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Emergency COVID-19 pandemic response package providing €2 billion in equity and equity-like financing to German startups through public co-investment in venture capital funds and state promotional institution financing.
What are the main aims and objectives?

The Two-Pillared €2 Billion Public Funding Program aims to stabilize Germany's startup ecosystem during the COVID-19 pandemic by ensuring continued access to equity and equity-like financing for innovative companies when venture capital markets contracted due to pandemic uncertainty. Recognizing that classic debt instruments are poorly suited for young, technology-focused companies without positive earnings, existing collateral, or shareholder guarantees, the program provides tailored financing mechanisms enabling startups to survive the crisis and maintain their capacity for future growth and innovation. The program seeks to prevent the collapse of Germany's startup ecosystem, particularly the "middle management" of smaller, less-established startups lacking strong venture capital investor relationships. Specific objectives include enabling technology-focused startups and young growth enterprises to continue financing rounds despite pandemic hardship, facilitating access to venture capital financing for startups previously unable to attract venture investors, preventing financial gaps for startups and small enterprises without existing venture capital investor bases, and ensuring that Germany's innovative capacity and competitiveness are preserved during economic crisis. The program reflects the government's strategic commitment that supporting startups during crisis is "a good investment in Germany's innovative capacity and viability."

How does the program work?

The program operates through two distinct financing pillars, each targeting different startup segments and utilizing different delivery mechanisms.​

Pillar I: Corona Matching Facility (CMF)

Pillar I targets startups and young growth enterprises with sustainable business models and existing venture capital relationships or investor interest. The CMF is implemented through collaboration between KfW Capital and the European Investment Fund (EIF), supporting venture capital funds providing financing to qualifying startups.​

Key features of Pillar I include public co-investment in venture capital funds where KfW Capital and EIF invest public funds into existing venture capital funds focused on German startups, thereby increasing available capital within those funds for startup investments. Public funds replace capital withdrawn by other private investors, stabilizing venture capital fund portfolios and maintaining available investment capital. Co-investment requirements ensure public funds cannot exceed 70% of total co-investment, preserving private sector participation and market discipline. The CMF supports technology-focused startups in later investment stages (Series A, B, C rounds) seeking growth capital and was open for applications through March 31, 2021, for financing rounds through June 30, 2021.​

Program results under Pillar I: The CMF supported 17 general partners (fund managers), 22 investment schemes, and 99 companies.​

Pillar II: State-Backed Financing Through Federal State Promotional Institutions

Pillar II targets startups and small enterprises without existing venture capital relationships or unable to access private venture capital financing. The program operates through global loans provided by KfW to the promotional institutions (Förderinstitute) of Germany's 16 federal states.​

Key features include mezzanine and equity-like financing where global loans to state promotional institutions enable provision of open or silent participations, subordinated loans, and hybrid financing instruments tailored to individual state needs. Liability waiver structures in global loans enable risk-sharing between federal and state levels. Flexible implementation allows each federal state to design specific promotional instruments utilizing global loan funds. Financing is provided under minor state aid rules with aid ceiling initially set at €800,000 per company, later increased to €1.8 million per company (July 2021). Pillar II was extended multiple times: initially through December 31, 2020, then extended to June 30, 2021, and again to December 30, 2021.

What is the overall cost?

The German Federal Government announced and allocated a total of €2 billion (approximately USD 2.2 billion) as an emergency economic support package specifically for startups and small enterprises in response to COVID-19 pandemic challenges.​

How was it implemented?

