Closing the pre-seed funding gap — one deal at a time
Announcing Germany’s first student-focused VC 🚀
We are extremely excited to announce today what has been in the making for the past year: First Momentum Ventures is launching as the first student-run venture capital fund in Germany — aiming to provide student entrepreneurs with easy access to capital in a very early stage!
The past months have been a blur of meetings with investors, coordinating the legal setup of the fund including a registration at the BaFin (we definitely didn’t plan that when we started our studies), building our internal processes and expanding our network.
Thanks to a ton of support from a bunch of awesome people, we are finally able to unveil to the public what we’ve been working towards.
At the end of May we officially completed the first closing of our fund, totaling over 1.4M€ from private and institutional investors. Through First Momentum Ventures, we will be investing this money into startups in a pre-seed stage with a strong technology core growing out of university ecosystems. Our investments generally will be the first money that flows into these startups, allowing them to find proper product-market fit. We see ourselves as close partners to the founders — meeting them on an eye-level basis — as they take the first steps on their entrepreneurial endeavor with us. In order to provide this to as many startups as possible, the fund is aimed to grow to 5M€ in the coming months.
Now that you know what we are doing, lets give you some context to where we are coming from, why we are doing this and where the rocketship that is First Momentum Ventures is headed (Elon, if you are reading this: No, it’s not Mars).
Why are we getting into the early stage investing game?
If you imagine the stereotypical venture capitalist, you might picture a grey-haired, well-off adult in a fancy office. To be fair, the VC scene is quite a bit different (definitely younger and cooler 😎) and has recently seen a large influx of young talent, but a group of five (technical) students certainly qualifies as an oddity. So why did we decide to jump headfirst into the world of venture capital?
We first got in touch with the world of startups and venture capital (and met each other) through our work at PionierGarage, Germany’s leading student initiative for entrepreneurship empowering student entrepreneurs at the Karlsruhe Institute for Technology (KIT) in Karlsruhe. Through organizing countless events and startup competitions, traveling to different international startup hubs and opening our own incubator and coworking space, we were able to learn what support student entrepreneurs need in the early stages.
Over the last couple years several successful startups such as store2be, understand.ai, lengoo and Jovo have grown out of the ranks of the PionierGarage. We were able to have first row seats to their early development and had the possibility to get a feeling for how critical access to low friction capital is in those days. Generally however, access to capital for early stage startups is quite low outside of the major hubs (primarily Berlin and Munich) where a large population of experienced angel investors is present. For most other ecosystems, startups have to resort to either long fundraising periods to find the right angel investor, start a tedious application process for a public grant or slow down growth by bootstrapping the business. This is one of the major differences between the US and Europe/Germany: Risk-tolerant capital is available at universities, as this is where the high potential deals are to be found. This is critical, as a lack in pre-seed funding translates into fewer startups getting the chance to see the light of day as they oftentimes have to close their doors early on, thus offering fewer chances for creating a growing competitive European startup scene. Some say that there is too much money floating around venture capital, but we’d argue that the money is chasing too few opportunities (and TechCrunch agrees with us).
After getting a feeling for the problem we started looking for possible solutions. That’s when we stumbled upon Wave Ventures, a student-run fund in the Nordics and one of the first of its kind in Europe. Looking at what they had achieved at that point in time, we realized that we could be a piece to the solution setting up our own fund and alleviating some of the problems in pre-seed financing. Through our unique position in the startup scene with deep roots in university ecosystems and a network spanning all of Germany, we would be able to identify deals in a manner that is not possible for other investors. This in turn would allow us to both provide a decent return on our investment as well as helping local ecosystems outside of Berlin and Munich to develop the next generation of great startups.
In addition to this opportunity there is a second reason why we personally chose to enter this particular industry: As we soon realized, venture capital offers one of the steepest learning curves we have come across to date. It’s a field that attracts some of the most ambitious and smartest problem solvers of our generation, both on the investor side as well as the entrepreneur side. Helping to achieve audacious goals and solve important problems while at the same time learning at an exhilarating pace just is incredibly motivating.
How are we going to make this a reality?
We are starting First Momentum Ventures at a very particular moment in time, where a combination of factors come together.
