Pre-Seed Fundraising in Germany: Instruments, Process, and the Ecosystem

The problem

The pre-seed round is the first contact many founders have with German capital-markets law. GmbH law demands notarial formality. The investor landscape is fragmented: public funds, business angels, specialized venture capitalists, family offices. And the case law has left the two most common financing instruments formally unresolved.

While a Californian startup raises its first EUR 500,000 with a two-page SAFE form and a DocuSign signature, German founders sit between Section 15 (4) GmbHG, the convertible-loan dispute, and the question of whether to set the valuation now or defer it to the next round. This article places the three practically relevant instruments in context, analyzes the unresolved formal questions, and describes the process and the ecosystem. The analysis is aimed at founders preparing a pre-seed round in the next twelve months and at advisors reviewing its structure.

Legal framework: the three instruments

German pre-seed practice knows three financing instruments that differ in risk distribution, speed, and formal effort: the priced round as a real capital increase, the convertible loan (Wandeldarlehen) as a bridge instrument, and the SAFE imported from Silicon Valley.

Priced round: cash capital increase under Sections 53, 55 GmbHG

The priced round is the classical equity round. It presupposes an underlying entity structure that is ready for outside investment; founders who have not already compared GmbH and UG or decided whether to install a personal holding above the operating entity should resolve both before the first term sheet. Legally, the priced round is a cash capital increase. The existing shareholders pass a capital increase resolution under Section 53 (1) GmbHG with a three-quarters majority of votes cast. The resolution must be notarized under Section 53 (2) GmbHG. The investor submits a subscription declaration under Section 55 (1) GmbHG, which must also be notarized. Registration with the commercial register under Section 57 GmbHG follows once the capital contribution has been paid.

The investor typically subscribes to a share with a nominal value (about EUR 100) and pays an additional premium (Agio) that represents the bulk of the investment. At EUR 500,000 invested for a nominal share of EUR 100, the Agio is EUR 499,900 and flows into the capital reserve under Section 272 (2) No. 1 HGB. This mechanism allows valuation differentiation without proportionally expanding the share capital.

An important structuring option is authorized capital (genehmigtes Kapital) under Section 55a GmbHG. If the articles authorize the managing directors to increase the share capital (up to 50% of the existing share capital, capped at five years), the subsequent increase follows from a managing-director resolution and not from a shareholder resolution. The notarization of the increase resolution under Section 53 GmbHG falls away. The subscription declaration of the new shareholder and the commercial-register filing still need notarization. For active fundraising phases, authorized capital is a legitimate accelerator.

Convertible loan: the bridge to the next round

The convertible loan (Wandeldarlehen) is technically a loan contract under Sections 488 et seq. BGB combined with a conversion option or conversion obligation. The investor provides a cash amount that converts automatically or at the investor's election into equity at the next financing round, typically with a discount (15-25%) or a valuation cap. Interest accrues during the term and converts alongside.

The economic logic of the convertible loan lies in postponing the valuation. The parties do not have to agree on a pre-money; they rely on the valuation set by the lead investor of the next round. For pre-seed, this is particularly attractive, because real valuation anchors are missing and the discount-plus-cap structure cushions the risk of an early pricing mismatch.

Two variants dominate. The conversion option gives the lender the right but not the obligation to convert. The conversion obligation provides that the loan converts into equity upon a defined event (qualified next round, maturity, exit). The obligation variant is the market standard for HTGF syndications and for the GESSI convertible-loan template.

SAFE: an import with legal ambiguity

The SAFE (Simple Agreement for Future Equity) originated in US startup practice at Y Combinator in 2013. Unlike the convertible loan, a SAFE has neither interest nor a repayment obligation if no conversion event occurs. Economically, it is closer to equity than to debt.

Under German understanding, the SAFE is predominantly characterized as a special form of the convertible loan or as an atypical financing instrument with features of a profit-participating loan (partiarisches Darlehen) per GLNS, Rose Partner, Freudenberg Law, and Seitz. Its balance-sheet treatment is disputed: the absence of a repayment obligation supports classification as equity or near-equity.

