Benchmarking government support for venture capital: Germany
Table of contents
Germany's VC market gained momentum in the mid-1990s but suffered a setback during the dotcom bust, leading to investor caution and modest growth in subsequent years. The 2008/09 Great Financial Crisis further impacted VC investments, with total funding falling from EUR 1.1 billion (USD 1.6 billion) in 2008 to EUR 0.6 billion (USD 908 million) in 2009. Although VC activity showed slight improvements in the following years, it wasn’t until 2014–2019 that investments expanded significantly, growing at an average of 16%. Following COVID-19, VC activity dropped by 10%, while in 2021 it reached a record high, more than doubling compared to 2020 (KfW, 2022[1]). In 2022, VC investments declined by 8% and further dropped by 24% in 2023. The decline mirrors global trends with equity financing adjusting from the highly inflated activity in 2021. However, volumes remain higher than before the COVID-19 pandemic.
Regarding investment stages, early-stage funding dominated VC allocations from 2007 to 2020 (with the exception of 2016), while in 2021, the large flow of VC funding was particularly seen in later stages. This shift reflects the growing importance of digital start-ups, which require larger investments to scale rapidly. However, supply has not kept pace with this demand, leaving a funding gap in this critical stage (KfW, 2020[2]). In fact, in 2022 and 2023, the decline in VC investments was seen mainly in the late stage. Sector-wise, ICT tends to be the main recipient of VC investment, followed by consumer goods and services, and biotech and healthcare (Dealroom, 2023[3]).
Note: Data from Panel A and B correspond to investments allocated to German companies. It includes only venture capital investments by formal fund managers, including private equity funds making private equity investments. Investments by business angels, incubators, infrastructure funds, real estate funds, distress debt funds, primary funds-of-funds or secondary funds-of-funds are excluded.
Source: Venture Capital Statistics OECD Data Explorer.
Over the last two decades, Germany has implemented a range of policies to stimulate VC financing for SMEs and innovative start-ups. In 2004, the Federal Ministry for Economic Affairs and Energy introduced the ERP-Financing Instruments in partnership with the European Investment Fund (EIF). This programme included the ERP-EIF VC Funds of Funds (Dachfonds), which responded to the decline of equity capital available for innovative companies after the dotcom burst. The following year, the High-Tech Gründerfonds (HTGF) were established as a public-private partnership with the Federal Ministry for Economic Affairs and Energy, KfW, and private companies as shareholders. This fund has since become a cornerstone of the German start-up ecosystem.
The European Angels Fund (EAF) was introduced in 2012 and managed by the Ministry with the objective of providing co-investments to strengthen Business Angel’s capacities to invest in early-stage companies. In 2016, Coparion replaced the ERP-Start-up Fund to operate more flexibly and market-oriented. In 2018, KfW Capital was introduced, and the Ministry launched the Venture Tech Growth Financing (VTGF) programme to support highly innovative tech start-ups. Between 2017 and 2019, the government became the leading source of VC fundraising, contributing 16% of total VC investments in Germany.
The government has recently focused on supporting the and green-tech sectors. For example, the Zukunftsfonds (Future Fund) and the ERP Co-investment in German Future Funds (GFF) -EIF Growth Facility (Zukunftsfonds - EIF Wachstumsfazilität) were established in 2021, which funded direct programmes such as the Climate and Deep-Tech Fund and the Venture Tech Growth Financing. In June 2023, the Green Tech Facility / Green Transition Facility, was launched with the objective of supporting green start-up innovation. This facility is managed by KfW Capital (Box 1).
KfW Capital was introduced in October 2018 with the objective of improving access to capital for innovative technology-oriented growth companies in Germany. It aims to improve the quality of venture capital funding through the development of a product structure in which the individual financing phases are coordinated throughout the entire company lifecycle. It invests in different venture capital funds and facilities, including the ERP-VC Fund Investments programme, the ERP/Future Fund Growth Facility as a module of the ‘Zukunftsfonds’, the High-tech Gründerfonds (HTGF), and Coparion.
