Berlin Start-ups are currently finding it difficult to get investments in two respects. On the one hand, many venture capitalists are holding back in view of the weak economy and the turnaround in interest rates. On the other hand, the Federal Ministry of Economics (BMWK) has suspended the promotion of private investments by so-called “business angels”, at least for a short time. This means investments by former founders in other start-ups.
This so-called “Invest” program expired at the end of the year and no new applications have been submitted since the beginning of January. A new funding guideline is planned but not yet approved. If possible, planned investments should therefore only be made after the new funding guidelines have come into force, writes the Ministry of Economic Affairs on its website.
A spokeswoman for the ministry said: “The approval process for the new investment funding guideline at the EU Commission is still ongoing. We are working to ensure that the period during which no applications can be submitted is as short as possible.” This should probably be possible again in January.
The background is a re-evaluation of the government grants within the framework of the programme. The result was positive, but according to the ministry it made it necessary to revise the guideline, which is now in the approval process.
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Several associations, including Bitkom, the start-up association and the “Business Angels Netzwerk Deutschland” (BAND), have sharply criticized the suspension and urge the federal government to comply with the announcement of rapid implementation.
No investments at the moment
Because private investors draw consequences after just a few days and are currently forgoing investments. “In the hope that the Invest program will be launched again at some point, many are simply waiting in the current situation – with catastrophic consequences that are already foreseeable for some start-ups that urgently need equity in the first quarter and only a few months of liquidity reserves left have,” says business angel Thomas Schmidt, who does not want to put any money into young companies in Germany, at least in January, because of the funding gap.
covenant as angels
20
percent subsidy
investors recently received from the federal government via the Invest program if they made capital available to a start-up.
Roughly summarized, investors recently received a subsidy of 20 percent of their invested capital, which had to be between 25,000 and 500,000 euros, via the Invest program from the federal government. The maximum subsidy per year and investor was 100,000 euros.
Sebastian Pollock, angel investor and founder of the investor Visionaries Club, also took advantage of the funding. He rates the relevance of the Invest program for the industry as very high, it has brought “additional incentives for more business angel investments in young companies”.
The managing director of the start-up association, Christoph Stresing, is therefore calling for speed with the new edition of Invest: “Start-ups and business angels need planning security as quickly as possible,” he says. This applies in particular in view of the currently tense economic situation.
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David Rhotert, founder of the Companisto business network with 1,700 investors in German-speaking countries, agrees: “Especially in the current phase, in which start-ups have even fewer financing options, it is all about speed in the immediate continuation of the subsidy”, he says.
If business angels fail to invest, start-ups lose more than just money. “Due to their know-how and their personal network, they help founders in many places and often play a key role in strategic and operational consulting,” Bitkom President Achim Berg assesses the situation.
Many applications, high volume
According to BAND, the Invest program, which has been in place since 2013, has so far approved a total of 272 million euros. Last year alone there were 37 million euros in donations and more than 3,700 applications from angel investors, says the co-chair of the business angels network, Roland Kirchhof.
Invest is an important tool in start-up funding that simply cannot be allowed to go away. It serves as an irreplaceable risk buffer. “We also need the program to be competitive across Europe. After all, other countries also have incentives,” says Kirchhof. Previously, there was also a holding period of three years.
The funding from the BMWK expired at the end of the year – there has not yet been a new edition.
(Photo: IMAGO/NTB)
Meanwhile, Rhotert from Companisto is calling for the limits for the eligible investment to be lowered: “The subsidy should definitely be granted again from 10,000 euros.”
It is not the first time that the Federal Ministry of Economics has upset business angels. The program was last revised in March. Since then, follow-up investments and investments of less than 25,000 euros are no longer eligible.
Bitkom President Berg also criticizes this: “Our goal should be to promote start-ups better, not worse. Start-up funding programs must be designed in such a way that they support the start-up process in all phases, and as flexibly as possible.”
According to surveys by the information service “Addedval.io” for the Handelsblatt, based on preliminary figures, business angels invested in 1505 start-ups last year. In 2021 and 2022, 8,384 people were active as angel investors in Germany.
Business angel Sascha Schubert expects that it will be significantly less this year: “The Corona aid is running out, the Invest grant has expired, interest rates are rising rapidly. I fear that initial investments will fall by 80 percent by the end of the year.”
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