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German Government Enacts Economic Measures for Start-Ups

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The Federal Government of Germany announced measures to support Start-Ups, smaller and growing businesses during the COVID-19 crisis.

 

EUR 2 Billion Package of Measures for Start-Ups

Businesses that are in their initial, or research and development phase usually do not generate sales, which is a requirement to access classic credit instruments. The German Federal Government now specifically considered Start-Ups and SMEs by announcing a package of measures for those businesses in the crisis to be eligible to receive economic aid measures. The EUR 2 billion package of measures for Start-Ups and SMEs is now enacted as of 30 April 2020.

In recent weeks, the details of the package of measures have been established primarily addressing Start-Ups and SMEs with sustainable business models. It was announced that payments of the funds are expected to be made available to the companies in the course of May 2020. The package of measures comprises two pillars: (1) the Corona Matching Facility and (2) measures for Start-Ups and SMEs without access to the first pillar.

Corona Matching Facility for Start-Ups already financed by private VC funds or to be newly financed by private VC funds

The first pillar established the Corona Matching Facility, through which the existing cooperation with public partners will be expanded to ensure that public funds are accessible to Start-Ups via VC funds. Such public partners inter alia are KfW Capital and the European Investment Fund. The VC funds are eligible to apply for this program and may match public resources in a ratio of up to 70 (public) to 30 (private). These may be VC funds in which KfW Capital and the European Investment Fund have already invested as well as new VC funds, which so far have neither of these two investors in their circle of investors. Following the pari-passu logic, the program operates within the scope permitted by state aid law. At the same time, this ensures that public funds are invested on the same conditions as private funds. The successful completion of a due diligence process is a prerequisite for making use of the Corona Matching Facility.

Cooperation with German federal states

The second pillar is aimed towards Start-Ups and SMEs that do not have access to the Corona Matching Facility. This aim is to be achieved by establishing closer cooperation of Start-Ups and SMEs with the German federal states. Therefore, state companies and state development institutions shall develop closer cooperation with these companies to allow for VC capital and other forms of funding. The risk is shared between the Federal Government and the respective state company involved and, if applicable, private investors. With the temporary adjustment of the state aid framework until 31.12.2020, the EU Commission has provided considerable leeway in this respect: the public sector may provide up to EUR 800,000 per company in public funds in accordance with state aid law.

Outlook

The measures are an addition to and close a gap in the existing support programs. The extent to which these new measures will actually provide support can only be assessed once the respective implementing regulations have been established. When and in what form these will be available cannot be determined at this time, but is expected in the course of May 2020. It is anticipated that clarification will soon be achieved in this respect.

 

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