Government Proposes Measures to Boost Start-up Financing and Reduce Bureaucratic Hurdles

The German government is taking significant steps to enhance financing options for start-ups while also working to reduce bureaucratic barriers in the financial sector. A draft proposal for the so-called Standortfördergesetz was recently shared by the Finance Minister, aimed primarily at facilitating access to capital for innovative and growing companies.

This new legislation is expected to open up pathways for investment funds to more easily allocate resources into venture capital funds, thereby fostering a more robust start-up ecosystem. Furthermore, it seeks to redirect capital towards critical areas such as infrastructure development and renewable energy investments.

The Start-up Association has long advocated for improvements in financing conditions for emerging and scaling businesses, highlighting a considerable funding gap estimated at around EUR30 billion annually. Comparatively, investments in start-ups in the United States amount to approximately EUR510 per capita each year, while Germany lags behind with only EUR90.

The proposed law aims to comprehensively promote the venture capital market and enhance the overall ecosystem surrounding it. Additionally, the draft includes plans to streamline regulatory processes, particularly concerning the Federal Financial Supervisory Authority (BaFin). This will involve the elimination of certain reporting requirements, such as the obligation for financial institutions to report loans exceeding EUR1 million to the Deutsche Bundesbank, which currently ensures transparency regarding large loans and allows BaFin to monitor the financial health of banks and their borrowers more effectively.

Moreover, the proposal seeks to abolish the employee and complaint registry, a tool that aids financial oversight in identifying problematic investment advisors early on, thereby enhancing consumer protection.

According to the Finance Ministry, the anticipated relief for the economy from these measures is substantial, projected to exceed EUR74 million annually. Administrative costs are expected to decrease by over EUR14 million as well. In a broader context, the ifo Institute estimates that total bureaucratic costs in Germany currently amount to around EUR65 billion per year.

This initiative forms part of the government's urgent action program unveiled in late May and is slated for discussion during a cabinet meeting scheduled for September 10. An earlier version of this legislation was championed by Klingbeil's predecessor, Jörg Kukies, under the Zukunftsfinanzierungsgesetz II but was left unpassed following the collapse of the coalition government last November.