The German government has begun allocating money under last’s year’s highly touted EUR 10 billion “future fund” to supercharge VC investment in start-ups and other promising young businesses. The first categories include an expansion of KfW Capital, EIF growth facility and a deep tech future fund. But what’s behind these names and acronyms? We ask Germany Trade & Invest consultant Danny Stephens.
In which sectors are start-ups most likely to be able to access this fund?
Using these new monies, Germany will be looking to keep itself at the forefront of emerging technologies such as AI, automated driving/transport, and the multi-faceted monster that is digitalization.
How complicated is it to apply for assistance? Roughly speaking, what are the chances for success?
Generally this is pretty easy. Most applications for grants and for financing by Germany’s economic development bank, the KfW, are made through the company or start-up’s house bank, or through direct applications to the financing program involved (eg. High-Tech Gründerfonds). The chances for success depend entirely on the quality of your business case.
Are we talking about grants here?
Very few start-up funds are actually grants. Much of the start-up funding for the most interesting projects is public-private VC, with money from the Ministry for Economic Affairs and the state development bank the KfW, together with the European Investment Bank in some cases, as well as contributions from large private companies or private investors. Because state instruments are used, the risk profile is lowered significantly and therefore the expected return, which eases pressure on a start-up.
The most prominent two start-up investment funds on a federal level are coparion and High-Tech Gründerfonds, the former focussing more on companies looking for A,B, and C series funding and the latter on start-ups in a more conceptual seed phase. The money in coparion itself is all from state instruments, but any start-up getting money from it must get at least the same amount in the same series from a private investor. HTGF is financed by both state and private investors, who also take an active role in incubating the start-ups in the program.
The money is to be doled out “pari passu” – what does that mean?
It means that the investments by KfW Capital are made on an equal footing with those of private investors, i.e. neither KfW Capital nor other investors nor any other investing program receives preferential treatment during the course of the investment.
Is the fund available to international companies that have expanded to Germany?
Sure. It all depends on a realistic investment and business case, and realistic expectations of the technology.
And finally, what does it mean for Germany that the future fund is now getting started in earnest?
In uncertain economic times, the availability of venture capital can be at the most risk from over-cautious investors, usually just as industry needs more of it. This fresh funding is a further sign of Germany’s willingness not only to address the short term but also to maintain its risk-friendly approach to the business future.