A central difference from the US SAFE: automatic conversion in the sense of the Y-Combinator template cannot be executed under German law. The issuance of new GmbH shares requires, under Section 55 GmbHG, a capital increase resolution and a notarized subscription declaration. The "conversion" agreed in the SAFE is therefore in truth an obligation of the existing shareholders and the SAFE investor to implement a cash capital increase with a corresponding Agio structure at the next round. The investment sum is typically paid as nominal amount (in cash) plus premium, to avoid the burdensome in-kind capital increase with expert valuation (GLNS).

Competing views: must convertible loans and SAFEs be notarized?

The central unresolved question of pre-seed practice is whether a convertible loan agreement that creates an obligation to acquire or dispose of GmbH shares must be notarized under Section 15 (4) GmbHG or Section 55 (1) GmbHG. The question has immediate consequences: a contract failing the statutory form is void under Section 125 BGB, with full unwinding implications.

OLG Zweibrücken, 17 May 2022, 8 U 30/19

The OLG Zweibrücken took the strict view. A convertible loan that obligates a non-shareholder lender to acquire shares upon the occurrence of defined events (here, a capital increase of at least EUR 1 million) requires notarization under Section 55 (1) GmbHG. The court additionally relied on Section 53 (3) GmbHG and considered the authorization resolution to be notarization-required. The privately executed contracts were held void.

BGH, 25 April 2023, II ZR 96/22

The Federal Court of Justice had the opportunity to settle the question at the highest level. It rejected the non-admission complaint against the OLG ruling on the ground that the question of formal validity had not been decisive for the OLG's decision (the company was over-indebted anyway). The BGH, however, pointed to the prevailing academic view, which rejects any notarization requirement. The decision is therefore not a binding ratio, but a strong signal to the lower courts.

OLG München, 4 May 2005, 23 U 5121/04

Older but still cited: the OLG München held that the notarization requirement falls away at least when the lender is already a shareholder of the target company. An existing shareholder taking additional shares is not captured by Section 55 (1) GmbHG's protective purpose.

Literature and practice

The prevailing academic view (Bird & Bird, YPOG, CMS, Heuking, honert, ADVANT Beiten, Rödl, Friedrich Graf von Westphalen) rejects a notarization requirement for convertible loans. The argument: the obligation from a convertible loan concerns a future share mass that arises only through a capital increase resolution, not the transfer of existing shares under Section 15 (4) GmbHG. And Section 55 (1) GmbHG addresses the subscription declaration in the capital increase itself, not the underlying contractual commitment.

The German Standards Setting Institute (GESSI), jointly sponsored by BAND and the Startup-Verband, amended its usage notes for the standard convertible-loan template after the Zweibrücken ruling: parties are alerted to the legal uncertainty and advised to notarize the authorization resolution as a precaution if the voidness risk cannot be carried.

Analysis

The prevailing view is preferable. Section 15 (4) GmbHG addresses the underlying obligation to transfer existing GmbH shares; Section 15 (3) GmbHG addresses the transfer itself; Section 55 GmbHG formalizes the subscription declaration in the capital-increase process. None of the three provisions directly target the contractual promise to submit a subscription declaration in a future, not-yet-resolved capital increase. The subscription declaration itself will be notarized at the appropriate time; the protective function of the form is then realized. A residual risk remains until a binding decision is issued. The pragmatic path favored here: notarize the authorization resolution and the capital-increase component, execute the convertible loan itself privately. This reduces the voidness risk to the contract. Automatic healing through the later notarized subscription declaration is not settled: Section 15 (4) sentence 2 GmbHG heals a formally invalid obligation contract only when it concerns existing shares and a subsequent notarized transfer; application to the convertible loan works only by analogy and is contested (for the critical view, see Noack/Servatius in MüKo-GmbHG § 55).

The same argument applies to the SAFE. Because conversion always runs through a notarized capital increase and the SAFE itself is only an investment commitment, the prevailing view denies any notarization requirement (GLNS). The residual risk is identical to that of the convertible loan.

