Freygeist is insolvent – what we have to learn from it
The TELE partner startup Freygeist is bankrupt. Despite retailer pre-orders for designer e-bikes in the three-digit range for 2017, the startup has now filed for bankruptcy in Germany and Austria. The crowdfunding investors will lose approximately €1.5 million as a result. While this is viewed by many as Europe’s largest crowdfunding failure, investors in the US would simply shrug it off. Because in comparison to the billion-dollar American crowdfunding market, the amounts contributed to the European platforms are minuscule. But the old adage holds true: anyone who fails in Germany/Austria is a loser. Unlike overseas, where bankruptcy is a part of business and looked at as a valuable experience – a learning opportunity on the path to success.
A hard start for young entrepreneurs
By conservative estimates, 50 percent of startups fail within the first couple of years. The Freygeist bankruptcy is practically business-as-usual in a dynamic market, where innovative founders are pushed forward quickly and then allowed to fall just as fast. With the Freygeist concept of a stylish, ultralight e-bike, three friends managed to raise €1.5 million in 2015 using the platform Companisto. Perhaps too much at once for inexperienced founders, who are expected to build a company from the ground up that generates large profits.
Lack of know-how
Many young companies make incorrect decisions early on when it comes to smart money management. They draft a financial plan, but no liquidity plan, and have no idea when money will be running out. In addition to financial problems, differences of opinion emerge and, in many cases, there is simply a lack of know-how and experience. Which producers should I select? How long does each process take? What do my customers need and how do I handle complaints? And how do I break into international markets with my product? Expensive consultants are standing by, but usually cost more than they can contribute to the company.
Enthusiastic egos – no time for structures
In addition, pragmatic consensus solutions often fail at the hands of ambitious egos. Young entrepreneurs also struggle with lacking or rapidly changing organisational structures. The task of advancing the founders’ innovative idea rarely leaves time for sustainable corporate organisational development. Investors apply additional pressure and want to see success. Little by little, the climate gets rougher and when the going gets tough, the former “garage friends” turned CEO, CTO, and CFO rapidly become fierce opponents and the company starts to fall apart. The situation was similar at Freygeist, where the shareholders brought in an outside CEO in the final hour to right the ship. Unsuccessfully, as it would turn out.
Is bankruptcy a milestone on the path to success?
But what is really so bad, if an idea cannot be implemented in the market? Why not fall, get back up and go after a new idea? “Unfortunately, there is no culture of failure in Europe,” sighs Markus Stelzmann, Director at TELE Haase. This is because we are unable to compensate losses with wins, unless they are achieved within the same year. “For example, an angel investor invests €100,000 each in ten different startups. Nine of them were unable to achieve any profits, but the tenth successfully made him a million Euros. Unfortunately, this does not make up for the €900,000 loss from the failed startups, because he cannot deduct losses from different years on his tax return,” complains Stelzmann. For this reason, risk capital financing is still very limited in Europe, which in turn has a lasting effect on the entrepreneurial climate and thus on the long-term innovative capacity of the economy. And the banks are hardly lending any money. If a young business fails, they are ostracised and usually done for. “This is a shame. It hinders innovative thinking. What we should do instead is allow failure and view it as an opportunity to learn and do better next time,” concludes Stelzmann.
Despite these circumstances, TELE still plans to expand its collaboration with startups and provide young entrepreneurs with know-how, production capacities and, if they would like, a spot in the TELE TechHub. Would you like to partner with TELE? Then contact us!