Funding and financing (in Germany)
Stand-alone or young companies in the cultural or creative economy often find themselves in the situation of having to finance projects, orders or make purchases in advance. A wide range of different finance possibilities are now available for founders. Not every one of these opportunities is right for every concept – thus the opportunities and risks associated with each form of financing have to be considered.
This section contains an overview of the most important financing and funding opportunities for cultural and creative professionals.
Funding facilities specially for cultural professionals
Germany has approximately 5,000 prizes, grants, competitions, project finance facilities and other forms of cultural funding. These are not so much loans as financial payments which normally do not have to be repaid.
Grants help with the means of subsistence for lengthy learning or creative phases, for example for the use of studios or study, living, training and travel accommodation. Most grants are offered at regular intervals. Grants are particularly aimed at students and up-and-coming cultural professionals. Persons interested in grants must apply for them and submit samples of their work. A specialist committee decides whether a grant is approved or not. The funding for grants comes from the federal government, the states, the regional and local authorities, public institutions, specialist foundations or companies.
The federal funding agencies include:
- Kulturstiftung des Bundes (Federal Cultural Foundation)
- Stiftung Kunstfonds (Art Fund Foundation)
- Deutscher Filmförderfonds (German Film Promotion Fund)
- Deutscher Literaturfonds e. V. (German Literary Fund)
- Deutscher Übersetzerfonds (German Translator Fund)
- Deutscher Musikinstrumentenfonds (German Musical Instrument Fund)
- Fonds Darstellende Künste e. V. (Performing and Pictorial Arts Fund)
- Fonds Soziokultur (Socio-cultural Fund)
- Musikfonds (Music Fund)
You can see a list of grants for founders here: www.gruednerplattform.de
Competitions and prizes
Most prizes for cultural and creative professionals are offered in the form of competitions. They are aimed at amateurs, students, up-and-coming or also experienced cultural and creative professionals. In many cases interested parties must first apply for participation. As the next stage, a jury examines the samples of work submitted to them and chooses the winners. In other cases, the sponsor of the prize and/or a jury selects the winner from a group of recommended or eligible candidates without organising a competition.
The prizes usually take the form of money. Participation in the competitions not only results in money but also act as references which can be important for further orders. Thus competitions and the award of prizes are also always associated with public recognition or honours.
Some universities give internal prizes and awards to students. In addition, there are also support programmes from the federal government, states, local authorities and associations, foundations and companies as well as the European Union and a large number of other funding agencies.
The German Federal Ministry of Economic Affairs and Climate Action and the Minister for Culture and Media also award the following prizes for cultural advancement:
- Deutscher Wirtschaftsfilmpreis (German Economic Film Prize)
- Deutscher Musikinstrumentenpreis (German Musical Instrument Prize)
- APPLAUS – Spielstättenprogrammpreis (Stage Programme Prize)
- Deutscher Buchhandlungspreis (German Book Trade Prize)
- BKM-Preis Kulturelle Bildung (BKM Prize for Cultural Education)
- Deutscher Filmpreis (German Film Prize)
Other competitions (in Germany)
- The German Design Council uses the “one&twenty” competition as a platform for students of design and design graduates to present themselves effectively to the general public. The jury, which is drawn from the worlds of industry and design, makes awards to designers and presents their work to an international public in Milan.
- German Design Graduates - Selected by distinguished juries; four awards are presented annually to outstanding graduates.
- The German Design Award Newcomer is a unique distinction for designers who have attracted attention with their extraordinary achievements and creative talent. It is not possible to apply for the endowed awards - representatives of universities or the German Design Council propose the nominees.
- The “Kultur- und Kreativpiloten Deutschland“ (Cultural and Creative Leaders Germany) competition is held as part of the Culture and Creative Economy initiative in which awards are made to particularly creative and innovative business ideas.
- Founders from the cultural and creative economy can also take part in the “Gründerwettbewerb – Digitale Innovationen” (Founders’ Competition – Digital Innovation) of the German Federal Ministry of Economic Affairs and Climate Action if innovative information and communication technology forms a key component of their product or service.
- The German “Ecodesign Award” of the Federal Ministry for the Environment recognises innovative products, services and concepts which are outstanding in aesthetic as well as ecological terms.
- The German Federal Ministry of Transport and Digital Infrastructure is the joint organiser of the German Computer Game prize.
