Peter Altmaier
Start-ups

Start-ups

”Start-ups have increasingly become job creators“

The Federal Minister for Economic Affairs and Energy, Peter Altmaier, reveals in an interview how the German Federal Government intends to strengthen Germany as a centre for technology and the role that venture capital plays in this.

About Mr Altmaier
Peter Altmaier

Peter Altmaier is Federal Minister for Economic Affairs and Energy since 2018. Currently, he is also Chair of the Board of Supervisory Directors of KfW.

How has the start-up scene in Germany developed in recent years? What do you see as the strengths and weaknesses?

Peter Altmaier: Over the past few years, start-ups in Germany have increasingly become job creators. As drivers for innovation, they provide the established economy with vital impetus. At international level, Berlin has received a great deal of attention as a prime location for start-ups. Other cities such as Munich, Hamburg and Cologne, as well as entire regions like “Silicon Saxony”, are now following suit. Enough bright ideas are being generated. There is no shortage of brilliant minds out there. First and foremost, I recognise an unsatisfied demand for financing, especially for large-volume rounds of financing in the growth phase.

In your opinion, why is it important to strengthen Germany as an investment centre for venture capital? What is the German Federal Government doing to make Germany more attractive as an investment location for venture capital?

Funding the German venture capital market is not an end in itself. Our venture capital (VC) agenda is focused on start-ups and innovative enterprises. Germany relies on their input. To be successful, start-ups need an attractive financing environment. Venture capital plays a decisive role in this, because digital solutions and business models have to be scaled quickly in order to be successful in the market. That is why we will continue to offer our successful funding instruments such as the High-Tech Start-up Fund (HTGF) and coparion. With the foundation of KfW Capital, we now expect to generate further momentum for the VC market.

Venture Capital

The term venture capital is used when investors invest in young companies that have not yet established themselves in the market but still show promise. The investor supports the entrepreneurs with equity capital in the hope of a high return. Since it is anything but certain that a young company will develop positively, a total loss must always be expected. It is therefore with good reason that the term venture capital financing is used. Investing in a venture capital fund that invests not only in one, but in several young companies, thereby at least helps spreading the risk.

The ERP Special Fund is one of the most intelligent financing instruments in Germany's post-war history. In your opinion, what are its particular strengths?

The ERP Special Fund has been supporting the German economy with funds since 1948. To ensure continued support after the Marshall Plan had come to an end, the ERP Special Fund was developed into a revolving fund for long-term investment loans. This means that the funds are issued in the form of low-interest, long-term loans and the returning funds with interest are made available once again for new financing projects. That is why I believe the particular strength of the Special Fund to lie in the reliability and continuity with which we can support the German economy – especially in times of crisis.

I also believe that the ERP Special Fund's particular strength lies in the way it has adapted in the meantime to remain a powerful tool for economic development. Significant capital components of the Special Fund are now part of KfW’s equity. This enabled us to establish a strong, national promotional bank in the shape of KfW that is coveted by the entire world. We have also succeeded in using the ERP Special Fund to boost the growth of the all-important venture capital market.

Venture Debt

Like venture capital, venture debt involves financing for a young company. Unlike venture capital, venture debt is a debt instrument that is tied to regular interest and principal payments.

Apart from the provision of venture capital, do you see other ways of strengthening Germany as a technology centre?

One way is to strengthen leap innovations. In August, the German Federal Government passed the key elements for the foundation of an agency for leap innovations.

From 2020 onwards, we expect a demand for funding totaling approximately EUR 1 billion over ten years. The German Federal Ministry for Economic Affairs will primarily be involved in the agency with a regard to the economic realisation of leap innovations. Our focus will be on the transfer of ideas into the market, scouting for good ideas and the minds they stem from for economically relevant future topics, and on connecting the agencyk to the EU's European Innovation Council.

What is more, the German Federal Ministry of Education and Research will be involved within the key area of basic research. The agency will take up its operational activities – in particular, running tenders, competitions and top-level projects – in 2019/2020.

Published on KfW Stories: Tuesday, 9 October 2018