16. Germany
The financing situation of medium-sized companies was still very good in the first two months of 2020.However, with the onset of the Corona pandemic at the end of the first quarter of 2020, companies were faced with dramatic revenue shortfalls.
In order to counteract the negative economic effects of the Corona crisis, the German government very quickly initiated extensive measures. With the “Corona Shield”, the federal government stabilized the economy, mobilized massive financial resources for employees, the self-employed and companies. A central pillar is the KfW Special Programme, which ensured companies quick access to urgently needed liquidity loans. The programme will run until the end of 2021.
As part of the Corona Shield, a package of measures for start-ups and SMEs have also made an important contribution to stabilising the market for equity capital in Germany. This package of measures is available in addition to the existing equity and venture capital financing instruments from the ERP Special Fund.
Now, even after the targeted measures to avert the economic consequences of the pandemic have or will come to an end, the task is to help the German economy emerge safely from the crisis. To this end, the differentiated range of support programmes funded by the ERP Special Fund is available and is being continuously refined.
Programmes
Credit-based financing for start-ups until the end of 2021
The ERP Special Fund provides for a differentiated and well-established system of promotional loan instruments for different start-up phases. The loan programmes – ERP-Gründerkredit Startgeld (ERP Start-Up Loan-Start-Up Money), Gründerkredit Universell (ERP Start-Up Loan-Universal) and ERP-Kapital für Gründung (ERP Capital for Start-Ups) – provide particularly low-interest loans with a long maturity for start-ups as well as business succession. In some of these programmes, banks providing the financing are relieved from a portion of the credit default risk. ERP-Capital for Start-Ups provides subordinated loans with favourable interest rates in order to strengthen the company's equity base and thereby to facilitate further external financing.
The COVID-19 pandemic has put many companies in economic distress. In many cases, corporate financing is facing major challenges. In order to cushion the effects of the pandemic, the large-volume KfW Special Programme for medium-sized and large companies was available from 23 March 2020 until end-December 2021. It provided access to liquidity loans for companies that were temporarily in difficulty due to the crisis. It was open to commercial enterprises of all sizes and to the liberal professions. The KfW Special Programme is based on the [ERP-Gründerkredit Universell] # ERP Start-up Loan - Universal and [KfW-Unternehmerkredit] # KfW Entrepreneur Loan programmes, the conditions of which have been modified and expanded. Working capital loans as well as investment loans are granted. A key element of success here is that the German Promotional Bank (KfW) exempts banks and savings banks from up to 90% of the credit default risk. This means that the state assumes this level of credit risk, making it easier for banks and savings banks to grant loans.
As a variant of the KfW Special programme, the KfW [KfW-Schnellkredit 2020] # Fast Loan 2020 has been available since 15 April 2020 with a 100% release from liability of the house banks. The aim is to support companies regardless of the number of employees and the self-employed through small-sized KfW loans with fast lending.
Credit-based financing post-Corona pandemic for start-ups from 2022
In order to provide the best possible support for SMEs in the post-pandemic period and in their transformation to a sustainable and digital economy, ERP funding will be restructured and further developed in the area of commercial SME financing from 2022. The core components are a simplification of the funding programmes and an improvement of the conditions. The re-organisation is intended to put almost all groups of companies in a better position, particularly with regard to interest rate reductions.
Equity and venture capital financing
KfW Capital
On the basis of a decision by the Bundestag, the Federal Ministry for Economic Affairs, the Ministry of Finance and the KfW drafted an overall concept for an organisationally independent, growth-oriented venture capital company; it started operations as “KfW Capital” in October 2018. KfW Capital plans to double the annual amount of funding to EUR 400 million from 2021 onwards. This takes place via investments in venture capital funds, particularly as part of the ERP-VC Fund Investments programme as well as of the ERP/Future Fund Growth Facility as a module of the ‘Zukunftsfonds’. KfW Capital aims to improve the quality of venture capital funding. The aim is to develop a product structure in which the individual financing phases are coordinated throughout the entire company lifecycle.
ERP-Financing-Instruments in cooperation with the European Investment Fund (EIF)
ERP Special Fund and EIF have been cooperating very successfully in the field of equity and mezzanine financing for over 15 years. This makes an important contribution to ensuring that innovative start-ups in Germany have access to capital. The financing instruments include the ERP/EIF Venture Capital Fund of Funds with a total fund volume of EUR 3.7 billion (including the European Angels Fund Germany with a volume of EUR 400 million); the ERP/EIF/Länder Mezzanine Fund of Funds with a total fund volume of EUR 600 million; and the co-financing of the GFF-EIF Growth Facility (total volume of up to EUR 3.5 billion).
Zukunftsfonds (Future Fund)
The Zukunftsfonds, set up by the Federal Government in 2021, is providing EUR 10 billion for a venture capital fund for forward-looking technologies (‘Future Fund’) to the KfW to foster the German venture capital market over the next 10 years. Taking into account the contributions from private and public-sector partners, this new Future Fund, with financial contributions from the ERP Special Fund, aims to mobilise at least EUR 30 billion in start-up funding. The overarching principle of the Future Fund is to broaden the German VC market by requiring a substantial private-sector investment contribution, also for the sake of market principles and in compliance with European competition and state-aid rules. The new fund addresses all development phases of start-up financing – with a special focus on start-ups going through the capital-intensive scale-up phase – with a set of closely interlinked modules, comprising both a qualitative and quantitative expansion of existing instruments and the development of new modules to increase start-up funding.
