Germany Prepares €2 Billion to Help its Start-up Affected Due to the Coronavirus Crisis

Aiming at helping the start-ups amid this pandemic, Germany offers a fund worth €2 Billion, according to the information provided by the German Finance Minister, Olaf Scholz. So that, start-ups could complete the funding rounds needed. Despite having regular aid programs available, from the German Government they believe that start-ups may have more trouble getting the support needed within those programs.

This has been explained by the Germany Minister of Economic Affairs, Peter Altmaier: “Classic credit instruments are often a poor fit for young, innovative companies for this reason, we are offering a tailor-made support package. We are responsible for roughly €2 Billion and we expand the financing of venture capital so that funding rounds, for new promising innovative companies in Germany, can continue.  This is how we ensure jobs and innovation in Germany.” With this measure they want to ensure that the innovative start-up industry can more easily tackle the crisis, as well as funding rounds, as these companies are very necessary for the country. 

The recipients of the programme will be all companies focused on the Mittelstand‘ technology that currently have cash liquidity in the form of large portions of stocks or convertible bonds. Currently, no other specific criteria for accessing the program are considered. However, some due diligence and evaluation features will apply, taking into account the specific nature of continuous start-ups. According to Thomas Jarzombek, Commissioner of the federal government, liquidity will be provided to private investors whose aim is to support struggling start-ups through additional funding rounds. 

Moreover, in order to reduce the impact of the pandemic on the German economy, the German Government has approved €156 billion following an extraordinary Council of Ministers meeting, said to be the largest supplementary budget since the World War II. As a result, the temporary suspension of the ‘debt brake’ of the Constitution is reached as the German State intends to borrow for the first time in the last five terms to assist the country’s economy in this situation caused by the coronavirus. Scholz foresees a 5% reduction in the GDP and also sets out the idea of using everything they have to deal with the social and economic impact caused by the pandemic

In addition to the aid for companies and employees, the budget has a drop in revenue due to the Covid19 by roughly €33.5 billion. The Stabilization Fund has also been reactivated by the Council of Ministers and will be endowed with €500 billion, of which €400 billion will be allocated for debt and liability guarantee, whereas the remaining €100 billion will go to recapitalise companies, acquire shares and temporary nationalisations

Sources: El Economista, Cinco Días, IDN Financials, BMWi.de, Herbert Smith Freehills 

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