Germany to buy stakes in defence start-ups
Measure is one of more than 150 designed to boost funding for start-ups in Europe’s largest economy
Germany is planning to buy direct stakes in defence technology start-ups, as part of several measures designed to boost innovation and help revive its stagnating economy.
Friedrich Merz’s government on Wednesday said the state would invest directly in defence ventures through development bank KfW, introduce tax incentives and streamline digitalised processes to set up a company.
“We are laying the foundations for the next generation of German global market leaders,” said Katherina Reiche, economy minister. “It has three objectives: to make it easier to set up a business, to accelerate growth and to keep innovation in Germany.”
The move signals a more dirigiste approach to industrial policy, and a response to longstanding complaints from entrepreneurs that Germany is stifling innovation through bureaucracy and a lack of venture capital. While a top recipient of VC funding in the EU alongside France, Germany has consistently lagged behind the UK and the US.
After winning general elections last year, Merz has failed to revive Europe’s largest economy, which is reliant on traditional manufacturing industries, such as car production and steelmaking. These export-oriented sectors have suffered from cheaper Chinese competition, forcing groups such as Volkswagen to shed jobs and shut plants in Germany.
Merz’s coalition of his Christian Democrats and the Social Democrats has sought to spur innovation, notably by leveraging the country’s massive rearmament push.
The government is planning to spend more than €700bn on defence by 2030, and wants to maximise the spillover effect for the entire economy, people close to government have said.
“Large financing rounds are often led by international investors,” the government’s bill reads, adding: “This can conflict with technological sovereignty and the long-term preservation of value creation and jobs in Germany and Europe.”
The government will set up a “new vehicle for direct investments in start-ups and scale-ups”, according to proposals seen by the FT. “This vehicle will support companies that clearly produce and provide products and services with military applications” including those subject to tight export controls. The government will make it easier for start-ups to participate in public procurement.
Among the more than 150 measures proposed, Berlin also vows to develop a “strategically oriented arms export policy that provides reliability to defence and dual-use start-ups and scale-ups”. It also promises to review export control licences more quickly, while paying greater attention to the potential outflow of sensitive technology.
The government plans to accelerate the digitisation of bureaucratic procedures so that data for tax, social security and licences will be processed in one place.
The plans were welcomed by some defence start-ups. Marc Wietfeld, co-founder and chief executive of the unmanned vehicle maker ARX Robotics, said Berlin was “sending a clear signal that start-ups and scale-ups are central to this country’s future”.
“Governments and the military are among our most important customers and partners,’’ he added. ‘‘This level of commitment makes me more confident than ever that Germany is serious about building the industries it needs to secure prosperity and credible deterrence.”
Others in the sector voiced scepticism about the idea of government taking equity stakes in private businesses, adding that it would be better for them to support start-ups simply by buying their products.