German Government Gears up Start-ups
Tech Growth Fund fills capital gap
Jan 24, 2017
Berlin (gtai) - A multi-billion-euro investment fund to back start-ups in Germany is being planned by the government, according to the Tuesday edition of Handelsblatt, Germany’s closest counterpart to the Financial Times. The fund, announced in a guest editorial by the State Secretary at the Federal Ministry for Economic Affairs and Energy Matthias Machnig and Parliamentary State Secretary at the Federal Ministry of Finance Jens Spahn, is designed to further fill the capital hole between the venture capital market and bank capital market.
Germany’s local private venture capital market is risk-averse, while banks tend only to be interested in start-up companies upwards of a certain size. The country’s development bank, the KfW, currently provides small dollops of finance to help companies get off the ground, but less finance for such companies’ further capital needs. It 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.
The proposed fund, called the ‘Tech Growth Fund’, would help start-ups access further finance once they were up and running so that ‘fast-growing companies would have access to plentiful capital at all phases of their development,’ said the editorial. That the fund is particularly aimed at tech companies 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 at digital technology’s pioneering edge, according to the KfW bank’s research institute.
“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 federal economic development agency. “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.”