Private Equity01.12.2021 Newsletter

Coalition agreement: How are start-ups and venture capital financing to be promoted?

Almost two months were spent exploring options and negotiating. On 24 November 2021, the party leaders of the SPD, Bündnis 90/Die Grünen and FDP presented their coalition agreement entitled "Dare more progress". It is going to usher in a "decade of innovations". A modern funding policy is to make Germany Europe's No. 1 start-up nation. What can we expect from the new Federal Government's "comprehensive start-up strategy"? 

Start-up support

"One-stop shop: start-up foundation in 24h and digitisation of corporate law

To begin with, important innovations are planned for the foundation process. First of all, for example, the idea of a "one-stop shop" has made it into the coalition agreement. "Nationwide contact points" for foundation advice, support and registration are planned. The objective: to enable companies to be founded within 24 hours. Up to now, the average time needed to set up a company has been several weeks. The coalition agreement contains no details on implementation. Behind the buzzword, however, appears to be the idea propagated by the FDP of creating an online portal which bundles and digitises notarial and official procedures. This should reduce the time-consuming and resource-intensive bureaucratic hurdles that exist especially in the start-up phase of a company.

Company start-ups are to be additionally facilitated by a "digitised" corporate law. In future, notarial certification by video communication are to be possible, also for foundations with contributions in kind. The possibility of an "online foundation" of a GmbH [German private limited liability company] or UG (haftungsbeschränkt) [limited liability entrepreneurial company] has already been introduced by the legislator via the Act Implementing the Digitisation Directive (DiRUG) with effect from 01 August 2022, albeit exclusively for cash foundations. In addition, "online certification" is to be made available for further shareholder resolutions. According to the current legal situation, this is only permitted for resolutions that are passed in the context of the foundation, such as the appointment of the first managing directors. Furthermore, the possibility of holding virtual general meetings is to be made available on a permanent basis, even without a corresponding basis in the Articles of Association. However, the coalition agreement leaves open whether this should include all company forms currently covered by the COVID legislation (Sec. 1 of the German Act on Measures under Legislation governing Companies, Cooperatives, Associations, Trusts and Residential Properties to Combat the Impact of the COVID-19 Pandemic [Gesetz über Maßnahmen im Gesellschafts-, Genossenschafts-, Vereins-, Stiftungs- und Wohnungseigentumsrecht zur Bekämpfung der Auswirkungen der COVID-19-Pandemie - COVMG]).

Making scientific research economically viable

The new Federal Government envisages two ways of countering the frequent criticism of the inconsistent exploitation of the economic potential of German university research. Firstly, spin-offs at universities and non-university research institutions are to be promoted. Secondly, the networking of science and industry is to be strengthened through regional and supra-regional "innovation ecosystems". A new federal agency - the "German Agency for Transfer and Innovation" [Deutsche Agentur für Transfer und Innovation - DATI] - is going to be set up specifically for this purpose. It aims to promote the transfer of knowledge between universities, public organisations, start-ups and SMEs.

Particularly in focus: "technologies of the future", social innovations and women

State support for new business models is to be geared in particular to technologies of the future. The coalition agreement indicates this in various places. Artificial intelligence (AI) and quantum technologies are not only to be the focus of science and research policy, but also of start-up funding. The "traffic light” coalition wants to promote digital start-ups in general, also in late-stage financing, and in doing so strengthen Germany as a venture capital location. In addition, the parties are striving to improve access to data, in particular to enable start-ups and SMEs, new innovative business models and social innovation in digitisation. The coalition agreement names hydrogen, medicine, sustainable mobility, bioeconomy and the recycling economy as further future technology sectors in which start-ups are to receive special financial support.

For some time now, the necessity and benefits of new corporate forms for social enterprises has been debated. The coalition partners have explicitly made this their goal. The increasing number of socially oriented start-ups and social innovations are to be supported more strongly - not only financially, but also through the creation of new legal forms (buzzword: GmbH with tied assets or responsible ownership).