Project support or project grants are awarded to concrete cultural projects. Depending on the institution awarding the grant, the recipients can be individuals, groups of people or institutions. A time limit always applies to a project grant. The objectives of the grant are defined in detail. Project grants are awarded or facilitated directly by the federal government, states and local authorities as well as cultural institutions and organisations (funds, foundations, clubs, associations and media).
Overviews of grants, competitions, prizes and project grants can be found on these websites and elsewhere:
Sponsoring is a channel for the financing and execution of individual artistic projects by companies. Sponsoring is the award of money or payment in kind by companies to support persons or groups of persons. In recognition of this, the sponsor’s logo is typically displayed on websites, posters in exhibition catalogues and press releases. The visible involvement of the sponsor is intended to increase the sponsor’s business standing. The company is therefore promoting itself or improving its public relations.
The first step in obtaining one or more companies as a sponsor is to contact your local Cultural Office. They are in touch with the Chambers of Trade and Industry and the Chambers of Crafts and can help you. If you want to approach a particular company, you should first collect information on the purpose and method of the company’s involvement in cultural activities up to the present time. Does the company fit your product?
Sponsoring platforms and specialist agencies can also help in the search for suitable sponsors. They will also advise you in the contractual arrangements and overall administration. Sponsors want to know the promotional reach of the planned event or publication.
You should therefore identify the following points (among others) and make a note of them in writing:
- Idea and concept
- Regional, national or international reach
- Expected number of visitors
- Description of the target group
- Estimated media contacts
- Type of media
- PR/promotional measures
- Additional presentation opportunities for the sponsor
- Total number of potential sponsors
Patrons and sponsors are often confused. Support by a patron means that a private person, company or foundation supports a cultural project, individual artists, a cultural institution etc. over a period of time by donating money and/or goods. Unlike sponsors, patrons do not normally expect something in return. Finding a patron is almost always the result of good contacts and a close relationship. (1)
Arranging financing for social or creative projects, innovative business ideas, concrete projects or your own start-up from a large number of people: this is what crowd-funding is all about. A large number of supporters finance a special project (funding).
Creatives, artists, media professionals or even people actively involved in social or environmental activities present their ideas on special on-line platforms. In the ideal situation, a large number of Internet users make the necessary money available. (1)
Crowdfunding can be divided into four variants which depend on the provision of funds and the involvement of the donors in the company:
Crowd-supporting and pre-financing (reward-based crowd-funding)
The classic and still the most widespread form of crowd-funding is reward-based crowd-funding. The donors do not receive shares or other forms of financial compensation in return for their investment, but they finance projects, products or business ideas and, for example, receive the product in question as recompense or another form of non-financial reward as compensation.
Reward-based crowd-funding is mainly used for creative projects, for instance financing the production of a film or films, design and artistic projects or social commitments.
Reward-based crowd-funding is also being increasingly used in the field of start-ups and business formations. Thus founders can for example pre-finance the development of a prototype or the manufacture of a product.
Crowd-investing (equity-based crowd-funding)
Equity-based crowd-funding or crowd-investing means that many donors (micro-investors) invest usually a small amount of money in a company and in return receive a financial reward. This can, for instance, take the form of participation in a potential increase in the value of the company or a share of the annual distribution of profits.
Thus the objective of crowd-investing is generally of a purely commercial or monetary nature. The company is seeking commercial success with a product or an idea, while the donors are aiming at an above-average return on their investment.
Crowd-lending (lending-based crowd-funding)
Lending-based crowd-funding (crowd-lending) is a form of loan finance. A large number of donors make a small amount of money available, the total of which yields the loan or “swarm credit”. The money can be loaned to private persons (peer-to-peer-lending) or to a business (peer-to-business-lending).
The conditions of the swarm credit are agreed in advance. These conditions relate to the repayment methods, the term or the interest on the loan. The interest rate depends, among other factors, on the likelihood of repayment, the default risk or the borrower’s credit-worthiness.
Crowd-donation (donation-based crowd-funding)
Donation-based crowd-funding (crowd-donation) is a way of collecting donations for a project from a large number of supporters, each of which donates a small amount of money. In most cases these are social or charitable projects. The project is only implemented if the financial target is reached in the period of time that is fixed in advance. If the target is not reached, the money is returned to the donors.
