Tinus: Milestones also exist for investors #DHDL

Many founders are very familiar with so-called milestones in an investment. But almost all of them associate them with the fact that their start-up has to achieve certain goals in order to continue receiving money from investors. But it also works the other way around. In the latest episode of "Die Höhle der Löwen", you can see very well how something like this can work, using the example of the start-up Tinus from Munich.


As is well known, there are other negotiation topics in a start-up investment than “just” the amount of the investment and the shares that the corresponding investor gets in return. Things like milestones, payout tranches or options for follow-up investments have also come up a few times in “Die Höhle der Löwen”.

On Monday evening, the start-up Tinus provided us with a very detailed case, in which a not very common secondary condition was explicitly negotiated. Tinus also gave us a few important tips on what to look out for in such a negotiation.
The start-up presented a special pillow to the lions that should make it easier for tinnitus sufferers to fall asleep. Those affected often have the problem of having to drown out the constant beeping noise in their ears or at least distract themselves in order to fall asleep well. Some watch television, many listen to music or podcasts. However, this often disturbs the partner, and trying to fall asleep with headphones is also a difficult undertaking.

The special pillow of the founding team from Munich was designed to remedy this: not only was it designed so that only the person lying on it could hear the music or podcast playing, but it could also detect when the user fell asleep and then slowly fade out the programme to fall asleep.

The lions even saw the use case with other groups and praised both the product and the founding team catchily.

Carsten Maschmeyer in particular seemed taken with it and soon approached Ralf Dümmel, who, however, had reservations about the start-up’s premium strategy. After all, the sales price was to be just under €800, and the two pitchers did not initially see a cheaper version – even with falling manufacturing costs.
But Carsten Maschmeyer did not give up and convinced Ralf Dümmel to make an offer at least once, even if it was aimed in a completely different direction than the founding team wanted: instead of the requested 350,000 € for 10%, the investor duo wanted 25%, but only if the start-up could imagine a change in strategy. Instead of the planned 4,000 units, Ralf Dümmel wanted to produce 50,000 units directly and, through the increased quantity, lower the production costs to such an extent that the finished cushion could eventually be sold for €199 and thus open up the mass market.

The Tinus team actually went for it – and let it be known that the previous strategy was rather due to the fact that one could not achieve these quantities so quickly on one’s own, and that it was therefore not an option so far.
But the power of the lions was also supposed to cost something, and so they entered into negotiations: the founding team spoke with their existing investor on the phone, and – unlike Ralf Dümmel’s expectations – did not come back with a straight counteroffer regarding the shares, but made things a little more complicated.

The lions were initially to continue to receive only 10% shares in the company, but a further 10% if a certain quantity of cushions had been sold. In addition, the investors were offered a 1% share in sales until the investment was paid back.
The former is probably something very strange for many scene ears, after all it is usually the founders who commit to reaching certain milestones. This typically happens in rather large investment rounds and with ambitious growth targets and relatively high and rather speculative valuations. In other words, these are often valuations based on potential that both parties see in the market, rather than on more hard factors such as certain metrics that can already be demonstrated with the existing business model. In this case, investors reduce their risk by dividing the investment into several tranches and only paying out the respective tranche when the corresponding milestone has been reached. If these targets – usually turnover targets, but often also development targets – are grossly missed, it is possible that the next, actually agreed cash injection will not be made at all. This is all part of a classic scenario with a typical financial investor.

But the lions like to call themselves strategic investors, and thus want to emphasise their own added value, i.e. that they also actively contribute to the success of the start-up, for example by strongly supporting sales. Such investors often pay much lower valuations – at least mathematically. After all, not only do they themselves have additional costs due to their support services, but part of the planned success also depends on them. But this also entails a certain risk for the start-up: if an investor cannot deliver the promised added value beyond the financial investment, the shares would have been given away far too cheaply. So what could be more obvious than a milestone agreement for precisely such investors, as Tinus has just offered.

However, one should be careful here and limit oneself to factors that an investor can really influence. If, for example, he promises to help on the production side, one could take the achievement of a certain production price as a basis. If the investor promises to support sales, depending on the sales channel, a number of listings in branches or a number of leads at a certain stage could be agreed as milestones.

Rather difficult, however, are milestones that are more the responsibility of the start-up or based on market acceptance. The 50,000 sales suggested by Tinus are therefore a little borderline; after all, even a Ralf Dümmel can produce 50,000 units and put them on the market, but whether they are then actually bought by customers is another matter.

So it’s no wonder that the two lions immediately became sceptical, after which founder Simon also relented and gave the figure that the trade lion had previously mentioned primarily as a possible production figure as just an initial thought. Unfortunately, however, the final agreement on this point was either confided or fell victim to editing, so viewers can only speculate here.

The four finally agreed on an investment of 350,000 euros for an initial 10%, with a further 10% of the shares due when a milestone was reached. In addition, there was to be a 2% share in the turnover for the investors until the investment was paid back.

Even before the broadcast, however, it became known that Tinus had to file for insolvency in the meantime. There were many reasons for this, from the sharp rise in production costs to the failure to meet milestones with existing investors. Both would have made the planned deal extremely difficult, as it would have changed the basic situation quite a bit. After all, milestone agreements – regardless of which side – are naturally all the more risky in uncertain times; after all, the side that is supposed to fulfil them must also be able to do so in the first place.

Let us hope that the tinnitus-ridden of this world will soon be offered another product.

Photo (above): TVNOW / Bernd-Michael Maurer

Ruth Cremer

Ruth Cremer is a mathematician and consultant as well as a university lecturer in the field of business models, key figures and financial planning. As a former investment manager, she knows what investors look for and also helps with pitch and document preparation in the investment or acquisition process. Since 2017, she is involved as an external consultant in the selection and preparation of the candidates in "Die Höhle der Löwen".