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Startups: Investment subsidies for business angels significantly reduced

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Startups: Investment subsidies for business angels significantly reduced

The government coalition actually wants to promote startups. Association boss Verena Pausder doesn’t understand that an important subsidy for business angels has now been almost halved.

His ministry is cutting funding for private startup investors: Federal Minister of Economics Robert Habeck picture alliance/dpa | Britta Pedersen

There are two succinct lines that the Federal Ministry of Economics published at short notice and apparently without warning: “A new investment funding guideline will come into force on March 6, 2024. The amount of the acquisition subsidy will then be 15 percent (instead of the previous 25 percent) of the investment amount.” And yet the change may have a significant impact on the German startup ecosystem.

For business angels, who are a mainstay of the startup scene, it makes investments less attractive. Since angel investors typically support young companies in particularly early business phases, they carry increased risk with their capital investment. The acquisition subsidy is therefore included in the calculation because it also improves the return on investment.

The ministry cites the reason to the Business Angels Network Germany (BAND)that the funds budgeted for Invest are unlikely to be sufficient for all the applications for venture capital grants that are still expected. The reduction is not temporary, but applies to the entire funding period until the end of 2026. At the same time, new approvals for the investment subsidy, which were suspended due to the provisional budget management, will be resumed.

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The acquisition subsidy works like this: Private investors who purchase shares in young, innovative companies have previously received a quarter of the issue price of the shares refunded by the state as an acquisition subsidy. In this way, startup investments should be made more attractive for business angels. The investment grant has been part of the federal government’s efforts to create good conditions for young companies since 2013.

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Meanwhile, the Angel Association points out the back and forth regarding the investment grant. “With the renewed reduction in the investment subsidy rate, the process from March 2022 is repeated, when subsidy cuts were made with the same justification. In February 2023, a new four-year guideline came into force.” This set the employment subsidy at 25 percent. Experienced angels, on the other hand, were excluded from the subsidy due to the introduction of a personal subsidy budget of 100,000 euros starting in 2013, and follow-up financing was no longer supported.

If the subsidy is now almost halved without discussion, the ministry of Federal Economics Minister Robert Habeck will have to ask itself the question: How serious is the government coalition actually with the startup funding that has been emphasized again and again – and is also set out in the coalition agreement? There have been welcome advances in recent months, for example in the areas of employee participation options via ESOP and VSOP. Especially in times when financing a startup has become more difficult than in previous years, the unexpected cancellation of subsidies is causing confusion in the scene. Startup association chairwoman Verena Pausder, for example, finds clear words:

“The fact that the federal government is now reducing its commitment in the already tense financing situation for startups is a fatal signal. This contradicts the public assurances of the traffic light coalition that it wants to strengthen the startup location. “The priorities are obviously set wrong here,” she is quoted as saying together with Christoph Stresing, managing director of the startup association.

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