Regulatory side questions: KWG and VermAnlG

The issuance of convertible loans or SAFEs to an investor syndicate is generally unproblematic under German regulatory law, provided it is structured as individual shareholder or investor loans. It becomes critical at broad public subscription: accepting repayable funds from the public can trigger the deposit-taking business under Section 1 (1) sentence 2 No. 1 KWG and thus a BaFin licensing requirement. Separately, the public offering of asset investments triggers a prospectus requirement under Section 6 VermAnlG unless an exemption applies (in particular, the thresholds of Section 2 (1) No. 3 VermAnlG or the crowdfunding carve-out of Section 2a VermAnlG). For a classic pre-seed round with an identifiable investor circle of up to about twenty business angels, the application of both regimes can routinely be excluded; for crowd or community rounds, a regulatory review is mandatory.

Tax treatment at a glance

The tax classification of the three instruments is frequently underestimated in pre-seed practice. At the target company level, interest on a convertible loan is deductible as a business expense, subject to the interest-deduction cap (Zinsschranke) under Section 4h EStG. At the lender level, accrued interest at conversion is no contractual payment, but under the prevailing view is nonetheless recognized as capital income under Section 20 (1) No. 7 EStG in the year of conversion. Note also that conversion itself does not trigger a loss forfeiture under Section 8c KStG, so long as the 50% existing-shareholder threshold is not crossed by the new entrant; in larger pre-seed syndicates, a case-by-case check is advisable. Particular care is required for the SAFE conversion via "cash contribution plus Agio": if the Agio component is economically used to settle an in-kind contribution obligation, the structure risks being requalified as a hidden in-kind capital increase, triggering the consequences of Section 19 (4) GmbHG (valuation review, difference liability). Structuring the SAFE conversion as a clean cash contribution with separate settlement of the SAFE claim is therefore the safer path.

Which instrument when?

Criterion	Priced round	Convertible loan	SAFE
Valuation pressure	Immediate	Deferred to next round	Deferred to next round
Time to signing	8-12 weeks	4-6 weeks	3-5 weeks
Notary (main round)	Mandatory	Only at conversion	Only at conversion
Form risk	None (notarized)	Disputed	Disputed
German investor acceptance	High	Very high	Medium
Interest / repayment	None	Yes (typically 5-8%)	None
Balance-sheet character	Equity	Debt	Near-equity
HTGF suitability	Standard	Standard	Rare
Typical ticket range	EUR 500k-2m	EUR 100k-1m	EUR 50k-500k

The choice usually follows the size and professionalism of the investor syndicate. A pure angel round under EUR 500,000 is routinely structured as a convertible loan to avoid notary costs and valuation discussions. As soon as the HTGF or an established VC joins as lead, a priced round is frequently preferred, because valuation has to be discussed anyway and the lead wants its rights (information rights, consent catalogs, pre-emptive rights) anchored in a shareholders' agreement (SHA).

The SAFE is the rarest of the three instruments in Germany. Its strength, the interest-free equity character, loses relevance when conversion triggers a notarized capital increase anyway. It appears primarily with US-influenced investors or in parallel rounds with US bridge investors.

The German pre-seed ecosystem

The investor landscape for pre-seed rounds in Germany differs structurally from the one in the US or the UK. It consists of four categories that differ in ticket size, decision speed, and term structure.

Public and semi-public funds

The High-Tech Gründerfonds (HTGF) is Germany's largest pre-seed and seed investor with more than EUR 3 billion of assets under management. The HTGF invests initial tickets with a sweet spot starting at EUR 800,000, can deploy up to EUR 4 million per portfolio company across all rounds, and takes no more than 15% of the shares under HTGF standard conditions. For later growth rounds, the EUR 660 million Opportunity Fund is available.

The HTGF investment process typically takes eight to twelve weeks. Standard conditions are fixed but negotiable if private co-investors contribute at equal terms. Company and founders must meet formal requirements: German seat or operations, company no older than three years.

