Last year the German Government introduced a program to support venture seed and pre-seed investments into innovative start-ups from private investors. The basic idea was that private investors will get a 20% payback from the Government on their investment if the criteria applicable to investor and start-up are met. In April 2014 the Government re-launched the program which is now called "INVEST". These changes came into effect on April 22, 2014 and are summarized below. German Government has allocated a total of EUR 150 million in funds until 2016 in the official budget. Main changes include:
- Expansion of the range of innovative industries eligible for the INVEST program to now also include the production of technical textiles, surface and heat treatment as well as medical and dentistry technology;
- a startup is considered to be innovative if it holds a patent or has, within a period of two years preceding the application for subsidy, received a subsidy or state aid for an R&D or innovation project;
- a subsidiary company can also be eligible, provided the parent company fulfills the requirements for the subsidy;
- there can be up to four shareholders, provided one shareholder holds at least 50%;
- the investor can now also be a corporation whose business purpose is consultancy or asset management;
- it is planned that the subsidy shall be tax exempt.
Please note:Thus, a startup whose founder holds more than 50% of the startup through a special purpose vehicle (founder GmbH) is now eligible for the subsidy.
However, the startup may still not be older than 10 years, must fulfill the criteria for SME (< 50 FTE, < EUR 10 million annual revenue) and may not be in financial distress. Further, the startup must operate in an industry that is in general eligible for the subsidy. The startup must have its registered office within the EU with at least one establishment or branch being in Germany for the whole subsidy period of three years and must be operational on a continuous basis.
Please note: Before approaching potential investors, startups can request a statement from the competent Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle - BAFA) confirming that the startup is eligible for the INVEST program.
On the other hand, the investor must be at least 18 years old and must have his or her main residence within the EU. If the investor should invest through an investment holdco, such holdco must have its registered office within the EU and its investors must also be resident within the EU. The investor may not already be a shareholder in the startup; the INVEST program applies only to the investor's first investment but not to subsequent investments.
The maximum subsidy amount per startup is EUR 200,000 p.a. and EUR 50,000 per investor p.a. The investor must invest at least EUR 10,000 of his own money per investment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.