The German government made headlines last year when it announced the creation of a EUR 10 billion fund to invigorate the country’s venture capital and start-up ecosystem. Now top officials are out in public promoting what Minister for Economic Affairs and Energy Peter Altmaier calls “the biggest initiative of its kind in Europe.”
The fund allows the government’s economic development bank, the KfW, to put money into VC funds to match private investments in promising start-ups, and it’s intended to redress a conspicuous shortcoming in the German economy. In the past, Germany has lagged behind countries like the US, the UK and France in financing for start-ups. Indeed, despite Germany’s relative wealth the ratio of VC investment to GDP has been below the European average. The Future Fund is designed to eradicate that weakness.
“We want to take VC in Germany to another level,” German Finance Minister Olaf Scholz said at a KfW conference on the Future Fund in Berlin. “There’s money enough. But the mentality of getting involved in start-ups is not as present as in other places in the world. There are lots of innovative ideas all over Germany. We need to create the ecosystem so that they can have access to the money that is out there.”
Under the conditions of the fund, the government monies will generate an additional EUR 20 billion from private investors, raising its total value to EUR 30 billion. This money comes on top of the hundreds of billions the state has already allocated for economic stimulus in response to the coronavirus pandemic. It’s specifically targeted at high-tech start-ups entering the growth phase and looking to scale up.
“German venture capital often invests in the US,” Altmaier said. “We decided that has to change. We’re very good in the first two financing phases, but less so after that when the focus is on big tickets.”
The fund is administered through the KfW subsidiary, KfW Capital. It defines its mission as “to invest in German and European venture capital and venture debt funds, thereby strengthening their capital base – our aim is to improve access to capital for innovative technology-oriented growth companies in Germany.” Applications typically take three to four months for decisions to be reached, but investments have been made in some cases in under six weeks.
The fund was officially launched in March of this year, and the government is keen to raise awareness of it. The first phase has coincided with a spate of big financing deals yielding an unprecedented number of German unicorns.
“For the first time, we’ve made huge financing rounds possible,” said Altmaier. “I hope that word gets around that something really big is happening here.”