Startup funding and signs of a new dot-com bubble

Startups and their highly innovative potential (Bundesregierung 2013, are considered to be of great importance for the economic development in the US, Asia and Europe due to their unimaginable scale effects and enormous valuations as well as their high media attention (Austin, Canipe, Slobin 2015, This paper will provide an overview of means for international startup funding and will examine current changes in startup funding and developments in regards to concern about a new dot-com bubble.

-> tl;dr

Startups and their growth path

The term “startup” is most common for young, newly founded companies and well established in the mainstream media since at least the dot-com bubble in 2000. But not any new company constitutes a startup. Startups are characterised by low seed capital and the goal to implement an innovative business model (Bundesregierung 2013, that can be easily replicated in order to scale the business quickly (Blank 2012,

For a better understanding of the possible growth path for startups, the approach by the German Startup Monitor (Deutscher Startup Monitor), initiated by the Bundesverband Deutsche Startups e.V. (BVDS) can be used. The model distinguishes 5 phases: the “Seed-Stage” as a conceptional phase, the “Startup-Stage” with a working product and first revenues/users, the “Growth-Stage” with a mature product and strong growth, the “Later-Stage” with a planned sale or IPO and the “Steady-Stage” as a stagnation phase (DSM 2014, p. 14, Kohlmann 2011, p. 90, Ripsas 1997, p. 133)

Figure 1: 5 Startup Stages in terms of the DSM 2014
Figure 1: 5 Startup Stages in terms of the DSM 2014

A scalable business model is at the core of a startup and needs to be examined for its potential for success at preferably lowest cost. If the business idea assumption is verified, the continued success of the business model is highly dependent on market situation and the ability to adapt the product in the process. Typically this requires much larger funds and therefore different kinds of funding than before (Kollmann 2011, p. 90).

Startup funding

Startups are dependent on different kinds of funding in their growth stages. In addition to financial means other aspects of support like consulting, networking, access to markets etc. are essential. Also the particular interests of all people involved (e.g. founder, employees, investors, banks, etc.) need to be considered (vgl. Ripsas 1997, p. 133)

During its lifetime a startup potentially runs through many rounds of funding to reach the next stage of growth. These rounds can be described as “Seed Round” and “Angel Round”, typically after starting the company, and “Series A Round”, enabling the company to scale towards a possible IPO or sale of the business (Graham 2005,

Considering the shareholders of the startup in each stage, the process of continually changing equity structure can be described in stages such as “Idea Stage”, “Co-Founder Stage”, “Family & Friends” and “Seed Round, “Series A” as well as an “IPO” as the final stage (Vital 2013,

Figure 2: How Startup Funding Works
Figure 2: How Startup Funding Works

Starting the company: Idea & Co-Founder, Family & Friends Stage

As shown in figure 2, a startup starts out with its founders, in most cases equally sharing the equity. The first five-figure capital requirements are usually met with their own money, via bank loans or through their family or personal peer group.

If the startup decides no to go with a bank loan, a new shareholder structure for the company is established, making “Family ” Friends” the first investors in the business. This might lead to problems down the road due to the lack of investment experience, nevertheless it is a very common form of first funding for startups (Graham 2005,

Another alternative are so called accelerator’s, offering a five-figure to low six-figure investment for usually 5-7% in equity of the company and allowing startups to participate in a typically 3 month program to get prepared for the next round of funding (Altman 2014, und Springer 2015, During this period the startup can make use of the accelerator’s offices, coaches, market insights and workshops. After completing the program and showing off the developed product during a “Demo Day”, the startup leaves the accelerator. Slots within these programs are highly limited, so there are demanding application requirements to be met. Accelerators are usually private companies with their managers being angel investors themselves (Cohen 2013).

