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Article - Funding of SMEs

Start-ups: a driving force for growth and competition

Introduction

Start-ups form the basis for economic growth. New business models not only modernise the economic structure, they also create new jobs.

In Germany, more than 380,000 people set up their own business in 2016. Start-ups are of great significance for the economy: not only do they create new jobs, they also foster competitiveness and innovation in a Social Market Economy.

Creating innovation and jobs:

Entrepreneurs turn innovative ideas into reality, thus promoting progress, growth and competitiveness. Around 15% of the entrepreneurs introduced an innovation onto the regional, German, or world markets in 2016. One start-up in five is “digital”, i.e. digitalisation or the use of digital technologies plays a crucial role in the realisation of the business concept.

Setting up a business has a positive impact on employment. New start-ups benefit the labour market and create jobs. Every year, start-ups create more than 520,000 new full time jobs.

Promoting competition and structural change:

New start-ups increase the number of players competing on the market. Young companies not only challenge existing companies with new products, services, processes and business models, but also stimulate competition. In the digital world, change is increasingly being driven by innovative start-ups.

Strengthening liberty, diversity and stability in society:

Independent companies play a role in strengthening our democracy and our social fabric. Economic responsibility is spread across many shoulders, a concentration of power is prevented, and entrepreneurial freedom is fostered. The start-up scene is highly diverse. People of foreign origin are playing an increasingly prominent role. The number of self-employed persons with a migrant background rose by 30% between 2005 and 2015, to 737,000.

Targeting the development of female entrepreneurs:

Only around one in three start-ups are founded by women; at the same time, women account for 46.1% of gainfully active persons aged between 15 and 64 (microcensus). Positive developments can be seen in side-line businesses: in 2016, women ran around 44% of these. In total, and particularly in the case of innovative start-ups, targeted measures are needed to make full use of the potential of female entrepreneurs.

Four figures on start-ups

36
Symbolicon für Menschen

percent of people starting out in business
in Germany are between 25 and 34 years old (2016)

70
Symbolicon für Besprechung

percent of all start-ups
take place in the services sector (2016)

16
Symbolicon für Glühbirne

percent of people starting up in business
bring new innovations on to the market (2016)

40
Symbolicon für Frau

percent of all people starting up in business
(full-time/side-line, 2016) are female

A New Age for Entrepreneurship

Strengthening the spirit of entrepreneurship in Germany

The Economic Affairs Ministry’s “New Age for Entrepreneurship” initiative is strengthening the spirit of entrepreneurship in Germany and supporting people starting up their own business.

If our economic growth is to remain strong and dynamic, we need more entrepreneurs who develop new markets and create lasting jobs. The Economic Affairs Ministry’s “New Age for Entrepreneurship” initiative aims to strengthen the spirit of entrepreneurship and to boost the number of start-ups in Germany, by making it more attractive for people to start up their own business. The initiative offers a wide range of measures, financing possibilities and support for young entrepreneurs.

