Franc Smidt,
Hi-Tech Innovation

Why Startups Require a Unique Approach

Young companies focused on innovation and rapid growth often don’t fit into the traditional frameworks of established businesses. Startups rarely have verified revenue streams, stable assets, or guaranteed success. Bank loans, under such conditions, are nearly impossible due to the high risks and uncertain future. And what if it’s not even a company yet, but an individual or a team with an idea for practical application and commercialization, but lacking the funds to move forward?

The venture capital market has developed tools that allow investors and startup founders to meet halfway, bypassing excessive bureaucracy and overwhelming commitments. Let’s explore both traditional tools and recent innovations in this field.

Convertible Instruments: A Bet on the Future

One of the most popular tools for early-stage startups is convertible instruments such as Convertible Loan Agreements (CLA) or SAFE (Simple Agreement for Future Equity). These mechanisms are a hybrid between a loan and an equity investment.

An investor provides funding without immediately acquiring equity but reserves the option to convert their investment into shares at a later stage. This approach is particularly useful when the business is too young to undergo a fair valuation but shows significant growth potential.

SAFE agreements have become especially popular due to their simplicity. They eliminate complex legal procedures, minimizing costs. Investors are protected by provisions such as valuation caps and discounts on future funding rounds, ensuring favorable conditions even in cases of rapid company growth.

Convertible Instruments: A Bet on the Future

One of the most popular tools for early-stage startups is the use of convertible instruments, such as Convertible Loan Agreements (CLA) or SAFE (Simple Agreement for Future Equity). These mechanisms serve as a hybrid between a loan and an investment.

Instead of receiving an immediate equity stake, the investor provides capital with the option to convert those funds into shares at a later stage. This approach is especially valuable when the business is too young for a fair valuation but shows potential for growth.

SAFE agreements have gained particular traction due to their simplicity. They do away with complex legal processes and minimize associated costs. Investors enjoy protection through provisions like “valuation caps” and discounts on future financing rounds, ensuring favorable terms even if the startup’s valuation skyrockets.

Advantages for Startups:

Rapid capital infusion

No immediate need to establish a company valuation

Streamlined legal formalities

Risks for Investors:

No voting rights or control until conversion

Everything hinges on trust in the startup’s team

Still, for bold investors willing to play the long game, these instruments offer the chance to significantly grow the value of their investments.

Priced Rounds: Transparency and Control

At more advanced stages, companies raise capital through priced rounds, where the business’s valuation is established upfront. This approach provides investors with equity and the right to participate in strategic decision-making.

This method is preferred for projects with a proven business model, stable revenue, and clear metrics. Priced rounds demand time and resources, including extensive negotiations, legal reviews, and valuation processes. However, they provide investors with clear rights and guarantees from day one.

Alternative Forms of Financing in the Crypto Sphere

The world of cryptocurrencies and blockchain offers unique opportunities for funding startups:

ICO (Initial Coin Offering): The sale of digital tokens to investors in exchange for cryptocurrency or fiat money. This method was particularly popular during 2017–2018, although its use has decreased due to regulatory scrutiny.

STO (Security Token Offering): The issuance of tokens that function as the digital equivalent of securities. An STO combines the advantages of traditional instruments with blockchain technology, providing investors with protected assets. In the European Union, this process is regulated by the MiCA framework and is gaining traction through licensed and specialized platforms.

IDO (Initial DEX Offering): Token listing on decentralized exchanges (DEX). This approach allows startups to quickly raise capital due to fewer documentation requirements.

Asset Tokenization: Startups can issue RWA (Real-World Asset) tokens that represent fractions of tangible assets, such as real estate, intellectual property, in-game assets, or artwork. This simplifies the fundraising process and boosts asset liquidity.

Success Stories

Dropbox raised $1.2 million in its first SAFE round from Y Combinator and Sequoia Capital, enabling it to become a global cloud platform. 

Ethereum raised over $18 million through an ICO in 2014, establishing itself as the largest blockchain platform for smart contracts. 

Cardano raised $62 million during its ICO in Japan, launching its eco-friendly blockchain project.

Hi-Tech Innovation: A New Approach to Talent Funding

Hi-Tech Innovation has implemented a unique funding methodology that opens doors for freelancers, individual entrepreneurs, and talented professionals. This approach is designed for those with exceptional ideas, deep expertise, initial products, or clear implementation plans but lack the resources for further development.

When an individual with a promising idea or project encounters barriers such as insufficient funds for building a team, creating a legal entity, or developing infrastructure, Hi-Tech Innovation steps in as a true angel. The company provides comprehensive support, including:

Funding the initial stages of the project.

Assisting in establishing legal structures.

Preparing documentation and training the team.

Developing infrastructure and technological bases.

Supporting promotion and advancing the product to full-scale funding rounds.

If necessary, providing visa support for the Schengen zone, accommodation, and co-working spaces in incubators or tech parks in Germany, Switzerland, Luxembourg, Cyprus, or Austria.

This approach allows talented innovators from various countries to focus on developing and implementing their ideas instead of spending time on bureaucratic and organizational tasks. Hi-Tech Innovation manages all administrative and financial aspects, giving candidates the opportunity to fully realize their potential.

This methodology not only simplifies the commercialization of initiatives but also opens new horizons for innovative ideas and opportunities that might otherwise remain unrealized.

Practical Example:
A talented engineer with a concept for an energy-saving device received complete support from Hi-Tech Innovation — from legal registration to prototype development and application in production. As a result, the startup not only launched successfully but also attracted investments, ensuring sustainable growth.