Some of the most important accelerators (The Economist 2014, are Y Combinator (USA,, TechStars* (USA,, AngelPad (USA,, 500startups (USA,, Seedcamp (UK, und Startupbootcamp (EU, among many others. In Germany there are accelerators operated by Axel Springer (, ProSiebenSat.1 ( as well as the German Accelerator ( and the Next Media Accelerator (

In addition startups can apply for aid or sponsorship from official funds. The number of support programs is extensive. In the EU and Germany alone, there over 2,000 specific programs for startups (FÜR-GRÜNDER.DE 2015, The programs can be divided between special loans, aid money, investments and non-cash benefits. The German business development bank KfW offers advantageous loans, provides grants for consulting services and provides access to equity capital (KfW 2015, via the High-Tech Fonds (High-Tech Gründerfonds), financed by the German Federal Departement of Commerce (Bundesministerium für Wirtschaft und Energie) and 18 major German corporations (High-Tech Gründerfinds 2015, In addition there are the founder aid program (Existengründerzuschuss) and the founder scholarship (EXIST-Gründerstipendium) as well as regional business development programs within the federal states of Germany. All these possibilities for aid provide support for any startup growth stage and will not be discussed in further detail (FÜR-GRÜNDER.DE 2015,

If a startup manages to secure a first round of financing either trough their founder’s means, Family & Friends or an accelerator program, it reaches the “Seed Stage” in terms of the model by Deutscher Startup Monitor (DSM 2014, p. 14). It is also common to set aside an options pool for selected employees, who consider a rather small salary and join the company for the personal opportunity to shape its future. These employees also hope for a substantial growth in value of the company for a potential exit in the future (Vital 2013,

Seed Round

The “Angel Round” and “Seed Round” mentioned by Graham are shown as “Seed Round” in figure 2. The most important aspect of this round of funding is the six-figure to low seven-figure size of the investment. Angel investors, also called business angels, are often entrepreneurs investing their own private money and supporting the startup through their personal network. Beneath angel investors and angel syndicates there are also seed funding firms, usually called incubators (Graham 2005,

Incubators work in a similar manner as accelerators, but with much larger investments and higher equity shares.  They provide more support during the buildup of the company, e.g. by providing access to developer teams or marketing assets. A startup usually stays within a incubator program for one to five years and has to go through a challenging application process as well. Incubators are often associated with venture capital investors and are operated by managers that are not necessarily active investors (Cohen 2013).

Companies such as Microsoft (US,, Deutsche Telekom (DE, and Telefónica (EU, are operating incubators. Some others are idealab (USA,, Rocket Internet (DE,, Team Europe (EU, and Project A Ventures (DE,

Over the past years more options for funding came up. Platforms like AngelList (US, enable startups to make direct contact with potential investors. In addition crowdfunding became quite popular, enabling people to preorder products that still need to be produced on platforms like kickstarter (US, and indiegogo (US, or enabling people to invest in companies on platforms such as fundersclub (US,, fundsters (DE, or seedmatch (DE,

If  a startup manages to secure a seed round, it reaches the “Startup Stage” in terms of the model by Deutscher Startup Monitor (DSM 2014, p. 14).

Series A

The “Series A Round” in figure 2 is a placeholder for more substantial seven-figure or larger investments. In this round specialised venture capital investors, also called VCs, are using their investment funds to buy large shares of the startup. Typically a VC holds at least 33% of a company and will have a much more prominent role in the strategic direction of the company (Graham 2005,

Some of the top VC investment firms in the US are Andreessen Horowitz (, Khosla Ventures (, SV Angel ( and Accel Partners ( of which several are actively investing in Europe as well (Benedicto Klich 2014, In Germany the most important VC firms are Bertelsmann Digital Media Investments (, (, Holtzbrinck Ventures ( and T-Ventures ( among others (Li 2013,

After a successful Series A round of funding, the startup reaches the “Growth Stage” in terms of the model by Deutscher Startup Monitor (DSM 2014, p. 14). The immediate goal is to accelerate the startup’s scale process for a optimal growth in value and to prepare the company for a sale or an IPO, also called exit. On this path many more rounds in funding are possible and often common. These are called Series B, Series C etc.

IPO or acquisition

An Exit after a Series A round (or any other subsequent round) can be accomplished via an Initial Public Offering at the Stock Exchange, also called IPO, or via an acquisition of the startup by another company (Vital 2013, With an acquisition all shareholders can sell their shares, liquidating their equity. With an IPO, which is typically made possible with a large investment bank, the shareholder can sell their shares publicly for the first time as long as they are not bound by any contracts or vesting regulations. Until one of these exit scenarios is met, the sale of equity is rather difficult and can usually only be made to other investors (Graham 2005,

If a startup is working in a IPO or is an acquisition candidate, it has reached the “Later Stage” in terms of the model by Deutscher Startup Monitor (DSM 2014, p. 14). If the exit is implemented, the company ceases to be a startup.