The KfW Capital management team consists of VC experts, and its investment activities are monitored by a Supervisory Board. The Supervisory Board consists of six members, two of which are representatives from KfW, two are representatives from the ministries (BMBF, BMWK) and two are other equity market stakeholder. While KfW Capital needs to report to the Supervisory Board, the latter does not directly steer any investment activities. In addition, KfW Capital is supported by an Advisory Board. The Advisory Board meets once a year, aiming to bring together all stakeholders of the German VC market.
KfW has strong independence in its investment decisions, which are not steered from the govt. An exception in this regard, however, are funds from the Future Fund (“Zukunftsfonds”), which is a trust fund, with the federal government acting as the trustee. In this case, there is a certain steering activity and policy-driven targets set by the government. However, according to KfW Capital, this steering structure rather has a “project character”, with the ministries and KfW Capital meeting to discuss how instruments can contribute to certain policy goals.
In its first five years of operations, between 2018 and 2023, KfW Capital invested more than EUR 1.9 billion across over 100 VC funds, around half of which are based in Germany, and had invested more than four times this amount in private companies. As of 2022, KfW Capital’s AUM amounted to EUR 1 699 million, including investments in other instruments such as the HTGFs seed funds. KfW Capital only invests in private VC funds, with funding mostly coming from a special fund of the European Recovery Plan (ERP) and the federal Future Fund, which has committed EUR 10 billion to growth capital financing until 2030.
Source: KfW Group 2022 Financial Report, (KfW Capital, 2023[4]), (KfW Group, 2023[5]), (Scope Ratings, 2022[6]), (KfW, 2018[7]), (Kimmo, 2023[8]).
This section includes initiatives that directly provide venture capital to start-ups and SMEs to enhance their liquidity position. These include the High-Tech Gründerfonds (HTGF), the European Angels Fund (EAF), Coparion, the Venture Tech Growth Financing Programme and the Deep-Tech and Climate Future Fund. It is important to note that, although the last two programmes directly invest in start-ups and innovative SMEs, they are part of and are funded from a broader fund, the Future Fund, which is mentioned in the section on indirect investments.
The High-Tech Gründerfonds (HTGF) invest directly in high-tech start-ups across different sectors and regions of Germany. Investment decisions at HTGF are made by three specialized committees: Industrial Tech, Life Sciences and Chemistry, and Digital Tech. Oversight is provided by an Investment Advisory Board chaired by the Federal Ministry of Economic Affairs and Climate Action, with members from KfW Capital and private investors (HTGF, 2023[9]). HTGF provides seed funding of up to EUR 2 million as the lead investor, with a total investment limit of EUR 8 million per start-up across all financing rounds. Terms are flexible, including a 15% equity acquisition at nominal value and a subordinated shareholder loan with a 7-year term, deferred for 4 years to maintain start-up liquidity (BAND, 2023[10]). The fund also offers technical guidance through a network of experts and supports follow-up financing by connecting start-ups with additional investors. Eligible start-ups must operate in digital tech, industrial tech, life sciences, or chemistry; demonstrate market potential; be no older than three years; and be headquartered in Germany or have a German presence if based in Europe (High-Tech Gründerfonds, 2023[11]).
Since the establishment of the first HTGF in 2005, there have been four vintages of HTGFs (2005-11-17-21), which have invested in more than 750 companies and successfully exited 180 of them. As of 2024, the AUM of the HTGFs was more than EUR 2 billion. In the mid-2010s, when only the first two editions of the HTGF had been launched, an independent evaluation showed that the HTGFs accounted for 50% of the total seed investment stage in Germany and for 20% of early-stage financing by institutional VC and private equity (PE) investors (Technopolis, 2016[12]).