The EXIST Gründungsstipendium (BMWE, administered through Projektträger Jülich) is not an investment but a grant. The stipend is tiered by qualification (directive of 18 April 2023): students at mid-degree EUR 1,000 per month, team members with vocational training EUR 2,000, university graduates EUR 2,500, PhDs EUR 3,000. Added to this: EUR 150 per child per month, material expenses of up to EUR 10,000 (solo founder) or EUR 30,000 (team), EUR 5,000 for coaching, and a one-time incentive surcharge of up to EUR 15,000. Duration up to twelve months. The requirement is affiliation with a university or research institution. The grant does not dilute founders but does not run alongside a conventional VC financing. For deep-tech projects with long development timelines, the additional EXIST Forschungstransfer program bridges the gap between grant and seed.

Pre-seed specialist VCs

Among the most active German pre-seed VCs are Cherry Ventures (B2B software, fintech, climate, consumer), Project A (tickets EUR 1-10 million, pre-seed to Series D), La Famiglia (AI, fintech, energy, logistics), along with Speedinvest, 42CAP, and sector-specific funds like Cavalry Ventures or Global Founders Capital. Pan-European and transatlantic funds (LocalGlobe, Index Ventures, Accel) are selectively active in German pre-seed.

Ticket sizes range from EUR 200,000 (a check within a larger syndicate) to EUR 3-4 million (lead check in a fully institutional pre-seed round). Process duration runs six to twelve weeks from first meeting.

Business angels

Germany counts more than 10,000 active business angels according to BAND. Typical ticket sizes range between EUR 25,000 and EUR 250,000, usually syndicated through angel groups (examples: BAM, Angel Invest, WINfunding, regional networks such as BAI Bayern or BANSON). Angels contribute operational experience alongside capital and often take advisory roles.

Formally, angel rounds are almost always structured as convertible loans. A typical syndicate consists of three to eight angels, coordinated by a lead angel who negotiates the term sheet and brings the other angels in as followers.

Family offices and foundations

Family offices are a growing category in the German pre-seed market. They invest selectively in areas where the family has operational roots and are often more flexible on documentation and governance. Ticket sizes commonly range between EUR 250,000 and EUR 1 million.

Foundations with venture-building mandates (e.g., the Joachim Herz Stiftung) can operate analogously to angels but are bound by foundation-law investment principles that rule out certain structures.

The process: from first meeting to signing

The market data is clear: the startupdetector report 2024/25 places the pre-seed median pre-money valuation in 2024 at EUR 3.7 million, a plus of 41.6% over 2023, driven primarily by AI. Typical round sizes in DACH benchmarks range from EUR 300,000 to EUR 2 million with dilution of 5-15%.

Phase 1: preparation and first meetings (weeks 0-4)

The process begins with clean preparation. The data room (virtual data room, typically Dropbox Paper, Notion, or dedicated tools such as Ansarada) should be ready before the first investor meeting and contain: pitch deck (10-15 slides), financial model (36 months), current cap table, articles of association, existing contracts (employment agreements, IP assignments, customer contracts), founder history, and team biographies.

The first meeting runs 30-45 minutes. Decisions are rarely made at the first meeting. The goal is an invitation to a second meeting with the full investment team.

Phase 2: term sheet (weeks 4-6)

The term sheet is a non-binding pre-contractual document (with some binding parts such as exclusivity and cost allocation). It governs:

• Valuation (pre-money, post-money, option pool before or after the round)
• Investment amount and tranches
• Liquidation preference (1x non-participating is market; 1x participating is now rare and a warning sign)
• Vesting of the founders (typical: 4 years with a 1-year cliff, reverse vesting, good/bad leaver)
• Anti-dilution (broad-based weighted average is market)
• Information rights, board seat or observer, veto catalog
• Drag-along, tag-along, pro-rata rights
• Exclusivity (usually 30-45 days in favor of the lead investor)

The GESSI standard term sheet is a useful starting point but is rarely adopted unchanged. German VCs frequently work from in-house templates that diverge from the GESSI standard.