Figure 3 shows the entire process of possible funding rounds as described by Graham and Vital in context to the model by Deutscher Startup Monitor. The “Steady Stage” as a stagnation phase has not been discussed in terms of startup funding.

Figure 3: Funding For Major Sartup Stages
Figure 3: Funding For Major Sartup Stages

Significant changes in startup funding

Looking at investments made by venture capital firms in the US, investments decreased rapidly after the dot-com bubble in 2000. But over the past years the investments grew steadily despite the economic crisis and a short setback in 2009 and show a distinct increase compared to the 1990ies. In 2014 a very substantial growth in investments can be identified as shown in figure 4. This rapid change causes concern about a new dot-com bubble.

Figure 4: Startup Funding Shows Signs of New Tech Bubble
Figure 4: Startup Funding Shows Signs of New Tech Bubble

Signs of a new dot-com bubble

The venture capital investments of $ 12.97 billion in Q4 2014 are the highest ever since Q1 2001 and grew 81% in Q2 2014 compared to Q2 2013. This represents the largest growth in year-to-year comparison since Q3 2000. In addition the average investment size of $ 11.64 million in Q2 2014 is as high as in Q4 2000 (Richter 2014,

Investments differentiated by industry show the software sector is outpacing all other industries. In 2014 this sector reached the highest investments since 2000 with $ 19.8 billion, making up 41% of all investment, the largest share since the beginning of the yearly MoneyTree Report in 1995 (PwC 2015).

Figure 5: PwC MoneyTree Report Q4 2014/Full-year 2014 - Investments by industry 2013-2014
Figure 5: PwC MoneyTree Report Q4 2014/Full-year 2014 – Investments by industry 2013-2014

These market movements are highly reminiscent of 2000. In addition acquisitions of companies like WhatsApp with an valuation of $ 345 million per employee are leading to concern as well, since metrics like this were common for investments just before the dot-com bubble burst on the turn of the millenium (Heskett 2014,

Another indication for a new bubble might be the average valuation of startups, which already exceeded the values of 2000 in 2012 considerably (figure 6). Furthermore the valuations are rising faster than investments (figure 7). Also the average valuation at the time of the IPO is not growing as fast as the “Later-Stage” valuation. This proportion is deteriorating since 2009 and leads to shrinking returns on investment (ROI) for investors joining a startup in a later stage (Maris 2015,

Figure 6: Median post-money valuation of investment rounds
Figure 6: Median post-money valuation of investment rounds
Figure 7: Late stage valuation compared to VC fundraising
Figure 7: Late stage valuation compared to VC fundraising

Differences between the dot-com bubble in 2000 and today

Nevertheless, there are some distinctions to the developments from 15 years ago. The total sum of investments in 2014 is just at 1/3 of the sum in 2000. In addition many companies went to an IPO much quicker than today (figure 8).

Also many classic IPO candidates are bought by companies such as Google these days. Among many things this is also due to stronger regulation, e.g. “Sarbane-Oxley Act” from 2002, providing compliance obstacles for smaller companies. In addition “Regulation Fair Disclosure” from 2000 lead to considerable requirements and risks for the information policy of publicly traded companies, making a premature IPOs far more unattractive (Lee 2014,

Figure 8: Years from founding to IPO (mean)
Figure 8: Years from founding to IPO (mean)
Figure 9: Number of VC investments
Figure 9: Number of VC investments

In addition, VCs made more than 2,000 investment in the year 2000. Over the last few years the number of investments is between 1,000 and 1,200 (figure 9). This indicates that investors are far more picky and concentrate on fewer but much larger deals. Even when considering the growth of investments in 2014, the number of deals remains stable (Maris 2015,

The number of seed round funding did in fact shrink in 2014 with a stagnating overall investment sum (figure 10). Investments are moving towards more Series A rounds and average investment sums are rising. This indicates that the early stage investment boom is cooling of (Morrill 2015,

Figure 10: US Seed Deal Volume Vs Dollars Invested 2005-2014
Figure 10: US Seed Deal Volume Vs Dollars Invested 2005-2014

The huge growth of investments in startups can also be attributed to the stable and long-lasting low interest rates ever since the financial crisis in 2008 and the continuous market flooding with cheap money. In order to achieve attractive returns (interest rate), far more high-risk investments need to be made.  This directly correlates with the high startup valuations over the past years.

