October 25, 2023

German LP KfW Capital launches €200m ‘emerging managers facility’ to boost diversity in VC

The initiative is financed by the German government’s Future Fund

Germany’s state-backed LP KfW Capital has launched a new initiative designed to boost diversity in the country’s VC ecosystem — which, like elsewhere in Europe, is still sorely lacking. 

The so-called ‘Emerging Manager Facility’ (EMF) will invest in smaller VC funds with €50m in assets under management — many of which are entering the VC market for the first time — that are managed by women or gender-diverse teams.

Chosen VC funds can receive a maximum of €12.5m and no more than 25% of the fund’s total size. 

The EMF is a component of the federal government’s €10bn Future Fund — which was launched in December 2020 to help plug the late-stage funding gap in Germany. The Future Fund will invest €200m in the EMF by 2030, though the KfW says it does not have an “annual budget” for how much money should be invested into funds. Sifted understands that the KfW is already talking to some emerging managers about their participation in the program. 


The criteria

As with its other programs, KfW will invest in emerging managers under the same conditions as private fund investors. With its due diligence, KfW assesses funds on their risk return profile, the diversity of their team and their commitment to ESG.

To be selected for the EMF, teams must meet at least one of the following criteria:

  • The management team must have at least one third female and/or non-binary people.
  • The senior investment team must have at least 40% female and/or non-binary people.
  • The investment committee (that decides on the fund’s investment activities) must be made up of at least 40% female and/or non-binary people.

The EMF will only invest in funds with headquarters in Germany or Europe, and is industry-agnostic. Funds are required to invest the same amount they receive from the EMF into startups in Germany. So, if a €50m fund gets €12.5m from KfW, at least €12.5m of that fund must go to German startups.

Other than that, there are no other geographical constraints on where the emerging managers can invest.

Moving the needle? 

A lack of diversity at the VC partner level is a problem no European ecosystem is immune to. In 2022, Sifted reported that just 15% of general partners at European funds are female.

Bettine Schmitz, partner at Auxxo, Germany’s first VC fund focusing on female founders, says the EMF has been hotly anticipated by many emerging managers in the country. 

“It’s a super positive thing for diversity, as one of the problems is that it’s super hard to get promoted in the established fund system,” says Schmitz. “You need to set up new funds in order to get diverse managers into positions where they receive a lot of carry and are actually general partners — rather than being hired-in partners that don’t get the carry.”

Others in the German ecosystem are more skeptical about the EMF.

"An LP fund that wants to address the bias we see in the VC and startup ecosystem is a really good step in the right direction. But I think we need to closely monitor the deployment of the fund and its outcomes to truly grasp the impact," says Jessica Holzbach, cofounder and CEO of Pile, which offers treasury services for high growth startups.

The €200m allocated to the EMF, she says, is a "disproportionately small amount" given the size of the problem it is aiming to solve.

"If this approach proves successful, a substantial increase in funding is essential in the long run. We have much more progress to make," she adds.

Backing emerging managers

The EMF, while aiming to improve diversity, is also another way of getting more money into emerging funds — that LPs are increasingly looking to back as they often outperform established funds. 


“In order to further develop the VC market, we not only need better capitalised (VC) funds but also a larger number of emerging funds, which often occupy technological niches in the market when they enter the market,” says Dr Jörg Goschin, managing director of KfW Capital, in a statement.

And with more money flowing into diverse VC teams, the hope is that diverse founders will also rake in more cash. 

Miriam Partington

Miriam Partington is a reporter at Sifted. She covers the DACH region and the future of work, and coauthors Startup Life , a weekly newsletter on what it takes to build a startup. Follow her on X and LinkedIn