This two-pillared funding program seeks to achieve the following goals.
- Make public funding quickly available to public venture capital investors (both individual funds as well as funds of funds, e.g. KfW Capital, the European Investment Fund (EIF), the High-Tech Gründerfonds, Coparion). This money will be used for funding rounds for start-ups as part of co-investments made jointly with private investors.
- Provide the funds of funds KfW Capital and the EIF with additional public funding so that they are able to take over the stakes of funds that pull out.
- Facilitate venture capital financing and equity replacement financing for small businesses and new start-ups that do not have venture capitalists as shareholders.
Pillar 1 funds will disbursed through the state-owned development bank KfW.
Pillar 2 funds will be allocated through regional development institutes, which will receive federal government support to top up their existing programs.
Pillar 1 matching funds: for startups by splitting funding with venture capitalists, generally 50-50, but with a government stake of up 70%.
Pillar 2 fund: are earmarked for startups and SMEs which cannot obtain private funding.
April 1, 2020: The €2 billion package of measures for startups was announced jointly by the Federal Ministry for Economic Affairs and Energy and the Federal Ministry of Finance
Over the month of April 2020, the Federal Ministry for Economic Affairs and Energy and the Federal Ministry of Finance worked out the details of the package of measures together with the Kreditanstalt für Wiederaufbau (KfW) and KfW Capital.
April 30, 2020:
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.
- Economic Affairs Minister Peter Altmaier. “We are creating a €2 billion start-up booster to support start-ups, new technology companies and small businesses during the coronavirus crisis. Traditional credit instruments often don’t fit the needs of these new, innovative companies. We are therefore offering a customised support package for this group. We are using €2 billion to expand venture capital financing, so that funding rounds for promising, innovative start-ups in Germany can continue to take place. In this way, we are safeguarding innovation and jobs in Germany.”
- Finance Minister Olaf Scholz: “Start-ups should be able to continue to successfully develop their ideas despite the current crisis. For this reason, we will provide rapid assistance for new businesses. We are launching a €2 billion assistance package that will ensure this innovative sector, with its thousands of employees, makes it through the crisis in good shape. This assistance will enable funding rounds to continue. This is crucial because Germany needs innovative thinkers to ensure a bright future.”
- Thomas Jarzombek, the Economic Affairs Ministry’s Commissioner for the Digital Industry and Start-ups: “We must make sure that Covid-19 will not slow down the growth of our highly innovative enterprises. This is why we have been working very hard to finalise the €2 billion package of measures so that start-ups and small enterprises can soon make use of it. This is how we will safeguard jobs and innovation in Germany.”
- Dr Jörg Kukies, State Secretary at the Federal Ministry of Finance: “The Federal Government’s protective shield for start-ups aims to rapidly and effectively help this important fast-growing sector, which employs thousands of men and women in Germany. We must help young, innovative enterprises to tackle the coronavirus crisis. We need the new and creative ideas of start-ups and young technology companies to be able to get going again after the crisis. It is of course clear that we must make use of tax money in a reasonable way.”
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.
The official press release of the two-pillar system expressed that in parallel to the implementation of the above-outlined policy instrument, the German government is also continuing to work on the design of its “future fund” for start-ups, which in the medium term will help businesses to emerge successfully from the crisis.