INVEST Grants for Business Angels

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The INVEST grant program is a funding initiative offered by the Federal Ministry for Economic Affairs and Energy. The funding program mobilizes more private venture capital from business angels and helps start-ups to find investors.
What are the main aims and objectives?

The main objectives of the INVEST program are to support private investors in investing in small, innovative businesses and to encourage investments in start-ups by subsidizing both the investment and exit. Start-ups often fail in the early stages because they lack the necessary venture capital, the main purpose of INVEST is to bridge this funding gap and ensure that innovative companies have access to the investors and seed capital that they need. Ultimately the program aims to stimulate economic growth, foster innovation, and create jobs in the country.

How does the program work?

INVEST consists of an acquisition grant and an exit grant. With the acquisition grant, business angels receive 25 percent of their investment tax-free if they invest at least 10,000 euros in venture capital in start-ups. An investment sum of up to a maximum of 200,000 euros is funded per investment (i.e. maximum acquisition grant of 50,000 euros  (approx. $55,000) per individual investment). Each investor can receive acquisition grants of up to EUR 400,000 (approx $440,000) for investments. After that, their “INVEST budget” has been used up and further acquisition grants can no longer be approved. 

In addition, the tax levied on a capital gain can be compensated with an exit subsidy. The investor receives a flat-rate tax compensation of 25 percent of the profit that was made from the sale of the shares funded with the acquisition grant. The exit subsidy is limited to 25 percent of the investment amount of the INVEST shares and is reserved for natural persons. The acquisition grant and exit grant together may not exceed half of the original investment amount.  

The acquisition grant and the exit grant are exempt from income taxes and thus significantly improve the incentive to mobilize private venture capital. 

The program also includes a certification process that makes startups eligible for INVEST funding. Certified startups are able to register in a dedicated database that only potential investors have access to, making it easier for angel investors to find them. The database includes basic company information, such as contact info and its business concept. Potential investors are able to search the database through multiple criteria, including sector, location, firm size and investment requirement.

Eligible businesses must be: 

  • No more than seven years old 

  • Fewer than 50 employees (full-time equivalents) 

  • Annual turnover or annual balance sheet total of no more than ten million euros 

  • Corporation or registered cooperative with headquarters in the European Economic Area ( EEA ) and at least one branch in Germany that is entered in the commercial register or cooperative register, or a permanent establishment that is entered in the trade register 

  • Demonstrably innovative 

  • Continuously economically active or starts its business activities no later than one year after completion of the investment 

Investors must meet the following requirements: 

  • Investment of at least €10,000. If an equity investment is made in installments linked to particular milestones (e.g. turnover or profit targets), each of the investor’s installments must be at least €10,000. Each investor may apply for a grant in respect to investments of up to €500,000 annually (increased from €250,000 from previous years). In addition, for investors utilizing the services of an equity investment company, the total eligible investment amount is limited to €1,000,000 over three (3) years. Grants may be awarded for company shares up to €3,000,000 annually. 

  • Purchased shares must be newly issued (they cannot be existing shares held by another shareholder).  

  • Shares must be purchased on each investors’ own account with their own cash (no financing of shares by way of credit). 

  • Duration of investment: at least three (3) years (lock-up period) 

  • Investment decisions must be made on the basis of a formally submitted business plan. 

  • Investments must be made in all the opportunities and risks a business carries. Standard market liquidation preferences and anti-dilution provisions are permitted. 

  • When shares are acquired through a convertible loan, the acquisition grant (with respect of the converted amount) shall only be paid after conversion. 

  • Follow-on investments are eligible for funding provided that the purchase of shares already held by the investor was previously supported by the INVEST program. 

  • To qualify for an exit grant, an investor must be a natural person, must have received the acquisition grant when purchasing the shares, must comply with the three-year lock-up period and must not hold the shares for longer than 10 years. 

What is the overall cost?
There is no information published on the annual cost of running of the INVEST program, however, an impact report in 2015 revealed that the program had issued grants worth a total of €19.2 million which produced a total of €28.7 million in investment between May 2013 and November 2015. Given that €1.15 billion (approx. $1.26 billion) of investment has been secured through the program overall, we can estimate that a total of around €770 million grants have paid out in total. This does not include the overall operational costs of running the program but can be used as a baseline figure for estimating the overall financial scope of the program.  
How was it implemented?

The INVEST program was introduced in 2013. Since its inception, the program has evolved to better meet the needs of startups and investors. The Federal Ministry for Economic Affairs and Energy continually enhances the program to ensure it remains effective in fostering innovation and supporting the growth of small and medium-sized enterprises (SMEs). 

