Better conditions for start-ups

Numerous start-ups will profit in the short term and medium term from the emerging new demand for innovative technologies for digitalisation and climate.

During the last three months, we have experienced with planned transactions and investments that many of the venture capital providers were reluctant in relation to growth financing of start-ups. Many portfolio businesses represent a predictable bet on the traction of the goods and services offered until profitability is reached. Until recently, it has been difficult to clearly assess the extent of the COVID-19 pandemic and the scope of the associated limitations of the specific demand-related behaviour of the customers, therefore new investments declined markedly.

Typically, start-ups frequently develop digital products and services, presenting alternative solutions for existing demand and contributing to the attractiveness of Germany as a business location. Until the profitability zone can be reached by means of a critical market penetration with their own products and services, the availability of financing for operational business is a vital task for young companies. If the flow of venture capital cannot be guaranteed to the "usual" extent, government programmes such as the newly launched stimulus package of the German government can provide temporary funding needed to support German start-ups. Even if the degree of detail of the current stimulus package remains at the level of a key issues paper, we nevertheless expect a positive effect on the demand for start-up solutions due to the unparalleled width and depth of the investment programme.

The expansion of the fibre-optic infrastructure and the building of a nationwide 5G network by 2025 are part of the stimulus package and an important technological basis for the progress of digitization in Germany. However, the stimulus package does not only aim at boosting domestic demand but also at strengthening Germany's role as a global exporter of advanced technology. We are optimistic that start-ups make a significant contribution to digital and climate-friendly technologies and benefit directly from the investment packages referred to above.

In addition to the content of the packages shown, the stimulus package also includes other mechanisms for supporting start-ups, such as more attractive arrangements for employee participation or tax allowances for research. Since the start-up scene has raised these topics frequently in the past, we regard it as particularly positive that they are addressed specifically in the key issues paper. In addition to the expected boost in demand, the above-mentioned mechanisms can contribute to improved conditions for the German start-ups. 

Practice note

Warth & Klein Grant Thornton offers services in Audit & Assurance, Tax and Advisory customised to the needs of young technology businesses. Our well-practised Advisory team assists start-ups and their founders in various phases of the life cycle of a business, for example with the acquisition of growth capital, in strategic acquisitions and in connection with company sales.

Contact

Hanno Hepke
Partner
T +49 (0)30 40 432186235
E hanno.hepke@wkgt.com

Alex Refec
Senior Manager
T +49 (0)30 40 432186216
E alex.refec@wkgt.com

Konstantin Brehm
Consultant
T +49 40 432186268
E konstantin.brehm@wkgt.com