Hamburg The first pillar of the announced start-up aid from the federal government has been released. The promotional bank KfW announced on Thursday that venture capitalists can now apply for grants for financing rounds for start-ups. Direct help for founders without venture capitalists, however, is unlikely to be available until early June.
Just over six weeks ago, Federal Finance Minister Olaf Scholz (SPD) announced a two billion euro aid package. 800 million euros of this is to be distributed through the development banks of the federal states. They are currently being given workshops by KfW on the exact design.
On the other hand, applications can already be made to increase funding rounds by the state sponsors. The KfW risk capital subsidiary KfW Capital published details of the program. Venture capitalists can therefore decide whether they only want to involve the state in financing rounds for companies already in the portfolio or also in new investments.
The background to this is that funds that once participate in KfW must also open up this option for further investments by the end of the year. The sponsors want to prevent them from being involved only in particularly risky deals. In addition, the start-ups must not have been in trouble before the turn of the year.
The application can be made by venture capitalists from all over Europe who are or are already accredited. But your investments should have a “strong connection to Germany”. KfW Capital usually wants to increase the financing rounds by 50 percent, but venture capitalists can also choose more or less participation – but not more than 70 percent. They are not allowed to take an administrative fee for this.
The money flows to the start-ups as convertible loans or equity. The hope is that KfW Capital could ultimately even make a profit from the aid. The package corresponds to the announcements of the past weeks. However, the original announcement that the package should only target startups rated at least € 50 million has been dropped.
It is unclear how badly the scene is suffering
It is still unclear whether the two billion euros in aid will count towards the ten billion euro start-up fund of the German government that was announced before the corona crisis or not. That should also depend on how hard the start-up scene is actually shaken by the crisis. The scene still shines with regular rounds of financing for start-ups. Even new funds are launched in the crisis – last week, for example, the Munich tech fund Vsquarded with a target volume of EUR 65 million.
According to a study by Europeanstartups.co, 65 percent of European founders are not affected by the crisis or even benefit from it. The start-up association, on the other hand, argues that up to 70 percent of the founders feared their existence because of Corona. Whether this is true or whether the failure of start-ups is not everyday business in the start-up scene is controversial among start-up financiers.
In any case, the interest of German venture capitalists in KfW Capital’s aid is great. “Some of our start-ups are massively affected by the corona crisis,” says Jan Miczaika, partner at Holtzbrinck Ventures, the Handelsblatt on Wednesday.
The investor behind travel start-ups such as Flixbus and Tourlane is checking whether he will have future financing rounds increased from the program. “The start-up protective shield of the federal government is a useful addition to the KfW programs that typically don’t work for young companies,” says Miczaika. Munich-based tech investor Target Partners assessed the situation in a similar way.
Olaf Jacobi from Capnamic Ventures also viewed the announced co-investments positively. The planned instrument was particularly useful for middle-aged funds with existing investments and limited scope for subsequent investments, he said. “Many funds are currently counting on whether to make use of this,” said Jacobi.
Aid for smaller start-ups is still pending
Meanwhile, the workshops on direct help for founders without venture capitalists are running. There are video calls between KfW and the promotional banks, including the Association of Public Banks (VÖB). It is about whether aid should flow directly to founders or rather through their donors such as family offices and angel investors. An implementation in May is not to be expected, according to the environment of the development banks. However, the process runs significantly faster than with previous aid programs. It is pretty certain that each state will go its own way.
Those founders are lucky if they are in a country that has already launched its own start-up aid without waiting for Berlin. Hamburg is far ahead. Companies that are no more than eight years old and have no more than 50 employees receive up to 100,000 euros in emergency aid in addition to the other Corona help. Repayment must be made at five percent interest if the start-up is sold to an investor within the next few years.
Companies in this support pillar should not get any money that were already suffering before the crisis. In addition, as a kind of seal of quality, the start-ups must provide evidence of previous funding, for example through a start-up grant or a business angel.
This concept by the Hamburg Investment and Promotional Bank IFB could serve as a model for other countries that have so far taken less account of startups. For example, the start-up metropolis of Berlin, which has pioneered large grants for solo self-employed, has previously announced rather weak aid for founders: the city-state wants to award significantly more scholarships – but it hardly helps existing start-ups.
The impatience in the scene is growing – also because details are still unclear. “The restaurant around the corner received emergency aid within a weekend and can also send its employees in short-time work,” said 80-year-old former Strabag boss Peter Jungs to Handelsblatt. That was really great. But the youngest hopefuls, namely the start-ups that were only founded this year, may have failed in his state – after all, the number of employees in NRW formally counts for help on the reporting date of December 31, 2019.
Although the state also wants to take younger companies into account, boys demanded that this be clarified at the federal level. The state must also see that at the beginning of their development, it is difficult for companies to send short-time employees who are actually supposed to develop the new products first.
“We are signaling to young founders that we don’t care,” warned the Cologne native who co-founded the Association of Business Angels and himself accompanies numerous founders. “Such a crisis is a disaster right from the start.”
More: The weakest startups have to wait the longest for help