4) What kinds of financing are available for new business ventures?
Roughly speaking, there are three basic ways for start-ups or early-phase companies (nanotechnology-based or otherwise) to obtain capital. These are:
Government funding for technology start-ups is provided by a wide range of national and regional agencies in North America, Europe and Asia, generally in the form of grants or interest-free loans. Over the past year, the European Union provided approx. EUR 3.5 billion of such funding. In the years from 2006 to 2009, some EUR 640 million flowed from the German federal government into the fast-growing nanotechnology industry alone as part of Germany's high-tech development strategy. These funds are primarily intended as seed capital so that newly founded companies can get off the ground.
Bank loans are often difficult to obtain because of the lack of security, and in any case, the repayment of these loans is a significant financial burden which a young company must not underestimate. The same applies to private placements, where institutional investors likewise tend to shy away from these relatively high-risk loans.
Financing with equity capital is often the best solution for nanotechnology-based start-ups because it offers a number of direct and indirect advantages. For one, equity investors receive an ownership share in the company in return for their investment. The company thus has the advantage that it does not have to repay principal and interest according to a rigid schedule.
Another advantage is that the equity investors, out of their own financial self-interest, may take an active role in providing helpful support and advice to the company; this is particularly common among venture capital investors. Additionally, there may be other forms of seed-stage equity capital available, such as government funds for public-private partnerships, or investments by "business angels," which are affluent individuals who invest their own start capital to get new ventures off the ground.
Venture capital (VC) investors, which are companies or funds that professionally manage large pools of money, play a major role once start-ups have gotten past the seed stage and require capital on a greater scale. An example of these is Nanostart AG, which from its headquarters in Frankfurt, manages a portfolio of investments in nanotechnology-based companies spanning the globe all the way from Germany to Singapore and California's Silicon Valley.