Young technology companies are shaping Germany's future. But brave new ventures often fail for lack of capital. To enhance Germany's standing as a technological nation, KfW is supporting innovative business start-ups by strengthening their equity capital. KfW's equity finance products target technology companies at various stages of their development. At the very early stage, which is known as the seed phase, KfW has since 2005 been involved in , Germany's largest and most active early-stage financier. KfW is the largest investor in HTGF after the Federal Government:
Since April 2015 KfW has also started to help meet the shortfall in follow-on and expansion financing available to young, innovative technology companies. It is just businesses like these high-tech companies working in the areas of clean technology, life sciences and med-tech, as well as e-commerce platforms and other "digital" start-ups — which need a substantial amount of capital to enable them to develop and grow. To support them in this process, KfW, in collaboration with the Federal Ministry for Economic Affairs and Energy (BMWi), has brought a new promotional instrument onto the market, the ERP Venture Capital Fund. KfW is using this instrument to invest in young German technology companies indirectly, via selected German and European venture capital funds.
has been launched operational activities on 15 October 2018. Based in Frankfurt am Main, KfW's new subsidiary's objective is to develop the VC and VD funding landscape in Germany and Europe, thus improving access to capital for young, innovative, fast-growing German tech companies in the start-up and growth phase. With support from the ERP Special Fund, KfW's current investment volume in VC and VD funds will be increased to an average of EUR 200 million p.a. by 2020. In its work, the new venture capital firm will build on the professional foundations already established by KfW and the German Federal Ministry for Economic Affairs and Energy. Since the ERP Venture Capital Fund Investment programme was launched in 2015, KfW has invested a total of EUR 265 million in 18 venture capital funds. In cooperation with the Federal Ministry for Economic Affairs and Energy, KfW also set up the large co-investment fund coparion in 2016. As well as continuing to invest in these funds, KfW Capital will also take over KfW's existing investments in the three generations of the High-Tech Start-up Fund.
As part of the “ERP VC Fund Finance” programme, KfW Capital will invest a maximum of 19.99% or EUR 25 million in German and European VC and VD funds. One of the criteria applied by KfW Capital in its investment decisions is that the fund receiving the investment must then invest at least the same sum again in German tech companies. KfW Capital will invest in funds from across the entire industry, ranging from follow-on funds run by experienced fund management companies to first-time funds. The aim of this approach is to invigorate the market as a whole. KfW is transferring its current ERP VC fund investments to KfW Capital, along with its stakes in the High-Tech Start-Up Funds I, II and III and the co-investment fund Coparion.
The creation of the subsidiary and the expansion of the investment business were based on an idea to significantly enhance the market for venture capital financing as a driving force for the German economy. The developments began with a resolution passed by the German Federal Parliament in March of last year, assigning KfW, the Federal Ministry for Economic Affairs and Energy, and the Federal Ministry of Finance with a mandate to take action. Following on from this, KfW's Board of Supervisory Directors passed a resolution in June of last year to allow a new subsidiary to be set up. The German growth financing segment currently has a shortfall of EUR 500 million to EUR 600 million per year.
This approach allows KfW to access the expertise available on the venture capital market and simultaneously use its position as a national promotional bank to mobilise private capital. In order to strengthen the German venture capital market even further, KfW and the Federal Ministry for Economic Affairs and Energy (BMWi) launched , a co-investment fund in March 2016. As a separate company led by an experienced management team, Coparion invests directly in innovative start-ups and young technology companies. The fund thus replaces the new business of the ERP Start-up Fund, which has carried out this business from within KfW until now.
The ERP Start-up Fund will continue to make follow-on investments in its portfolio companies. Coparion will, however, be able to act in a more market-oriented way, faster and more flexibly than the ERP Start-up Fund was able to. However, the funds is sticking to the proven principle of only investing in a company if a private lead investor provides at least the same amount of capital on the same financial terms. With a volume of EUR 225 million, Coparion is the largest VC fund in Germany. Through cooperation with all the market players, Coparion provides important stimulus for the further development of the venture capital market in Germany and mobilises significant additional private capital for German start-ups.
As of August 2020