The program emerged from the German government's response to the COVID-19 pandemic's severe impact on the startup ecosystem. On April 1, 2020, the Federal Ministry for Economic Affairs and Energy and the Federal Ministry of Finance jointly announced the €2 billion startup support package as a targeted complement to broader government COVID-19 relief measures.​ Government officials recognized that while general business support programs existed, including KfW's special coronavirus credit programs, these were poorly suited for startups, which typically lack the positive earnings, collateral, shareholder guarantees, and established credit relationships that traditional lending requires. The German Startups Association had published survey data showing that nine out of ten startups were affected by the pandemic, with more than one in seven fearing for their continued existence.​ The government designed the program with two distinct pillars to address different startup ecosystem segments. Pillar I targeted technology-focused startups with sustainable business models and existing venture capital relationships, recognizing that venture capital markets had contracted due to pandemic-related uncertainty. Pillar II targeted startups and small enterprises without venture capital relationships, ensuring comprehensive ecosystem coverage.​ KfW Capital and EIF Responsibilities: In consultation with the Federal Ministry for Economic Affairs and Energy and the Federal Ministry of Finance, KfW Capital and the European Investment Fund (EIF) were designated to structure and implement Pillar I beginning in May 2020. KfW Capital leveraged its existing partnerships with venture capital funds to enable rapid public co-investment capital deployment.​ State Promotional Institution Responsibilities: KfW Group provided global loans to the promotional institutions of Germany's federal states, enabling Pillar II implementation beginning June 2020. Each federal state designed specific financing instruments utilizing global loan funds in accordance with its regional startup ecosystem characteristics and policy priorities.​ Operational Phases: Phase 1 (May-December 2020) involved initial deployment of both pillars with financing commitments available through December 31, 2020. Phase 2 (January-June 2021) extended program availability with enhanced state aid ceilings (€800,000 to €1.8 million per company) to accommodate growing demand. Phase 3 (July-December 2021) involved further extension of Pillar II through December 30, 2021, while Pillar I concluded as planned on June 30, 2021.

What impact has been measured?

The Corona Matching Facility demonstrated measurable uptake and market support during the pandemic crisis. Program results documented 17 venture capital fund managers (general partners) participating in the CMF, 22 investment schemes utilizing CMF capital, and 99 companies receiving financing through CMF-supported investment schemes. The CMF successfully enabled private venture capital funds to continue investment activity by replacing capital withdrawn by other private investors, preventing market contraction.​ Comprehensive impact assessment is constrained by limited published data on detailed utilization rates across the two pillars, employment outcomes or company survival rates for financed startups, comparative effectiveness of program-supported versus unsupported startups, and long-term outcomes for companies financed during the pandemic period.​

What lessons can be learned?

As of early May 2020, criticism has revolved around the following pain points.

1. Clarity and speed: 

As with other COVID-19 policy measures for entrepreneurs, a month after the announcement confusion still reigned over which German startups will get the money and when. For example, the German Startups Association has urged the government to act quickly, noting that even the best aid won’t work if it’s too late. “The federal government must now go full throttle and switch from conceptual mode to implementation mode as quickly as possible,” said Miele in an update. 

Germany’s digital association Bitkom also expressed that the two-pillared program has the potential to help startups but that it was still lacking urgency and structure a month after the announcement. "Details of the aid package, such as a concrete schedule, are still unknown. After weeks of the Corona crisis, startups do not need any announcements; they need a pragmatic procedure to be able to apply for help and then receive it quickly," he expressed, according to Sifted.eu. 

To address the need for clarity among startup entrepreneurs, Berlin Partner, a public-private partnership that focuses on business and tech growth in Berlin, began to regularly host informational sessions for clarification on eligibility and access to aid, along establishing a hotline and town hall calls.

2. Policy design creates application red-tape:

Sifted.eu reported that for startups who qualify for Pillar 1 (matching fund), it seems that they can not apply for aid directly. It’s up to their investors to express interest in the fund. 

Notes + Additional Context

Note: This measure was announced after the cut off-date for the 2020 Stability Program. Other measures announced by government, include:

  • Liquidity assistance, in the form of loans provided by KfW, the state development bank.
  • Companies can request tax payments deferrals.
  • Germany voted in a law expanding its short-time work scheme ('Kurzarbeit'): companies that implement reduced hours for their workers can receive public support. This gives businesses an alternative to straight firings.
  • Suspension of bankruptcy filing rules to give companies more time to find solutions and funding to solve their liquidity issues..
  • Germany’s €750bn Covid-19 rescue package for companies can be used for startups “that have been in private financing with a company value of at least €50m, including those raised by this round, in at least one completed financing round since 1 January 2017 Capital were valued”, according to The Federal Ministry of Economics.
  • A €5bn fund has been released by the state of Baden-Wuerttemberg, specifically to help small companies and the self-employed, and funding for the regional government to take direct stakes in companies.

CURATED BY

Cristina Fernandez

Director for Knowledge + Programming
Global Entrepreneurship Network
United States