Therefore further growth of the startup industry and the correspondent investment industry can be expected as long as the interest rates remain low and the economy is not recuperating considerably (Wilson 2014,


With the shown market data and media reports it is obvious that the startup industry and its investment industry is still booming will continue to do so for the time being. Due to the low interest rates the investment sums can not be expected to flatten any time soon.

The options for startup funding did evolve considerably over the past few years. Therefore conditions for starting a startup have never been better. This also explains why there are more startup than ever before and leads to fierce competition and overall no better chances for success. This is also acknowledged by investors who are increasingly willing to invest larger sums but are very choosey while at it.

There is another trend which might be very interesting for the future, micro startup acquisitions. Established former startups such as Facebook, Google, Twitter and Apple but smaller startups as well such as Pinterest are buying tiniest startups with team sizes as small as 2 people. This is radically different from usual acquisitions of established products or revenues. The goal is rather to gain access to talent, product prototypes or innovative potential of these small teams (Paka 2015, For many founders this might actually be one more additional option for an early exit.

The risk of a new dot-com bubble is raising concern with many experts. However the surrounding conditions are very different from 15 years ago. Even if the system would crash and the new bubble would burst, the mechanics of the crash would be very different from the dot-com bubble in 2000.

Due to the recent trends in 2014 and the sudden rise in investments, the developments of 2015 need to be monitored to collect more indications for or against a new dot-com bubble. As of now there are scattered concerns but concrete indications for a foreseeable burst have not surfaced.


Even if a new startup bubble would burst, the mechanics of the collapse would be largely different from the dot-com bubble in 2000.

DISCLAIMER: This paper has been written for the seminar “InnovationCity 2030″ within the “Next Media” master program at the University of Applied Sciences Hamburg (HAW Hamburg) in May 2015. Supervising Professor: Prof. Dr. Kai von Luck. For more information or any questions please contact me at


Altman 2014 – Altman, Sam: Y Combinator Posthaven. Retrieved: 30.04.2015.

Austin, Canipe, Slobin 2015 – Austin, Scott; Canpie, Chris; Slobin, Sarah: The Billion Dollar Startup Club. Retrieved: 27.04.2015.

Benedicto Klich 2014 – Benedicto Klich, Tanya: VC 100: The Top Investors in Early-Stage Startups. Retrieved: 30.04.2015.

Blank 2012 – Blank, Steve: Search versus Execute. Retrieved: 25.04.2015.

Bundesregierung 2013 – Die Bundesregierung (Hrsg.): Internet-Start-Ups: eine neue Gründerzeit. Retrieved: 25.04.2015.

Cohen 2013 – Cohen, Susan: What Do Accelerators Do? Insights from Incubators and Angels. veröffentlicht in innovations, Summer-Fall 2013, Vol. 8, No. 3-4, Pages 19-25.

DSM 2014 – KPMG (Hrsg.): #DSM : Deutscher Startup Monitor 2014. Retrieved: 29.03.2015.

FÜR-GRÜNDER.DE 2015 – FÜR-GRÜNDER.DE: Fördermittel für Existenzgründer und Selbstständige. Retrieved: 02.05.2015.

Graham 2005 – Graham, Paul: How To Fund A Startup. Retrieved: 23.04.2015.

Heskett 2014 – Heskett, James: When Will the Next Bubble Burst?. Retrieved: 02.05.2015.

High-Tech Gründerfinds 2015 – High-Tech Gründerfinds: Facts & Figures. Retrieved: 02.05.2015.

KfW 2015 – KfW: Fördergprodukte zum Gründen und Erweitern von Unternehmen. Retrieved: 02.05.2015.

Kollmann 2011 – Kollmann, Tobias: E-Entrepreneurship: Grundlagen der Unternehmensgründung in der Net Economy. 4. Auflage, Gabler Verlag, Wiesbaden.

