The German government has created its own state-backed venture capital fund to drive the digital transformation of industry and stimulate enterprise innovation in its home market.
The move comes as momentum appears to be building again for investments in the industrial IoT sector in the US, particularly.
The new fund will be run by KfW, formerly KfW Bankengruppe, the government-owned development bank, based in Frankfurt. It is supported by the German ministry for economic affairs and energy (BMWi), as well as the ministry for finance.
Its objective is to develop the venture capital and venture debt funding landscape in Germany and Europe, to improve access to capital for German tech companies in the start-up and growth phase. Its annual investment volume will be increased to €200 million over the next 12 months, the parties said.
KfW Capital will invest a maximum of 19.99 per cent or €25 million in German and European venture capital and debt funds. Startups in receipt of funds will be obliged to invest the same sum in new profits in other German tech companies.
KfW has invested a total of €265 million in 18 venture capital funds since 2015. It also set up the large co-investment fund coparion in 2016, with BMWi. KfW Capital will take charge of KfW’s existing investments in high-tech start-ups.
The German government passed a resolution in March 2017 to mandate KfW, and the two ministries, to take action to expand the availability of venture funding at home. KfW’s board passed a resolution in June 2017 to establish the subsidiary. The German growth financing segment currently has a shortfall of EUR 500 million to EUR 600 million per year.
KfW Capital has support from the European Investment Fund’s €3.2 billion European Recovery Programme (ERP), managed by BMWi, focusing on Germany based, high-tech early and development stage companies.
A new 25-string team has been established by Jörg Goschin and Alexander Thees, respectively, veterans of the local investment market and of KfW itself.
Peter Altmaier, Germany’s minister for economic affairs and energy, said: “We want more entrepreneurs in Germany. Compared to other countries around the world, we are still lagging behind slightly in the area of venture capital financing.
“The creation of KfW Capital is helping us to make a clear and important statement about the future of this field. With this new venture capital firm, KfW’s expertise in the area of start-up promotion will be coupled with financial resources.”
Jörg Kukies, state secretary at the German Ministry of Finance, said: “Venture capital plays a hugely important role in the creation and growth of young, innovative companies. Over the past few years, the German venture capital market has advanced – a development also due to numerous measures taken by the German Federal Government.
“As a new subsidiary, KfW Capital will bring KfW’s investment business closer to the market, enabling activities to be expanded even further. This will make an important contribution to strengthening the venture capital and venture debt market over the long term.”