There is no monetary remuneration in the case of donation-based crowd-funding and no commitment is made about repayment or about a stake in the business. In a few particular cases the donors receive a small reward for their donation in order to increase the willingness to make a donation. Known crowd-funding platforms are listed at the end of this article. (2)
Support from relatives, friends and acquaintances
Support from family, friends and acquaintances plays a major part where small loans are involved. Particularly to minimise the emotional burden for everyone involved, written agreements should be drawn up on the amount, term and repayment of the private loans. What happens if a loan cannot be repaid must also be clearly stated. It is sensible to spread the amount needed across several individuals to minimise the burden for the individual lenders.
Private persons are also often called on to act as guarantors when applications for a loan are being made to a bank. Here, too, a written guarantee agreement should be concluded, if at possible with the assistance of a notary or other lawyer. (1)
A micro-loan is a form of finance with which even the smallest loans can be granted (to some extent) economically. These are possible because micro-loan organisations adopt very streamlined processes and look more at initial economic success than at securities.
Some investment banks and development banks in Germany grant micro-loans. There is also a publicly supported network of private micro-finance institutions. You can find a summary at the bottom of this page.
A micro-loan is suitable if there is a need for capital which is too small for a bank loan or if an alternative to a bank is sought. It is also relevant if the borrower is able to repay the loan in a relatively short time (for example in 2 years, or longer for public programmes). This is particularly the case when pre-financing orders or increasing a stock of merchandise with a high margin. There are also special micro-loan facilities for certain target groups (e.g. business formations as a way out of unemployment).
You need a guarantee if your request for a loan is considered too risky by a bank or you cannot provide the level of securities required. A guarantee is not therefore a direct form of finance but a means to an end: the guarantor undertakes to be responsible for your debts if you cannot repay them. This increases your borrowing capacity and therefore the probability that you will receive a finance commitment from your bank. However, the responsibility for repaying the loan remains with you; the guarantor only takes over responsibility for repayment if you default. From that point onwards you owe the money to the guarantor. You and the guarantor must agree the rules for what happens in this case. (4)
Grants, like development loans, are financed from public funds. There is a political objective behind such grants: for example to assist people out of unemployment or to motivate students to establish a business. Grants do not have to be repaid. The absence of any obligation to repay the money means, of course, that this is an expensive matter for whoever provides the money. It can be readily understood that the latter want to ensure that the project matches their objectives and particularly that the grants go to founders most likely to succeed.
Applications for grants often involve a lot of time and effort and many conditions.
The most widely-used grants include:
Start-up grants from the Bundesagentur für Arbeit (Federal Employment Agency): Anyone becoming self-employed as a way out of unemployment can receive a start-up grant to cover subsistence costs and social insurance contributions.
EXIST: Students, graduates and research assistants of universities can apply for the EXIST start-up grant. The idea for the start-up must be based on scientific knowledge and be innovative. A typical case for this is that you want to develop a business idea arising from your bachelor, masters or doctoral work.
Most of Germany’s states also have grant programmes to promote innovations. However, the term “innovation” is generally defined narrowly and restricted to what are called “technical innovations”.
There are also grants for consultancy costs, for example the BAFA-Beratungsförderung of the Federal Office for Economic Affairs and Export Control (also known as “BAFA”) which is aimed at businesses already in existence. Most states also have grants for consultancy during the pre-formation phase. (2)
Helpful links on the subject of funding and financing:
GENERAL INFORMATION AND WEBISTES
(Information for Hessen's start-up community (GER))
(Network with key stakeholders including tech corporates, mobile operators, FinTechs, DeFi & crypto ventures, investors, leading start-ups…)
(Diverse venture platform dedicated to closing the ecosystem access gap for underestimated founders)
(Network to turn ideas into fundable startups, and startups into global businesses)
(Startup webinars and community)
(Digital Fundraising platform - Fundraising support and webinars (paid))
(General information about crowdfunding (GER))
(the largest and best-known crowdfunding platform. It raises capital in the categories of art, comics & illustration, design & technology, film, gastronomy & crafts, games, music and publishing)
(the second largest platform and raises capital for projects and start-ups)
(The focus of this crowdfunding platform is on scientific topics)
(a social payment service provider for artists and creatives)
(private crowdfunding platform dedicated to social and humanitarian projects)
(like gofundme, dedicated to social and humanitarian projects)
(“The aim is to achieve the minimum capital for a start-up.”)
(crowdfunding platform for start-up companies)