The European Angels Fund Germany boosts Business Angel investment capacity in seed, early, and growth-stage enterprises through co-investments. The programme was launched in 2012, funded by the ERP-EIF Facility and managed by the Federal Ministry for Economic Affairs. Following its success, it was launched in other European countries. Through the programme, BAs enter flexible, standardized co-investment agreements (CFAs), enabling investments of EUR 250,000 to EUR 5 million. Investment decisions are taken by business angels, and investments are matched (i.e. by the same amount) by the EAF on a pari-passu basis (EIF, 2023[13]). Evaluations show EAF Germany mobilized the most capital among participating countries, with Berlin and Munich leading investee company inflows. Post-investment, EAF-backed companies achieved significant growth, with employment increasing by 50%, total assets growing from EUR 1.3 million to EUR 2 million, and average turnover nearly quadrupling (EIF, 2020[14]). By 2022, EAF Germany partnered with 50 BAs and family offices, co-investing in 500 SMEs. As of 2024, EAF stopped making new investments (EIF, 2023[13]).
The VC Fund Coparion was established in 2016 by the Federal Ministry for Economic Affairs and KfW, and supports innovative SMEs in late-stages. Starting with EUR 225 million in funding, the Fund increased to EUR 275 million in 2018 with contributions from the European Investment Bank and other institutions. By 2017, Coparion had 44 companies in its portfolio (EIB, 2017[15]). The Fund provides up to EUR 15 million per company over multiple financing rounds, co-investing with private investors on a pari-passu basis, with public contributions limited to 50% per round. Typical investments range from EUR 0.5 to 8 million, with 7–12 deals annually (Unicorn Nest, 2018[16]). Eligible SMEs must be unlisted, independent, and located in Germany, operating for less than 10 years, and focused on innovative technologies. Companies lacking commercial expertise can rely on private investors for support. Private co-investors, including investment firms and individuals, must invest at least 30% of the total capital and commit to further financing (Coparion, 2023[17]).
KfW introduced the Venture Tech Growth Financing (VTGF) programme in late 2018, and it is currently funded by the Zukunftsfonds (Future Fund), which is explained in the section on indirect investments activities. The objective of the programme is to support the financing needs of high-growth technology companies with innovative business models through bridge loans and post-IPO debt loans. There have been two generations of the VTGF programme. The VTGF 1.0 provided EUR 360 million, (EUR 106 million is from KfW and EUR 254 million in private debt capital) (KfW, 2022[18]). In 2022, VTGF 2.0 launched with EUR 1.2 billion in funding from KfW and the Government, and private lenders’ participation ranging from EUR 1 million to EUR 125 million. Private lenders are required to participate as a financing partner with a financing share of 50% on the same terms (pari-passu principle) (KfW, 2022[18]).
Finally, the Deep-Tech and Climate Future Fund (DTCFF), financed by the Zukunftsfonds and ERP Special Fund, supports the sustainable growth of deep-tech and climate-tech companies with validated business models. The Fund is designed to operate for a minimum of 25 years, with management responsibilities entrusted to High-Tech Gründerfonds (OECD, 2022[19]). Supported sectors include new energy/smart grid, e-mobility/storage, smart city/smart home, food /agritech, AI, Big Data, Quantum Technology, Blockchain, Cyber Security, Industry 4.0/IoT, robotics, sensor technology and additive manufacturing. DTCFF co-invests with private investors on a pari-passu basis, with private funding covering at least 30% and public funding up to 70%, with a cap of EUR 30 million per company. Initial investments start at EUR 1 million, and the fund holds a minority voting stake (<25%) (DeepTech and Climate Fonds, 2023[20]). Over the next decade, DTCFF aims to invest up to EUR 1 billion, serving as an anchor investor and providing market readiness guidance to supported companies.
ERP-EIF Facility
The ERP-EIF Facility, established by the Government and the EIF in 2004 with a capacity of EUR 4.6 billion, is a fund-of-funds initiative supporting high-tech early- and late-stage companies in Germany. It invests across technological sectors like ICT, life sciences, and energy innovations, with a focus on German SMEs while also engaging non-German fund managers investing in Germany. Since inception, it has supported over 4,000 SMEs through investments in 120+ funds (EIF, 2023[21]). The Facility includes several sub-programs:
ERP-EIF VC Fund of Funds (Dachfonds): Operating since 2004, it invests EUR 20–60 million in VC funds, supporting over 3,000 SMEs (Bundesministerium für Wirtschaft und Energie, 2020[22]). Funds must demonstrate commercial viability, focus on SMEs, and ensure pari-passu treatment of investors. EIF's participation in funds should not exceed 50% of the fund's funding after reaching the target fundraising level (EIF, 2023[23]).