A young producer with intellectual property rights to a global show concept with enormous potential for worldwide television and media audiences received initial funding for idea structuring, legal registration, and intellectual property support. The producer gained access to major platforms for franchise and licensing development. Concurrently, the idea was expanded and supplemented with technical project justification, a business plan, and additional commercialization and funding models. The project is set to be presented to leading industry players in early 2025.

This approach positions Hi-Tech Innovation as a unique hub for talent and ideas from around the world, fostering innovations that change the world. Here, a clear path to the future is open for everyone ready to work on bringing their ambitious visions to life.

How to Choose the Right Path

Deciding between convertible instruments, priced rounds, or innovative tokenization methods depends on a startup’s stage, the team’s objectives, and the investors’ willingness to take risks.

For young companies with an uncertain future, SAFE or CLA often remain the most practical choice. More mature projects with steady revenue might opt for priced rounds. Meanwhile, startups in the cryptocurrency and blockchain space must consider regulatory constraints and choose ICOs or STOs in compliance with the relevant legal framework.

Financing a startup is not just about selecting the right instrument; it’s an art of balancing the interests of all parties involved. Convertible instruments provide flexibility, priced rounds offer transparency, and new blockchain-based financing options open doors to unlimited, cross-border opportunities. A startup’s success is not only about a great idea and technology but also about skillful financial management, ultimately leading to the desired results.

Additional Funding Opportunities

In the United States and the European Union, there is a wide range of officially recognized and regulated forms of startup financing that go far beyond traditional venture capital or angel investments. Naturally, each jurisdiction has its own legal framework, but generally, there are several avenues that can be considered “official” or regulated at the legislative level.

United States
In the U.S., in addition to “traditional” mechanisms like venture funds, various forms of public offerings and crowdfunding regulated by the Securities and Exchange Commission (SEC) are widely used. Instruments based on the JOBS Act are particularly popular. For instance, Regulation Crowdfunding (Reg CF) enables startups to raise capital from a large number of non-accredited investors through online platforms. This process is overseen by the SEC and FINRA, making it both official and relatively secure.

There is also Regulation A+ in the U.S.—a streamlined form of a public offering for young companies seeking to raise up to $50 million per year. Regulation D allows companies to secure funding from accredited investors under simplified conditions. Additionally, one should not forget about government grants awarded through programs like Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR). These public initiatives provide funding to technological and scientific startups on a competitive basis, without requiring the company to give up equity, which makes them especially attractive.

EU and the UK
With the adoption of the European Crowdfunding Service Providers Regulation (ECSPR), the EU has gained more opportunities for official, transparent, and standardized oversight of investment platforms across the entire bloc. Startups can raise capital through licensed crowdfunding service providers, offering equity instruments and debt obligations to a broad range of investors. This approach simplifies access to cross-border capital markets and increases confidence in the financial instrument.

In addition to crowdfunding, the EU offers extensive grant and subsidy programs such as Horizon Europe and the EIC Accelerator, aimed at supporting innovative enterprises. These grants are awarded on a competitive basis, have strict selection and oversight criteria, yet can provide significant funding without requiring the company to give up equity.

There are also specialized markets for listing shares and bonds of small and medium-sized companies under simplified procedures. For example, the UK’s Alternative Investment Market (AIM) and platforms like Euronext Growth across Europe cater to growing young businesses. Here, startups can access public capital markets under easier listing rules, allowing them to expand their investor base within a well-structured and transparent regulatory environment.

In summary, both in the U.S. and the EU, officially recognized forms of financing include regulated equity and debt crowdfunding, simplified IPO-like procedures for startups, government grants and support programs, as well as platforms for public capital raises with relaxed requirements. All these instruments, backed by transparent regulations, enhance investor confidence, reduce administrative barriers, and open more avenues for young companies to secure capital.

Learn more about startup platforms on our website: Hi-Tech Innovation and explore new opportunities with us!

USEFUL LINKS

Below are several sources where you can find examples, recommendations, and contract templates in English, including those for startups and venture investments. Please note that the provided links are for informational purposes only, and the use of these documents requires legal review by qualified professionals.

Y Combinator (SAFE Agreements):
ycombinator.com/documents
On this Y Combinator page, you will find the original SAFE (Simple Agreement for Future Equity) documents used in the United States.

Cooley GO Docs:
cooleygo.com/documents/
The law firm Cooley provides free legal templates, including those for startup founders and investors. Here, you can find samples of Convertible Notes, Term Sheets, Founder Stock Purchase Agreements, and more.

SeedLegals (UK and EU):
seedlegals.com
While registration and often payment are required to fully use the tool, SeedLegals offers extensive information on standard documents (Term Sheets, Shareholders Agreements, Option Pools, Convertible Instruments).

StartupDocs (by Orrick):

orrick.com/Startup-Forms
The law firm Orrick provides template legal documents for early-stage startups, including those for capital raising, employee stock option plans, and more.

Public Filings (via SEC EDGAR):
sec.gov/edgar.html
In the EDGAR database of the U.S. Securities and Exchange Commission (SEC), you can find examples of real contracts and agreements filed by public companies. While not “templates” per se, they provide insight into how legally executed investment documents are structured.

Before using any of these templates, it is advisable to consult with a professional attorney to tailor the documents to your specific situation and ensure compliance with the applicable laws of your jurisdiction.