Germany and France advocate for enhanced funding for startups - Strengthening Finances for Start-ups: Collaboration Between Germany and France
In a bid to unlock the growth potential of the European market, a joint task force led by Jörg Kukies (Germany) and Eric Lombard (France) has been working tirelessly to submit a report with proposals to close the financing gap for young innovative companies by the end of the year. The focus of the call is on improving the financing options for startups in later development phases, with the aim of retaining promising European companies within the EU.
The financing gap for European startups, particularly in Series B, C, and beyond, has been identified as a significant challenge that threatens scale-ups' ability to grow at home and compete globally. To address this issue, the task force has proposed a four-pronged approach.
Firstly, the task force aims to mobilize institutional investors, encouraging a realignment of European pension funds, insurers, and family offices to allocate more capital towards venture capital and growth equity. This move aims to unlock larger pools of homegrown investment to support scale-ups at critical growth stages, reducing reliance on foreign investors for massive late-stage rounds.
Secondly, the task force proposes expanding EU financial instruments. Initiatives like the European Innovation Council (EIC) will receive increased budgets, adopt challenge-driven approaches, and benefit from complementary measures such as the European Innovation Act and streamlined regulations. The European Investment Bank’s newly announced TechEU initiative will provide a significant financing pool (€70 billion between 2025-27) combining loans, quasi-equity, and guarantees to fuel innovation and growth across the continent.
Thirdly, the task force emphasizes the need to improve the regulatory and ecosystem environment. Addressing the cultural and structural barriers to scale-up growth, including reducing bureaucratic hurdles and fostering a mindset more tolerant of risk and failure, is seen as essential in enabling startups to transition smoothly into scale-ups without the risk of needing to relocate outside Europe for growth capital.
Lastly, the task force promotes the use of diversified financing instruments. Venture debt alongside equity financing will be encouraged to complement capital needs smartly, allowing startups to extend runways, reach milestones, or finance capital expenditures without diluting ownership excessively. European startups have increasingly normalized venture debt as a strategic tool, contrasting with more cautious views from some U.S. counterparts.
Together, these proposals aim to create a more robust, diversified, and accessible financing landscape that keeps innovative startups in Europe flourishing through later development phases, securing intellectual property and strategic autonomy from acquisition pressures by foreign investors.
It is important to note that the call for investments in decarbonization and digitization is not mentioned as a solution in the task force's report. The report will focus solely on improving the financing options for young innovative companies in the later development phases.
The report will be based on the expert knowledge of the entire European financial ecosystem, including investors, entrepreneurs, and regulatory authorities. The central obstacle for the growth of young innovative companies in Germany and France is limited access to growth capital in later development phases, a limitation that often forces promising European companies to relocate or seek financing outside the EU. By addressing this issue, the task force hopes to help retain promising European companies within the EU.
The task force is still working towards submitting its report by the end of the year. The proposed solutions will come from the expertise of various stakeholders within the European financial ecosystem. The Federal Ministry of Finance, headed by Kukies, has previously identified the lack of growth capital as a significant issue for young innovative companies in Germany and France, with Kukies and Lombard, members of the German SPD and French government respectively, calling for more public and private investments in decarbonization and digitization in a recent contribution to "Handelsblatt".
The published report by the joint task force highlights the proposed solutions to the limited access to growth capital, a key challenge for young innovative companies in Germany and France, which often leads to relocation or seeking funding outside the EU. To mitigate this issue and retain promising European businesses within the EU, the task force advocates for a four-pronged approach that includes mobilizing institutional investors, expanding EU financial instruments, improving the regulatory and ecosystem environment, and promoting the use of diversified financing instruments. Furthermore, the Federal Ministry of Finance, under the leadership of Jörg Kukies, has previously identified this financing gap as a significant issue, calling for more public and private investments in decarbonization and digitization.