In recent years, Europe (and the US for that matter) are facing an interesting dynamic in venture capital: The total amount raised by venture capital funds is steadily increasing, while the number of deals stays relatively stable, meaning that valuations have inflated quite drastically. Certainly it is great for the founders to have more money in the bank after any given fundraising round, but if you take into consideration how many more pressing issues could be solved by allocating that capital more efficiently, one realizes quite quickly that this is non-optimal outcome. In combination with the need for early stage risk-tolerant capital, the demand for a solution is definitely there.
On the supply side of the equation we see a great development of startup ecosystems outside of the large hubs. Universities and governments are starting to understand the value of strong support networks for entrepreneurial activities around them. This is especially driven by the realization, that startups ecosystems can function as an efficient tool to transport research into the market with the added benefit of also helping to attract talent and jobs. Simultaneously, university ecosystems throughout Germany, especially through student-run initiatives, start to become more connected, allowing for a greater exchange of ideas and talent. Combining this with the lasting trends of technology leveling the playing field and removing barriers to market entry as well the ascent of tech CEOs to stardome means that more and more companies are started from university dorm rooms.
Using this as our foundation, we are aiming to bring the startup mentality to the other side of the negotiations and find the best deals in university ecosystems around Germany.
As mentioned in the beginning, we were able to overcome the legal hurdles, build an incredibly supportive advisory board and convince the first investors to back us and our future portfolio, but our success ultimately hinges on our abilities to find the most attractive deals and help our portfolio companies to develop their products, market traktion and their businesses.
To achieve this we’ve been hard at work over the last months:
In order to find the next German unicorn we’ve built a strong team of passionate ambassadors who represent First Momentum in ecosystems all over Germany. They are, like us, deeply rooted in the student entrepreneurship scene and know what makes a great team and a great startup. Additionally we have invested into building software tools that help us to identify promising leads in a scalable way, bringing some of the technical magic that VCs typically invest in to the investors side. 🤓
Once we identify a promising lead, we are ready to make a fast decision. Our internal processes and legal framework are set up to allow for a transparent and fast investment process allowing the founders to focus on building their business instead of pounding the pavement for months to drum up capital.
When the investment is signed and the money arrives on the companies bank account, we’ll help the founders with all our abilities to progress in their development. As we invest in such an early stage this will most likely always entail both a lot of work in product as well as business development. Through our experience and technical backgrounds we can certainly help to some degree, but we won’t claim that we have answers to every question. That’s why we’ve used the past months to build an extensive network of partners, mentors and other founders that we’ll open for our portfolio companies to accelerate their development. We see it as our responsibility to help the founders figure out how to get their businesses on a growth trajectory and prepare them for future investment rounds — and connect them with the right follow-on investors when the company is ready for the next step.
Where is all of this going to take us?
The first closing of our fund is obviously only a first (albeit necessary) step towards a larger goal. We envision a future where access to capital in an early stage for ambitious ideas is no longer an issue and student entrepreneurs from all kinds of backgrounds and walks of life are given the chance to succeed (or fail, learn and try again).
With First Momentum Ventures we are not just building a VC firm, but also a community and network around the idea of helping founders succeed. We are aiming to create a place where founders can find partners that can support them not just with experience and capital, but who understand the issues and problems that student founders face — and who are willing to roll up their sleeves to help them grow to unimagined heights. We’ll be removing friction from pre-seed financing and help entrepreneurial ecosystems grow one deal at a time.
But most importantly, we’ll be able to provide something that is dearly lacking in university ecosystems: Trust. Trust in the abilities and the potential of the next generation of entrepreneurs to grow with the challenges they face. If we can’t trust our brightest minds to build a better future, who else is supposed to make those dreams a reality?
Looking back at this, it is honestly quite humbling to see how much support and trust we received from so many people helping us transform the venture capital landscape in Germany.
First and foremost a massive thank you goes out to our investors. The trust they place in us allows us to help student entrepreneurs tackle important problems and gain invaluable experience.
Talking about experience, another group we have to thank immensely is our advisory board. They’ve offered incredible support and allowed us to close the knowledge gap that we had coming into the venture capital industry as outsiders and accelerated our progress by sharing their experience with us.
Finally, thank you to everyone who lend a helping hand along the way. We truly appreciate the support that we received over the last year.
As with any startup, the real work is just starting now. We welcome you to join the ride. 🚀