  • EXIST funding for start-up teams from higher education institutions (in German)
    The aim of the funding programme is to improve the start-up environment at higher education institutions and research establishments. Further to this, the intention is to boost the number and the success of technology-oriented and science-based start-ups.
  • INVEST Grant for Venture Capital (in German)
    The INVEST venture capital grant supports young companies as they try to find someone to provide them with capital, and encourages private investors to offer venture capital. Business angels investing private capital in innovative young start-ups benefit from the fact that up to €500,000 of investment is eligible for support, and from an exit grant which offsets the tax on capital gains.
  • ERP/EIF Fund of Funds and European Angels Fund (in German)
    The funding for the instruments to promote venture capital has been increased considerably.
  • Cutting red tape
    The Federal Government has various measures to reduce the amount of red tape affecting companies. Its two Cutting Bureaucracy Acts give start-ups and SMEs more freedom, particularly from reporting requirements in various economic statistics acts.
  • The Cultural and Creative Industries Initiative (in German)
    The Federal Government supports the cultural and creative industries (in German), which are dominated by small firms, not least by initiating cooperation with other sectors.
  • The WOMEN Entrepreneurs initiative (in German)
    Role-model female entrepreneurs around Germany encourage girls and women to start out in business.
  • The “Entrepreneurial Spirit in Schools” initiative (in German)
    The spirit of entrepreneurship and entrepreneurial thinking starts in the classroom. The “Entrepreneurial Spirit in Schools” initiative gives pupils some initial practical experience in exciting business projects and lets them take responsibility in their own student companies.
  • JUNIOR federal competition (in German)
    JUNIOR is one of the main features of the “Entrepreneurial Spirit in Schools” initiative. In a nationwide competition, the Economic Affairs Ministry picks out the best company organised by school students, and gives the students the possibility to develop a business idea and to test it out during a school year in a company at their school.
  • Digital Innovations Competition for Start-ups (in German)
    The competition awards prizes of up to €32,000 to start-ups with innovative business ideas based on products and services in the information and communications technology sector.
  • German Start-up Prize (in German)
    The German Start-up Prize is the leading prize for successful start-ups and outstanding entrepreneurs in Germany. It is awarded annually for outstanding performance in the development of innovative and sustainable business ideas, and the creation and nurturing of new companies, and has the following categories: school students, start-ups, visionaries and life’s work.
  • “Deutsche Börse Venture Network”
    The Deutsche Börse Venture Network, launched at the initiative of the Economic Affairs Ministry, brings together young, fast-growing companies and international investors to ensure effective financing of growth and the establishment of a comprehensive network. The programme consists of a non-public online platform for the initiation of rounds of financing and offers various training and networking events. Further to this, the “Scale” segment of Deutsche Börse facilitates access to investors and venture capital for young, fast-growing firms and SMEs.
  • German Entrepreneurship Week (in German)
    Dialogue is so important: networks, competitions, trade fairs, forums and other event formats offer start-ups a context in which to meet experts, potential customers and business partners, to share experience and to test out their potential and opportunities. Across Germany, the Entrepreneurship Week brings a lot of partners together to learn, advise and inspire about going into business. More than 1,200 partners offer attractive events and seminars via www.gruenderwoche.de (in German).
  • “Start-Up Your Future” pilot project (in German)
    Experienced entrepreneurs volunteer to help refugees in the Berlin-Brandenburg region to set up in business. This pilot project of the Economic Affairs Ministry and the Business Juniors includes internships in companies, mentoring, team-building and tandems, and the hand-over of companies to the next generation. The refugees also benefit from training courses and seminars, and are welcomed into the Business Juniors network. The pilot project is part of the Economic Affairs Ministry’s “New Age for Entrepreneurship” initiative, and is running until the end of 2018.

Advice for Start-ups

Planning a successful start-up

Reliable information and careful planning are the foundation for a successful start by a new business. For this reason, the Federal Government helps entrepreneurs as they take the many small steps towards setting up in business.

If they are to make a successful start to their entrepreneurial life, many questions need to be clarified and decisions prepared: How do I make a business plan? How can I make a reality of my business idea? And where can I get hold of my initial capital?

The Economic Affairs Ministry’s start-up website www.existenzgruender.de offers a host of information, e-training courses, checklists and overviews, as well as listing people to talk to about starting out in business.

There is a wide-ranging network of support services, initiatives and advisory services for entrepreneurs, such as:

  • Chambers of Industry and Commerce (Industrie- und Handelskammern – IHK) and Chambers of Crafts (Handwerkkammern – HWK)
  • local or regional agencies or business promotion companies
  • innovation, technology and business-incubation centres
  • employment agencies
  • professorial chairs / networks for start-ups
  • start-up trade fairs
  • nation-wide, regional and local start-up initiatives and
  • business-plan competitions

And once things really get moving, the Economic Affairs Ministry’s guide to the authorities shows businesses, and those about to start out, the right people to contact: the website takes you to the right authorities and tells you what registrations are required, and where and when you can get them, giving you addresses, route maps, opening hours and contact names.

New digital start-up platform from March 2018

Further to this, the Economic Affairs Ministry and the KfW launched the pilot phase for a new, digital start-up platform in mid-December 2017. From spring 2018, prospective entrepreneurs will be able to get a wide range of interactive, customised and free help at gruenderplattform.de.

