BAFA INVEST | Our Guide to the Venture Capital Subsidy

Are you a German startup looking for venture capital financing? Are you a business angel looking to invest in the next big thing? BAFA’s German INVEST program—Venture Capital Subsidy—might be exactly what you’ve been looking for. BAFA INVEST helps connect startups with the right investors and funds the investment with a 20% reimbursement—up to 500,000 € of the investment amount—plus a flat-rate tax refund in the event of an exit.

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What Is Venture Capital?

Venture capital is a form of private equity that investors make available to young, innovative companies. It is also referred to as operating capital, risk capital, venture funding, or simply venture capital. However, venture capital is not a loan but rather equity that investors provide to the company. Venture capital is typically provided by wealthy business angels, investors, investment banks, or other financial institutions. Investors do not acquire a controlling stake in the company but are integrated as co-shareholders with all corresponding rights and obligations. Unlike a loan, investors realize their profits not through interest but only through a successful sale of the company, such as through an IPO or the sale of their shares to third parties.

Benefits for Companies

Every year, numerous companies and founders in Germany launch promising innovations. However, many of these startups fail in the early phase. The reason: insufficient capital to successfully finance market entry and growth phases. In particular, Germany has significant potential when it comes to providing venture capital compared to international standards.

INVEST supports young, innovative companies that receive a funding eligibility certificate as part of the application process. In addition to the certificate, companies can obtain a BAFA funding logo that can be used on their website and in presentations to draw the attention of potential investors to their funding eligibility and thus increase their chances of securing venture capital financing. Additionally, startups are listed in a public database where potential investors can discover them.

Benefits for Investors

The acquisition subsidy reduces the risk of a capital investment. Investors receive a 20% tax-free reimbursement from the state on the amount invested in an innovative company. Their shares in the company remain entirely with them. If investors sell their shares after a minimum holding period of three years or if the company fails, the subsidy does not need to be repaid.

If investors (natural persons only) realize a gain when selling their shares, they receive a flat-rate refund of the taxes due in the amount of 25% of the capital gains. This additionally increases profit opportunities for investors. A maximum of 500,000 euros per investor per calendar year is subsidized. Investments of up to 3 million euros per company per calendar year can be supported.

Requirements for Companies

Young innovative companies must meet certain requirements if they want to receive capital investment from investors using INVEST.

Requirements for companies:

not older than seven years
fewer than 50 employees (full-time equivalents)
annual revenue or annual balance sheet total of no more than ten million euros
capital company with registered office in the European Economic Area and at least one branch registered in the commercial register in Germany or a place of business registered in the commercial register
demonstrably innovative: according to the commercial register, the company belongs to an industry defined as innovative, is the holder of a patent, or received public funding for a research or innovation project in the two years prior to the application. Innovativeness can also be demonstrated by means of a separate short expert opinion from designated independent experts (PWC since 01.02.2021).
The company is continuously engaged in economic activity or commences its business operations no later than one year after the completion of the investment.

Requirements for Investors

For an investment in a startup to be supported by the INVEST subsidy, investors must also meet several conditions:

The business angel must invest as a natural person.
Alternatively, a holding GmbH or UG with up to ten shareholders, where only natural persons receive the later exit subsidy.
Primary residence in the EU and legal age.
The minimum holding period for the investment is three years.
Minimum investment: 10,000 euros.
Acquisition of shares with own funds (no credit financing of shares).
Share acquisition must be based on a business plan of the company and pursue a realistic exit strategy.

If investors do not meet the requirements, BAFA will reject the application for the INVEST subsidy.

Tip: Since early 2017, follow-on investments are also eligible for support, provided INVEST has already supported the acquisition of previously held shares by investors.

Extra: Exit Assistance When Selling Shares

A new feature of the INVEST venture capital subsidy is the exit subsidy. Here, natural persons receive, in addition to the acquisition subsidy, a flat-rate refund of taxes on gains incurred when selling the acquired shares.

The capital gain from the share sale must be at least 2,000 euros to receive the exit subsidy. If this is the case, natural persons receive 25% of the gain from the sale of their INVEST shares as a tax refund. The excess return is capped at 80% of the investment amount in INVEST shares.

How Can I Apply for BAFA INVEST?

The application for the INVEST subsidy is submitted to BAFA, reviewed there, and approved if applicable. There are two options for applying:

Option 1: The Company Already Exists

STEP 1: First, the capital-seeking startup must submit an electronic application to BAFA. BAFA reviews and certifies the company’s eligibility for funding if applicable.

STEP 2: The funding notice is valid for six months. If an investor is found, they must also submit an online application for the INVEST subsidy (i.e., the acquisition subsidy) to BAFA.

Final Step: If BAFA has also approved the investor’s application, they make the share purchase. To then receive the 20% reimbursement, the investor applies for it with BAFA and also submits the new articles of association.

Option 2: Company Has Not Yet Been Founded

STEP 1: If an investor participates in a startup project, meaning the company does not yet exist, the investor must first submit an online application for INVEST funding.

STEP 2: The company submits the INVEST subsidy application after it has been founded and registered in the commercial register—this must be done within three months after the investor’s application.

Further Links to BAFA INVEST

Online portal for company applications
Online portal for investor applications
INVEST database for companies
Application for exit subsidy payment

If you need help with the application process, simply schedule a meeting with us; we’re happy to help!

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