Accredited venture capital funds can now apply to KfW Capital for the Corona Matching Facility for start-ups. This is the starting signal for the first pillar of the German government's support package for start-ups during the corona crisis.
The German government's support package for start-ups
Start-ups, in particular, are severely affected by the COVID-19 containment measures as they rarely have sufficient financial reserves for times of crisis. The German government responded to the call for state assistance tailored specifically to start-ups with a EUR 2 billion support package that comes on top of the general support measures already in place.
This start-up support package is based on two pillars: on the one hand, a matching fund for VC fund backed start-ups and, on the other, separate additional support for start-ups that do not have access to the first pillar. While details of the second pillar are still being worked out, the recently launched Corona Matching Facility (CMF) implements the first pillar measures.
The Corona Matching Facility
The CMF will increase private sector investments and thus provide an incentive for CV funds to continue carrying out financing rounds despite the corona crisis. Investors can call on the public funds at a matching ratio of 70:30. However, in the same financing round no more than 50% of the total volume may come from public funds. Matching at a higher ratio is therefore only possible if there is an additional non-matched private investment.
The VC funds can choose two different matching ratios, one for their portfolio companies and another for new investments. The matching ratio for new investments may not exceed that for existing companies. Once a matching ratio has been set for investments in existing companies or for new investments, it is binding for all further investments of the VC fund until 31 December 2020. During this period, the VC fund is also obliged to offer its investments for matching (duty to offer).
Key points of matching at a glance:
- No more than 50% of the financing volume comes from public funds
- Maximum matching ratio is 70:30
- No absolute upper limit of matching
- Forms of financing: equity or convertible loans
- No management fee and no carry in favour of the VC fund managers
- Documentation of the financing round must be signed by 31 December 2020
- Retroactively also for financing rounds since 2 April 2020, provided that this has been included in the l documentation
The private VC fund will hold the public funds as trustee under a co-investment and trust agreement with KfW Capital.
Application eligibility and procedure for VC funds
It is not the start-ups themselves that are eligible to apply, but rather the respective private investors that are seeking a matching with a public venture capitalist in a planned financing round. In a first step, KfW Capital has been accepting applications for the CMF since 14 May 2020. In the future, the European Investment Fund, High-Tech Gründerfonds and coparion may also be potential investors.
The following conditions must be met by private VC funds:
- Independent, private VC funds (no CVC funds)
- German or European VC funds
- Successful completion of a due diligence and audit process at a CMF institution
Funds may apply regardless of whether KfW Capital or the European Investment Fund has already invested in them.
Eligible start-ups must be "closely related to Germany" and must be in need of financing on account of the corona crisis. However, the start-ups must not already have experienced financial difficulties before 31 December 2019. There are no further requirements imposed on the start-ups to be funded, in particular with regard to the number of employees, turnover or the duration of business activity.
Since the support measures for companies that have come into force so far are only of very limited use in helpingstart-ups through the corona crisis, the measures specially tailored to the needs of the start-up scene are therefore to be welcomed. Conceptually, these measures are aimed precisely at start-ups that do not benefit or do not sufficiently benefit from the support measures that have been in place to date.
The Gleiss Lutz Start-up Program
More than ever, it is important to react quickly and set the right course for the future development of your company. With the Gleiss Lutz Start-up Program, we support young companies in coping with those challenges.
Please find more information about the program here: Gleiss Lutz-Start-up Program