-ups”