Lee 2014 – Lee, Timothy: The IPO is dying. Marc Andreessen explains why. Retrieved: 06.05.2015.

Li 2013 – Li, Charmaine: 20 Leading VC Firms Investing In Early-Stage Tech Startups in Europe. Retrieved: 30.04.2015.

Maris 2015 – Maris, Bill: Tech Bubble? Maybe, Maybe Not. Retrieved: 16.04.2015.

Morrill 2015 – Morrill, Danielle: Amid Pre-IPO Mega Deals, Overall Q4 2014 Startup Deal Volume Returns to Late 2011 Levels with Seed Rounds Slowing Dramatically. Retrieved: 31.03.2015.

Paka 2015 – Paka, Amit: The Rise Of Micro Startup Acquisitions. Retrieved: 20.04.2015.

PwC 2015 – PricewaterhouseCoopers, National Venture Capital Association: MoneyTree Report Q4 2014/ Full-year 2014. erschienen Februar 2015. Retrieved: 02.05.2015.

Richter 2014 – Richter, Felix: Startup Funding Shows Signs of New Tech Bubble. Retrieved: 02.05.2015

Ripsas 1997 – Ripsas, Sven: Entrepreneurship als ökonomischer Prozess. Gabler Verlag, Wiesbaden.

Springer 2015 – Axel Springer Plug and Play Accelerator: Q&A for our term sheet. Retrieved: 30.04.2015.

The Economist 2014 – The Economist: Getting up to speed. veröffentlicht in The Economist, January 18th – 24th 2014.

Vital 2013 – Vital, Anna: How funding works : splitting the equity pie with investors. Retrieved: 30.03.2015

Wilson 2014 – Wilson, Fred: The Bubble Question. Retrieved: 02.05.2015.


Figure 1: 5 Entwicklungsphasen eines Startups nach DSM 2014 – KPMG (Hrsg.): #DSM : Deutscher Startup Monitor 2014. Retrieved: 29.03.2015.

Figure 2: How Startup Funding Works – Vital, Anna: How funding works : splitting the equity pie with investors. Retrieved: 30.03.2015

Figure 3: Funding For Major Startup Stages – own representation, quoted from DSM 2014, Graham 2005, Vital 2013

Figure 4: Startup Funding Shows Signs of New Tech Bubble – Richter, Felix: Startup Funding Shows Signs of New Tech Bubble. Retrieved: 02.05.2015

Figure 5: PwC MoneyTree Report Q4 2014/Full-year 2014 – Investments by industry 2013-2014 – PricewaterhouseCoopers, National Venture Capital Association: MoneyTree Report Q4 2014/ Full-year 2014. published in February 2015. Retrieved: 02.05.2015.

Figure 6: Median post-money valuation of investment rounds – Maris, Bill: Tech Bubble? Maybe, Maybe Not. Retrieved: 16.04.2015.

Figure 7: Late stage valuation compared to VC fundraising – Maris, Bill: Tech Bubble? Maybe, Maybe Not. Retrieved: 16.04.2015.

Figure 8: Years from founding to IPO (mean) – Maris, Bill: Tech Bubble? Maybe, Maybe Not. Retrieved: 16.04.2015.

Figure 9: Number of VC investments – Maris, Bill: Tech Bubble? Maybe, Maybe Not. Retrieved: 16.04.2015.

Figure 10: U.S. Seed Deal Volume Vs. Dollars Invested 2005 – 2014 – Morrill, Danielle: Why Is the Number of Seed Rounds Raised in 2014 Down 30%?. Retrieved: 31.03.2015.

1965 Mustang Convertible Insignia Details

I really like vintage Ford Mustang muscle cars from 1965-69. Here are some insignia shots of the 1965 Mustang Convertible I wrote about earlier as well as a glance at the “1965 Registered Owner’s Manual”. Don’t they look just awesome. I especially like the manual. It is far more fun than any contemporary car manual I have ever seen.

Ford Mustang’s have been built ever since 1964 and created the term “pony car” as a class of American automobiles with long hoods and short rears. Although there are many other awesome American muscle cars, no other car matched the unique looks of the Ford Mustangs built before 1969 for my taste.