The parties especially want to support women founders in accessing venture capital and the participation of women in investment committees of state funds and investment companies. A start-up scholarship for female entrepreneurs is to be created for the digital economy, financed by the Federal Government's ten-billion-euro "Future Fund". With these measures, the “traffic light” coalition wishes to counteract the fact that women statistically not only found start-ups significantly less often than men, but also receive less venture capital. According to a study by the "Female Founders Monitor" from 2020, only just over five percent of female founders received more than one million euros in venture capital. Among male founders, in contrast hand, the figure was over a quarter.

Promotion of venture capital financing

Continuation of the "Future Fund" and expansion of KfW into an innovation and investment agency

The investment fund for future technologies, which was only launched at the beginning of the year and is managed by the state development bank KfW has, in the “traffic light” coalition’s opinion, proven its worth. The "Future Fund" also opens up the venture capital market to institutional investors. This state support instrument is intended to mobilise private capital held by insurers and pension funds for start-up financing. In the future, these institutional investors in Germany could therefore develop into important start-up investors, as is the case in other countries. At the same time, KfW is to act more strongly as an innovation and investment agency and as a co-venture capital provider.

Facilitated IPO (exit) and reintroduction of multiple voting shares

Of central importance for investors are the possibilities of an exit (usually by selling the investment), in order to realise a good return. Increasing importance is being attached to initial public offerings ("going public/IPO"). For young companies in particular, however, this exit channel means further disadvantages in addition to the high yield expectations of investors on the regulated capital market: the high costs of going public/IPO and the ongoing publication obligations. The “traffic light” coalition has undertaken to "facilitate IPOs and capital increases as well as shares with different voting rights (dual class shares) in Germany, especially for growth companies and SMEs [sic]". How precisely it intends to do this is left open in the coalition agreement. 

The announcement that it will be easier to issue shares with different voting rights has attracted attention. Non-voting preferred shares are usually not accepted by investors because of the lack of participation rights. However, it is unlikely that this is what the coalition partners meant here, since the cited passage in the coalition agreement specifically refers to shares with (different) voting rights. Instead, the text passage suggests the reintroduction of multiple voting shares (cf. Sec. 12 II German Stock Corporation Act [Aktiengesetz - AktG]). With such a dual-class share structure, which is widely used in countries such as the USA, founders can go public with their company in order to raise capital without losing control over their company.

Tax relief for employee participations

The participation of employees in the company is an important element for securing and incentivising skilled workers, but also for financing start-ups. Employee participations are widespread among start-ups, especially in the form of so-called virtual stock ownership plans (VSOPs). In order to promote financing via "genuine" employee participations, it was just at the beginning of this year that Olaf Scholz (SPD), at that time still the Federal Minister of Finance, agreed to tax relief, in particular by means of a provisional non-taxation and an increase in the annual tax allowance from EUR 360 to EUR 1,440. For many, this reform was not extensive enough and therefore met with considerable criticism. Nevertheless, the coalition agreement mentions no major reform on this point. Rather, the “traffic light” parties are persisting with the goal already formulated in the exploratory paper of making employee participation "more attractive, among other things by further increasing the tax allowance". How high this will be remains to be seen.

Additionally: simplified access to public contracts

The new Federal Government not only wants to expand venture capital financing, but also to provide economic support to start-ups and young companies in other ways - through the state's function as a contracting authority. To this end, the coalition agreement provides for simplified and legally secure access to public contracts. Public tenders and procurement processes, for example for GovTech and EduTech start-ups, are to be made simpler. Winning a public institution as a customer is extremely attractive for start-ups, not least because of the reputation that comes with it.


The “traffic light” coalition agreement promises, among other things, an improvement in the legal framework for start-ups, stronger networking between science and business, special support for technological and social innovations, and easier access to venture capital. Overall, the projects have the potential to sustainably strengthen Germany as a location for start-ups, investment and innovation. It remains to be seen whether the ambitious goals of the "traffic light" coalition to initiate a "decade of innovations" and to make the Federal Republic of Germany Europe's No. 1 start-up nation can be achieved. Much will depend on how the coalition partners, above all the future Minister of Economics and Climate Change and Vice Chancellor Robert Habeck (Bündnis 90/Die Grünen) and the future Minister of Finance Christian Lindner (FDP), will implement the still rather vaguely formulated plans in concrete terms.

Further information on the coalition agreement can be found here: 

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Thomas Wismann

Thomas Wismann


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