Potential New German Government Funding for Start-ups

According to recent news reports, a multi-billion euro investment fund to back start-ups in Germany is being planned by the Federal Government. The fund, announced by Matthias Machnig (State Secretary at the Federal Ministry for Economic Affairs and Energy) and Jens Spahn (Parliamentary State Secretary at the Federal Ministry of Finance), is designed to bridge the perceived gap in financing between the venture capital market and bank capital market.

While the start-up scene in Germany sometimes appears to be awash with venture capital Germany’s local private venture capital market is risk-averse, while banks tend only to be interested in start-up companies of slightly larger size. The country’s development bank, the KfW, currently provides small amounts of finance to help companies get off the ground and has been co-financing venture debt funds as well as venture capital funds since the start of the year, as a result of an easing of a regulation allowing it to access additional financing from the EU. However, companies funded via KfW co-funding no longer qualify for further capital needs after taking such finance and must then look elsewhere for further funding needs.

The proposed fund, called the ‘Tech Growth Fund’, will help start-ups access further finance once they are up and running so that ‘fast-growing companies would have access to plentiful capital at all phases of their development,’ according to reports. Unsurprisingly, the fund is particularly aimed at tech companies which is the result of the trend within Germany’s start-up landscape which has seen a six per cent rise in start-ups researching or developing pioneering digital technology.

“Germany’s strategy of encouraging young, innovative companies to lead the country through the digital age is already common knowledge,”

said Achim Hartig, Manging Director Investment Consulting at Germany Trade & Invest.

“The conditions for such companies to thrive have to be as financially accommodating as possible. So the introduction of funds such as these ensure that we can offer young firms the requisite time and resources they need to become as independently strong and stable as possible. It creates a business landscape where competitive success is based not on the good fortune of winning the venture capital lottery and thus securing scarce resources, but on the basic merits of each firm’s strategy and innovation. It is a landscape where good young businesses thrive, irrespective of background.”

Photo credit: http://www.colourbox.com. Material used in the preparation of this article has been drawn from Germany Trade and Invest (GTAI).

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