Tumblr importer for WordPress – Why it sucks.

A week ago I decided to move my Tumblr blog to WordPress using the Tumblr importer plugin. I moved the blog for various reasons, more possibilities for customisation being among them. Ever since 2010 I only used Tumblr because of its easy of use. In 2012 I started using as a custom domain with my Tumblr blog. Since I didn’t want to loose old content or the corresponding URLs on my domain, I wanted to migrate all posts.

Tumblr importer

WordPress offers an importer plugin, allowing anyone to make a swift move from Tumblr. All you need to do is register a Tumblr app to get an OAuth Key for API access. To gain access to the Tumblr blog you also need to disable the custom domain on Tumblr for the time of the import, since the plugin can only access configurations. Also you can import data from as many of your Tumblr blogs as you want. There is decent setup wizard included, so nothing can go wrong. All Tumblr posts and drafts will be recognised and get imported with tags and article formats intact. Only static pages are not supported.

tumblr importer - import tumblr posts to wordpress

If you want to keep using the old URLs on the domain from previous Tumblr posts (…/post/post-id/post-title), you need to configure 301 redirects for them. I used the Redirection plugin for this with a single rule such as:

Source URL: .*/post/\d+/(.*)

Target URL: /$1

This requires the “Permalink Settings” of WordPress to be configured to “Post name” (…/sample-post/). Now all old article URLs are redirected to the corresponding new address. Surely you could choose another permalink structure and adapt the redirect accordingly if you want to. If you choose to delete some posts on yourWordPress blog that existed on Tumblr before, you need to create additional redirects because of this general rule. Otherwise it will result in 404 responses. If you keep all Tumblr posts on your WordPress blog you are done.

tumblr importer - tumblr urls 301 redirect

It was a pretty easy process, taking just a few minutes of initial configuration and some patience during the import process. With me and my 444 posts it took around 15 minutes. Afterwards you can switch the DNS setting for your domain to the WordPress blog, adjust the general WordPress settings and you are done. The old Tumblr blog will stay available at and is ready for further use or deletion, whatever suits you.

Issues after the import

When looking at the imported data in more detail, some problems surfaced. For one the plugin only imported image files that were contained in the photo article formats on Tumblr. I read about problems with files getting imported at small sizes. That was not the case, they were transferred in full resolution. The filenames were exactly the same as on Tumblr, which I suppose is ok but I would have preferred some kind of option to rename them to match the articles.

All other images in all other article formats weren’t imported at all. The images were embedded using the Tumblr URL instead. This means you have to import all other images manually, especially if you’d ever want to delete your old Tumblr posts at some point (I did). If you want to have image filenames that match the image’s content you also have to rename every image ever uploaded. Depending on the number of images, this might actually be a time consuming process no matter what tool you use.

Another issue is tags. I used tags quite heavily on Tumblr and would have appreciated some kind of selection process during the import to preselect the most important tags. Since I used to post photos from Instagram on Tumblr as well there were hundreds of tags I will never use again in the future. You could use the Tumblr mass post editor to delete any tags you  might not want to migrate (I unfortunately didn’t). Also if you plan to use categories on WordPress you need to either create new categories or convert some of your existing tags into categories using a plugin like Categories to Tags Converter (it works both ways despite the name).

There is even more. Any content I embedded in Tumblr posts didn’t make it to WordPress. This includes Youtube and vimeo videos, embedded Google Maps and other formats. For Youtube at least there is a note about the source so you know something is missing but the rest is just gone. So look forward to re-embedding all this content again.

I you optimised your Tumblr content for Google, get ready to do it again as well. Any metadata I had embedded in my Tumblr posts got lost. I am not that much into optimising articles, but I did some basic stuff like basic keywords using tags etc. Anyway, it’s gone.

Many more things could be said, but I will leave it at that. Now that I am through with most of the pain, I won’t roll back. I could, maybe even should have in the beginning, but now I won’t.


All in all, I appreciate the effort to provide an easy tool for the transition from Tumblr to WordPress but when you look at it in detail, the Tumblr importer is more work than fun. I would not use it again and search for another solution. If you plan to optimise every article anyway, I suppose you are better off reworking every post manually after all, unless you are tech-savvy.