The idea is that people wanting to start up a business should be able to handle all the preparations relating to the launch on a central platform, and to get individual advice – from the initial idea via the development of the business model and the business plan through to the appropriate assistance and financing. The goal is to make it easier to set up businesses in Germany. To achieve this, the platform offers a range of digital tools and includes all the key players in Germany providing advice and funding to start-ups. More than 35 partners from Länder promotional banks, chambers, guarantee banks, Sparkassen, Volks- und Raiffeisenbanken and private banks are already on board.

“Young Digital Economy” Advisory Board

The “Young Digital Economy” Advisory Board gives the Federal Minister for Economic Affairs and Energy first-hand advice on current issues of the information and communication industry, and particularly on the development and potential of the young digital economy, on new digital technologies, and on how to provide start-ups with a better environment in which to grow. In view of the dynamic nature of the digital economy, it is flexible and open and offers the German start-up scene a direct and practical dialogue with policymakers.

Warehouse, image regarding the subject of SME financing; Quelle: Getty Images/Erik Isakson

© Getty Images/Erik Isakson

Financing for start-ups, company growth, and innovations

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Start-up Financing

Assistance for start-up entrepreneurs

Solid financing is the key to a successful start-up. In addition to the available equity, many entrepreneurs need external sources of funding. The most important thing is for the type of financing selected to be a good fit with the project.

People wanting to start up in business need to invest in real estate, equipment, machinery and, in many cases, in people. The business plan must also include the cost of the entrepreneur’s own living expenses. Entrepreneurs need to sort out the right financing package at an early stage so that their promising ideas can become successful businesses. The www.existenzgruender.de website doesn’t just help people to work out they amount of capital they need for their start-up: it also offers information on collateral, capital from outside sources and venture capital.

The following programmes in particular are available to help with finance:

For additional information on the issue of financing start-ups, please go to our SME financing section.

Financing growth

Once a young company has found its footing, the question of the next steps soon crops up. However, new companies face particular challenges as they plan and implement their projects: novel projects need detailed preparation and advice; investment and operating funds need to be financed; securities need to be lodged for external capital.

The right sort of finance for growth can help them to change in the way they wish, and to form a platform for the next stage in the company’s development. Funding programmes offered by the Federal and Länder governments help companies to cope and to implement promising projects. A key role here is played by public financial support, and also by information and advisory services.

For additional information on the issue of financing growth, please go to our SME financing section.

Young companies in the spotlight: our Start-up Nights

The Start-up Nights are an opportunity for young entrepreneurs to introduce themselves to established companies, industry associations and institutional investors, and to build networks. Young companies can showcase their digital business ideas to large corporations and SMEs from the same sector. In turn, these well-established companies can also make use of the opportunity to talk to innovative start-ups. For further information on the Start-up Nights, please click here.

Hand-over of Businesses to the Next Generation

Making the hand-over work

Successful hand-overs of companies not only safeguard jobs, but also keep expertise in Germany. To encourage business people to start working at an early stage on the question of handing the company on to the next generation, the Economic Affairs Ministry has launched the “nexxt” initiative.

In Germany, an average of 27,000 companies a year need to find someone to take them over. In this transitional period, approximately 400,000 jobs are at risk due to the forthcoming hand-overs. For this reason, the Economic Affairs Ministry wants to make entrepreneurs and potential successors even more aware of the issue.

According to the successors, more than 80% of the family-owned companies handed over in recent years prepared the transfer well. But more than a third of the owners had difficulties finding a suitable successor. Demographic change and the skills shortage were factors here, as were the prospects for potential successors. This means that it is particularly important for company owners to sort out the hand-over at an early stage, so that traditional family businesses can continue to thrive in Germany with their jobs and their expertise.

nexxt business succession initiative

In the nexxt initiative, the Economic Affairs Ministry works with partners around Germany to inform people about passing on businesses to the next generation. The aim is to raise awareness amongst business people at an early stage of the issue of who will take over their companies, and to facilitate the hand-over of SMEs to the next generation. The “nexxt-change” match-making site (in German) is at the heart of the initiative: people seeking a successor can make contact with people seeking a company via the free online exchange. Nationwide, around 735 regional partners – chambers, savings banks and credit unions – work to assist both owners and potential successors of companies placing the advertisements. Since 2006, more than 15,000 hand-overs to the next generation have been initiated via the exchange website.

Further information

Wall with post-its from an Start-Up; Quelle: Getty Images/Emely