ERP-EIF Growth Facility (Wachstumsfazilität): Active from 2016–2021 with EUR 500 million (EUR 330 million from the Government on behalf of the ERP and EUR 170 million from the EIF). It participated in approximately 10 co-investment structures with VC fund managers providing expansion financing to 60 companies (EIF, 2023[24]). Eligible Fund managers needed to be active in Germany and invest in SMEs and Mid-Caps based in Germany; have an established EIF relationship; demonstrate an excellent track record; and have investment opportunities in their existing portfolio with the potential to meet the investment criteria set for a growth stage portfolio company (EIF, 2023[24]). Eligible companies needed EUR 5+ million in revenues, high growth potential, and realistic exit strategies within 12–36 months.
ERP Co-investment in German Future Funds (GFF)-EIF Growth Facility: The GFF-EIF Growth Facility forms part of the EUR 10 billion German Future Fund with the objective of supporting companies in the growth and late stages of development. The EIF supports the GGF Growth Facility since 2021 through the ERP co-investment. The ERP co-investment in GFF-EIF Growth Facility (Zukunftsfonds - EIF Wachstumsfazilität) has a total volume of EUR 0.4 billion and systematically co-invests in the fund.
Zukunftsfonds (Future Fund)
The Zukunftsfonds (“Future Fund”) was introduced by the Federal Government in 2021, with EUR 10 billion of available venture capital for “forward-looking technologies” until 2030. The Fund is structured through a set of closely interlinked “building blocks” or modules. As of July 2022, the building blocks, including the ERP/Future Fund Growth Facility (EUR 2.5 billion), the GFF EIF Growth Facility (up to EUR 3.5 billion), the Deep-Tech & Climate Fund (EUR 1 billion), and the Venture Tech Growth Financing (VTGF) program (up to EUR 1.3 billion). Additional modules, such as a KfW Capital fund-of-funds and the European Tech Champions Initiative (EUR 1 billion), will further expand its scope.
The fund’s main goal is to enhance financing options for start-ups in their scale-up phase, aiming to mobilize at least EUR 30 billion with private co-investment. KfW Capital contributes up to EUR 25 million per fund, capped at 19.9% of the fund’s capital and voting rights. For late-stage funds under the ERP / Future Fund Growth Facility, investments are limited to EUR 50 million or EUR 75 million when combined with other programmes (Bundesministerium für Wirtschaft und Klimaschutz, 2022[25]).
Eligible VC funds must be based in Europe, raise at least EUR 50 million primarily from private investors, and focus on innovative, Germany-based technology companies. Investments adhere to the pari-passu principle, with public funding aligned to private terms. The Future Fund also emphasizes compliance with ethical, social, and environmental standards, applying exclusionary criteria for sectors that do not meet KfW’s ESG benchmarks (Bundesministerium für Wirtschaft und Klimaschutz, 2022[25]).
Green Tech Facility / Green Transition Facility
The Green Tech Facility, launched in June 2023 and managed by KfW Capital, focuses on investing in VC funds that prioritize climate tech and other climate-relevant fields as defined by the EU Taxonomy Regulation. The facility has EUR 100 million available for investment, with KfW Capital investing alongside private investors. The maximum investment per fund is EUR 25 million, and KfW's participation is capped at 19.9% of the fund’s capital and voting rights. Investments are made on equal terms with private investors (KfW Capital, 2023[26]).
KfW Capital targets both established and first-time VC funds that have a proven track record. To be eligible, funds must be classified under Articles 8 and 9 of the Sustainable Finance Disclosure Regulation (SFDR) and have a clear strategy addressing climate tech. Funds should be based in Europe, with a minimum volume of EUR 50 million, and attract primarily private investors, ensuring no single investor holds a majority stake (KfW Capital, 2023[4]).
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The full paper is available in English: OECD (2025), Benchmarking government support for Venture Capital: A comparative analysis, OECD SME and Entrepreneurship Papers, OECD Publishing, Paris, https://doi.org/10.1787/81e53985-en
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