There has been a lot of noise lately whether Germany is a favorable environment for startups and entrepreneurs and in what way the conditions for young companies located here could be improved. The wide-spread public opinion: too much regulation, not enough capital and a general culture that is too risk-averse to bring up innovations. The BVK, Federal Association of German Capital Association, has now come forward with a new proposal that would favor more Venture Capital investments in Germany.

“In order to make Germany internationally more attractive as an investment destination for venture capital, we will issue a new set of rules (Venture Capital Act) depending on funding opportunities.” This has been written down in the coalition agreement between CDU, CSU and SPD in fall 2013. The German Bundestag now urged the Federal Government, to improve the conditions for venture capital in this legislative period. The BVK has proposed a draft bill, that includes a series of actions, most notably: 

• Opening clause for regulated investors – that way, investors will be able to put a small portion of their money into Venture Capital free from regulatory constraints
• Repeal of the sales tax on management fees – Germany is the only European country that still taxes the administrative services of fund managers – a clear disadvantage for Germany Venture Capital firms.
•  Direct tax benefits for R&D projects – compared to other European countries, German companies are operating at a significant disadvantage when it comes to tax benefits for R&D activities. 

In the last three years startups in Germany received almost EUR 2bn in Venture Capital – a decent plus of 19% (reported by the BVK). That might seem like a lot of money, compared to the EUR 64bn in the same period for the U.S. however, the amount is quite low. The proposed measures for a Venture Capital Fund Law in Germany are intended to enhance the investment environment for all parties – Fund investors, fund sponsors and portfolio companies. A constantly changing industry like the startup industry needs a flexible regulatory environment in order to stay competitive. The German regulatory authorities are said to be anything but flexible. The BVK bill proposal is a step in the right direction. A first step with a lot of ground to cover…