Phase 3: due diligence (weeks 6-8)

After term-sheet signature, due diligence begins. For pre-seed, it is typically lean: legal DD (cap table, key contracts, founder IP assignment, disputes), commercial DD (market figures, unit economics, traction), technical DD (code review, infrastructure, data protection), and financial DD (financial-model review, burn rate, runway). Red flags that almost every pre-seed DD uncovers and that should be fixed in advance: missing or patchy founder IP assignments to the company, unnotarized share transfers from the founding phase, unclear VSOP commitments, unresolved tax questions around an in-kind formation.

Phase 4: signing and closing (weeks 8-12)

The notary appointment is the formal signing act of the priced round. What gets notarized: the shareholders' capital increase resolution, the amendment to the articles, the investor's subscription declaration, and the amended articles in their new form. Executed privately but as part of the same closing: the shareholders' agreement (SHA) and, in hybrid structures, the convertible loan agreement.

Notary scheduling is the most frequent bottleneck. VC-experienced notaries in Berlin and Munich are often booked out four to six weeks in advance. Parties who cannot attend in person use a notarized power of attorney. Video notarization under Section 16a BeurkG has been permitted since 1 August 2023 for subscription declarations in a cash capital increase; in-kind capital increases, subscription declarations with additional secondary obligations, and the notarization of the capital increase resolution itself remain in-person.

After the notary appointment: payment of the capital contribution to the company account, commercial-register filing by the notary under Section 57 GmbHG, registration (typically one to four weeks), notification to the transparency register (Transparenzregister) for beneficial owners with controlling interests.

Practical implications

The path to a signed term sheet is, in pre-seed, less a legal than a process question. Three observations from practice:

Momentum is the most valuable currency. A round process that runs beyond twelve weeks loses energy. Every additional month without signing increases the probability that a lead investor drops out because fund dynamics or their own investment focus shift. In pre-seed rounds I advise, I see recurring: the rounds that stall do not fail on legal details, but on lost speed between term sheet and notary appointment. Founders who run from day one with a structured data room, clear decision logic, and hard deadlines close in six to eight weeks. Founders who wait for the perfect lead take six months and lose two of three conversations.

Negotiating power is asymmetric but not zero. The lead investor knows the term sheet and the SHA better than the first-time founder. The founder's counterweights are two: a competing offer and facts. The threat of a parallel conversation with a second fund is more effective than any negotiating tactic. In due diligence, the second shift of power emerges. Every uncomfortable question the founder can answer with a document strengthens their position. Every question they cannot answer weakens it.

Form risks are reducible but not eliminable. Convertible-loan case law remains unstable. The pragmatic path favored here is to notarize the authorization resolution before executing the convertible loan and to draft the conversion obligation so that it is clearly limited to a future, separately resolved capital increase. This reduces the voidness risk but does not eliminate it; under the OLG Zweibrücken's strict reading, the loan contract itself remains exposed. Parties seeking full certainty notarize the full contract, which adds roughly EUR 1,500 to EUR 3,000 in notary fees and is defensible on a EUR 500,000 ticket.

Pre-seed closing checklist

Outlook

Two developments should be expected over the next years: first, a Federal Court of Justice ruling on the notarization question once a suitable case reaches it (the next opportunity may come from a ZuFinG-II-driven legacy situation); second, further institutionalization of the pre-seed phase, driven by the scaling of HTGF and the growth of specialized VCs. For founders, this means: tolerance for sloppy structures declines, the professionalism of the counterparty rises. Clean documentation early saves a second round of due diligence later.

Conclusion

Pre-seed financing of a German GmbH is a triangle problem of instrument choice, formal law, and process management. The three practically relevant instruments (priced round, convertible loan, SAFE) solve different valuation and timing problems. The formal requirements for convertible loans and SAFEs remain unresolved after the OLG Zweibrücken ruling and the BGH non-admission decision II ZR 96/22; the prevailing view rejects a notarization duty, but a residual risk remains. The German pre-seed ecosystem of HTGF, angels, and specialized VCs is functional but slower and more form-bound than its US counterpart. Those who enter the process unprepared lose momentum. Those who structure it close in eight to twelve weeks at terms that match German benchmarks.