Within the Future Fund, the ERP/Future Fund Growth Facility will provide a total of EUR 2.5 billion to increase fund volumes and facilitate larger financing rounds for the period up to 2030. In the same vein, the new GFF-EIF Growth Facility, with a volume of up to EUR 3.5 billion, as well as the DeepTech Future Fund, have been established. A fund-of-funds for growth capital, for example, aims in particular to mobilise capital of institutional investors for start-ups. Further instruments and components of the Future Fund will be planned and implemented throughout 2022, such as a separately managed account module with a planned volume of up to EUR 2 billion and the expansion of the Venture Tech Growth Financing programme.
High-Tech Gründerfonds (HTGF)
The High-Tech Gründerfonds (HTGF) is an early-phase funding programme for highly innovative and technology-oriented companies whose operative business activities started less than three years ago. To be eligible for financing, projects must have shown promising research findings, be based on innovative technology, and have strong market prospects. In addition to providing capital, the fund ensures that the management of young start-ups receives the necessary help and support. An initial funding amount of up to EUR 1 million is provided, with a total of up to EUR 3 million usually being available per company. In the first phase of the fund (up to November 2011), a total of EUR 272 million was made available. The follow-up fund (HTGF II) provided total funding of EUR 304 million. A third fund, HTGF III, was launched in autumn 2017. In addition to the support from the Federal Ministry for Economic Affairs and KfW Capital, more than 30% of the EUR 319.5 million fund has been provided by 33 private investors – either well-established SMEs or large corporations. In 2021 preparations for a follow-up fund (HTGF IV) were started.
DeepTech Future Fonds
The DeepTech Future Fonds (DTFF) is a new high-tech (deep-tech) investment fund that is financed by the Zukunftsfonds (Future Fund) and the ERP Special Fund. It has been launched with the task of helping deep-tech companies with validated business models to achieve sustainable growth while retaining their independence. The DTFF will always invest together with private investors. Acting as an anchor investor, its goal is to guide deep-tech companies on their journey towards capital market readiness. Based on this long-term perspective, the fund aims to bolster Germany’s profile as a hub of innovation and enhance its appeal for high-tech firms in the long term. Over the next ten years, the DTFF will be able to leverage a prospective total investment volume of up to EUR 1 billion. The fund will run for at least 25 years, with High-Tech Gründerfonds assuming responsibility for its management.
Coparion
Since 2018 Coparion has provided funding for young and innovative companies at the same commercial terms as its private-sector lead investors. The investment of Coparion is limited to EUR 15 million per company. Coparion is able to allocate the maximum amount over several financing rounds. As a result, the EUR 275 million fund enables innovative young companies to draw on funding worth at least EUR 550 million. This makes Coparion an important player in the German venture capital market. The fund’s resources are provided by the ERP Special Fund, KfW Capital and the European Investment Bank (EIB). Currently Coparion has 44 companies in its portfolio.
Mikromezzaninfonds (Micro-Mezzanine Fund)
The Micro-Mezzanine Fund was launched in 2013 and provides dormant equity of up to EUR 50 000 for small companies and business starters and up to EUR 150 000 for companies within the special target group. The fund’s special target group are companies that provide training, are operated by women or people with a migrant background, or were founded by people who were formerly unemployed. Social enterprises operating commercially are also eligible to apply for financing on the terms of the special target group, as are companies with a focus on environmentally-compatible production. Both the European Social Fund (ESF) and the ERP Special Fund finance the fund. The volume of the first fund was EUR 74.5 million. The current fund (MMF II) has a volume of EUR 153.2 million.
Venture Tech Growth Financing
At the end of 2018, the KfW programme Venture Tech Growth Financing (VTGF) commenced operations. As part of this programme, KfW can issue EUR 50 million of venture capital loans to innovative fast-growing tech companies each year. Until 2022, up to EUR 500 million in funding will be made available together with private-sector investors to start-ups in the growth phase. Beyond this period, the VTGF programme is to be expanded up to a volume of EUR 1.3 billion with contributions from the Future Fund.
INVEST–Zuschuss für Wagniskapital (INVEST – Grant for Venture Capital)
INVEST is a grant programme run by the Federal Ministry for Economic Affairs. It was set up in 2013 and further developed in 2017 to support private investors who want to acquire a stake in young and innovative companies. Under this programme, business angels who invest in innovative start-ups receive an acquisition grant worth 20% of the sum invested. In addition, natural persons can receive an exit grant if they sell their shares. The amount provided is equivalent to 25% of the capital gains from the sale and thus more or less covers the tax imposed on the profit from the sale. The shares must be held for a minimum of three years. Both grants are tax-free for the investor. Funding can be provided for a maximum of EUR 500 000 of investment per investor and per year. The maximum amount eligible for funding that can be invested in a single company per year is EUR 3 million.