The funding conditions have been adjusted since February 6, 2023 as follows with the new funding guidelines for the INVEST program: 

  • 25% acquisition subsidy for direct acquisition of shares (previously 20%) and convertible loans (previously 10%) 

  • Introduction of an "INVEST budget" of €100,000 (approx. $110,000) in acquisition grants per investor ( i.e. no further INVEST funding if EUR 100,000 in acquisition grants have been paid out or approved) 

  • €10,000 (approx. $11,000) minimum investment amount (previously €25,000) 

  • €200,000 (approx. $220,000) maximum eligible investment amount per investment 

  • Limitation of the exit grant to 25% (previously 80%) of the investment sum 

  • Extension of the permissible legal forms for eligible companies to registered cooperatives (eG) 

Eligibility for the program is determined by the Federal Office of Economics and Export Control (BAFA). 

What impact has been measured?

The Federal Ministry of Economic Affairs and Energy can demonstrate that as of the 31st of January 2022 the INVEST program has: 

  • Mobilized €1.15 billion (approx. $1.26 billion) of investment since May 2013 

  • Approved over 15,000 investments since May 2013 

  • Secured an average €75,000 (approx $82,000) investment in each startup 

  • Reached innovative startups with 75% of all investment going to companies from the ICT sector 

In addition to this, an evaluation of the program was conducted in 2015 by ZEW and revealed that from May to mid-November 2015: 

  • 2073 applications of 1654 investors were submitted for the INVEST grant 

  • 1253 (60%) were successful  

  • In total 888 investors had received the grant, investing in a total of 433 companies 

  • A quarter of investors were classified as Business Angels 

  • 1951 companies participated in the program 

  • 1515 (78%) of companies were considered to be eligible by the granting authority 

  • The total amount of investments supported by INVEST were €104.3 million (approx. $114.3 milion) 

Furthermore, the report conducted an impact analysis of the program that found that each euro granted by the program induced an additional investment in young companies of 50 cent. In total €28.7 million (approx. $31.5 million) of additional capital was induced by INVEST at a cost of €19.2 million (approx $21.1 million), representing a total net benefit of €9.56 million (approx. $10.5 million). 

What lessons can be learned?

The impact report in 2015 highlighted visibility as a major challenge for the program with only 20% of non-subsidized investors who took part in a survey being aware of the program. However, the evidence suggests that this has been addressed with significant increase in investments in the years since the report was released.  

Additionally, the report suggested that procedural changes were required to simplify the application process for investors and companies further. In particular it indicated that communication with the program participants be simplified by allowing documents to be submitted in digital form. Likewise, it also recommended that the detailed legal examination of company contracts be reduced to ease the examination burden of BAFA. Finally they suggested that both the tight specifications regarding the business purpose of Business Angel societies and the valid exclusion of follow-up investments be relaxed.  

Lessons for Other Ecosystems:

The program evaluation found that INVEST successfully reached the type of startups (innovative with growth potential but having difficulties securing funding) that it was designed to support without conducting any assessment beyond the eligibility criteria. This was viewed as a strength because there was no need to develop extensive in-house business expertise and allowed investors the freedom to select their own investments without disrupting finance markets.

The evaluation identified the following lessons learned, which could inform the development of similar programs:

  • New programs should set a minimum holding period for subsidized investments. This was identified as a success factor by the evaluators.

  • New programs should foster co-investment opportunities with experienced investors.  This was an important factor for attracting for first-time investors and facilitating firm selection.

  • New programs should develop a multi-pronged outreach strategy. The evaluators found little awareness of the program outside angel networks. Because the target group (non-organized investors) is very diverse, effective outreach should utilize a variety of channels. For example, tax and financial advisors could help raise awareness.

  • New programs should minimize red tape and develop a simple application process. This may include developing an online application, ensuring clear communication on eligibility criteria and limiting systematic checks.

  • New programs should focus on young firms. Older firms with more extensive track record and financial history are less disadvantaged by information asymmetry than younger firms when seeking capital investments.

Notes + Additional Context

The INVEST program is modeled on the British Enterprise Investment Scheme (EIS), a fiscal measure that has successfully mobilized private risk capital.

The scheme complements existing programs including the “High-Tech Gründerfonds for Startup Firms” (HTGF), which has been operating since 2005.

CURATED BY

Cristina Fernandez

Director for Knowledge + Programming
Global Entrepreneurship Network
United States