The German government is finally ready to start delivering its €2bn package of state aid to startups, according to ministers, but confusion still reigns over which startups will get the money and when.
“There is good news for founders: the aid package for startups is ready,” said Jörg Kukies, Germany’s deputy finance minister, late last week as details of the package were announced.
The package — which comes as a survey showed more than two-thirds of German startups fear for their survival — has been thrashed out over the past month and will see two types of financing.
Part of the money, so-called Pillar 1, will go towards financing for larger startups by splitting funding with venture capitalists, generally 50-50 but with a state stake of up to a maximum 70%. The money will come through the state-owned development bank KfW.
The second part of the money is earmarked for smaller startups who cannot get private funding. This Pillar 2 money will be allocated through regional development institutes, which will receive federal government money to top up their existing programmes.
In addition to the €2bn in emergency aid, the government is planning a “future fund” for the coming years, which is to have a volume of €10bn (and more details are to come).
But despite the extra details, senior figures in the German startup world say that there are still big questions about the fund, particularly about who will get the money and how useful it will actually be.
Who and when?
The biggest complaint is that, nearly two months into the coronavirus pandemic and one month after the package was first announced, it is still not exactly clear how the money will be doled out and when.
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Achim Berg, the president of Germany’s digital association Bitkom, says that the two-pillared program has the potential to help startups who are falling through the cracks, but it’s still lacking urgency and structure.
“Details of the aid package, such as a concrete schedule, are still unknown. After weeks of the Corona crisis, startups do not need any announcements; they need a pragmatic procedure to be able to apply for help and then receive it quickly,” said Berg.
He points to the fact that, for normal businesses, a week or two of delay may not be important, but many startups face an imminent cash crunch and measures need to come quickly. “We cannot think in weekly terms here, it is already the eleventh hour and the help must come immediately.”
The German Startups Association has also continuously urged the government to act quickly. Its president, Christian Miele, said that even the best aid won’t work if it’s too late.
“The federal government must now go full throttle and switch from conceptual mode to implementation mode as quickly as possible,” said Miele in an update. “We will stay tuned and push for the quickest possible implementation so that the money arrives on time.”
There is also an issue of education.
Berlin Partner, a public-private partnership that focuses on business and tech growth in Berlin, regularly hosts informational sessions for clarification on eligibility and access to aid.
“The big challenge for startups is to get the detailed information about the programs,” said Berlin Partner press representative Lukas Breitenbach. “We have counteracted this issue with a hotline and town hall calls.”
Another issue is that, for startups who rely on the matching fund, it seems that they can’t apply for aid directly.
It’s up to their investors to express interest in the fund. For many startups, this isn’t the type of stability and financial assurance they may need during the crisis.
It is equally unclear how local state agencies will handle the funds for Pillar Two.
More options for help
The opaque nature of the federal government’s support also leaves startups and small and medium-sized enterprises (SMEs) asking what will happen in the mid- and long-term.
Christian Kedzierski, chief technology officer of firma.de — a company that helps founders navigate the bureaucracy of starting and operating a business in Germany — said there must be more to supplement the current fund.
“The German government must create a long-term strategy to bring some certainty to business. A second fund must be created to offer continuing support and stability,” he said.
Indeed, another ‘future fund’ is seemingly in the works — with a total volume of €10bn — that is designed for more mid-term stabilisation.
Kerstin Bock, cofounder of Openers, stresses the importance of long-term stability measures. “The non-immediate challenge in the foreseeable future, for both startups and SMEs, is predictability. Most entrepreneurs I talk to don’t have a cashflow issue today, but have to deal with decreasing buying power in the next few months. So, how do they do that?”
Breitenbach of Berlin Partner noted that startups who have managed to adapt their offerings — and therefore find success during the crisis — have come out on top.
“Several startups in Berlin are also benefiting from the crisis, as they were agile enough to swiftly adjust their business model.”
Comparisons around Europe
European governments have taken varying approaches rolling out aid packages to startups. Many countries have not announced any startup-specific aid, while others including France and the UK have come forward with generous plans.
France is widely seen as having been a leader in proactivity when it comes to startup support, announcing its €4bn aid package also designed to keep investment momentum going. The UK, too, has come out with a £1bn aid package for investment in startups and promises a quick rollout (where the exact details are also being worked out).
The effectiveness of federal aid throughout Europe is yet to be determined. But with plans solidifying and funds being released, some people are hopeful that tech adoption, investments and innovation will balance out into a positive economic trajectory. Kedzierski of firma.de is one of those believers.
“I think that from the beginning of November there will be an acceleration in company formations within Germany, as many people start to realise that the time for entrepreneurship is now.”