A new German venture capital fund for start-ups

The weak performance of the private venture capital (VC) market in Germany since 2002 has led the German Government to redesign its public VC programmes. The new public VC fund (ERP-Funds) was launched on 1 November 2004.

The new ERP-Funds are run by the Kreditanstalt für Wiederaufbau (KfW), a state-owned bank providing financing for SMEs, and offers direct investment to young, technology-based companies. The ERP-Funds have a volume of EUR 250 million. Public investment will complement private investment at the same level and conditions and should thus help young companies receive a higher amount of VC for their product development and marketing activities.

In recent years, the private VC market in Germany has been shrinking dramatically, going from EUR 3.2 billion in 2000 to only EUR 0.7 billion in 2003. Investment in seed and start-up stages fell from EUR 1.6 billion to EUR 0.3 billion over the same period.

The new ERP-Funds replace the BTU programme that ran from 1996 to 2003. While BTU strongly encouraged private investment through a mix of public co-investment, refinancing and guarantees, the new programme is solely co-funding private VC investment.

The BTU programme was regarded as highly successful in stimulating the German VC market in the late 1990s but contributed to some overheating of this market in 2000, including a high number of investments in very risky projects, many of which later failed.

The ERP-Funds will be set up with new public High-tech Start-up Funds. These funds are expected to start in 2005 although the funding depends on the elimination of state subsidies in other fields (e.g. private housing), which still has to get approval through the parliamentary process. The High-tech Start-up Funds will invest in technology-based start-ups without any private co-investment and should compensate for missing private investment in the seed and start-up stages.

Press release (in German language only):
http://www.bmwi.de/Navigation/Presse/pressemitteilungen,did=44934.html

Information provided by: Christian Rammer, Centre for European Economic Research (ZEW), Mannheim, TrendChart Policy Monitoring Network, National Correspondent for Germany, e-mail: rammer@zew.de

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	A new German venture capital fund for start-ups The weak performance of the private venture capital (VC) market in Germany since 2002 has led the German Government to redesign its public VC programmes. The new public VC fund (ERP-Funds) was launched on 1 November 2004. The new ERP-Funds are run by the Kreditanstalt für Wiederaufbau (KfW), a state-owned bank providing financing for SMEs, and offers direct investment to young, technology-based companies. The ERP-Funds have a volume of EUR 250 million. Public investment will complement private investment at the same level and conditions and should thus help young companies receive a higher amount of VC for their product development and marketing activities. In recent years, the private VC market in Germany has been shrinking dramatically, going from EUR 3.2 billion in 2000 to only EUR 0.7 billion in 2003. Investment in seed and start-up stages fell from EUR 1.6 billion to EUR 0.3 billion over the same period. The new ERP-Funds replace the BTU programme that ran from 1996 to 2003. While BTU strongly encouraged private investment through a mix of public co-investment, refinancing and guarantees, the new programme is solely co-funding private VC investment. The BTU programme was regarded as highly successful in stimulating the German VC market in the late 1990s but contributed to some overheating of this market in 2000, including a high number of investments in very risky projects, many of which later failed. The ERP-Funds will be set up with new public High-tech Start-up Funds. These funds are expected to start in 2005 although the funding depends on the elimination of state subsidies in other fields (e.g. private housing), which still has to get approval through the parliamentary process. The High-tech Start-up Funds will invest in technology-based start-ups without any private co-investment and should compensate for missing private investment in the seed and start-up stages. Press release (in German language only): http://www.bmwi.de/Navigation/Presse/pressemitteilungen,did=44934.html Information provided by: Christian Rammer, Centre for European Economic Research (ZEW), Mannheim, TrendChart Policy Monitoring Network, National Correspondent for Germany, e-mail: rammer@zew.de	Print page Back