Here (without guarantee) is an overview of the most important conditions of the INVEST grant for venture capital from the guideline valid since 06.02.2023.
INVEST brings together start-ups and private investors who believe in bold ideas. The funding programme mobilises more private venture capital from business angels and thus helps start-ups find an investor more easily. This is because start-ups often fail in the early stages because they lack the necessary venture capital. This is where the Federal Ministry for Economic Affairs and Climate Protection comes in with its INVEST funding programme.
I. Acquisition Grant
The general conditions for the 25% subsidy are:
- 25% acquisition subsidy for direct share acquisition (previously 20%) and for convertible loans (previously 10%)
- Introduction of an “INVEST budget” of 100,000 euros in acquisition subsidies per investor (i.e. no more INVEST subsidies once 100,000 euros in acquisition subsidies have been paid out or approved)
- 10,000 euros minimum investment sum (previously 25,000 euros)
- 200,000 euros maximum eligible investment sum per investment
- Expansion of the permissible legal forms for eligible enterprises to include registered cooperatives (eG)
The most important requirements for the invested enterprise
- Not older than 7 years
- Small enterprise as defined by the EU: less than 50 full-time equivalent employees, annual turnover or balance sheet total not exceeding € 10 million
- Not a company in difficulty as defined by the EU
- The company must not be listed on a regulated market or be preparing such a listing.
- The company must be mainly active in an innovative sector.
- The eligible industries are derived from a list of 28 industry classifications from the official statistics of the Federal Statistical Office.
Alternatively, a company is also considered innovative
- if it either holds a patent that is no more than 15 years old and is directly related to its business purpose, or
- or has received public funding for a research or innovation project in the two years preceding the submission of its application
- or in the two years prior to submitting the application, the company has received funding for the preparation of the start-up through the BMWi programmes “EXIST Start-up Grant” and “EXIST Research Transfer” or comparable programmes of the Länder
- or the company has received an innovation award listed on the BAFA website in the two years prior to submitting the application.
- or the company has been certified as innovative on the basis of an external, independent short report.
The company must, through the share issue or the convertible loan, pursue
- pursue commercial purposes
- have additional financial resources at its disposal
During a three-year holding period, the company must
- have its head office in the European Economic Area (EEA), but at least one branch office in Germany that is registered in the Commercial Register or one permanent establishment that is registered in the Trade Register. In the case of dependent enterprises, the controlling enterprise must also have its headquarters in the EEA and be a “small enterprise” within the meaning of the EU, not in difficulty and not listed on the stock exchange. (Thus, companies whose founders hold more than 50% of their business shares through a Beteiligungs-GmbH – Founder-GmbH – are also eligible).
- be economically active on an ongoing basis.
The most important requirements for the investor:
- Natural person with head office in the EEA or Beteiligungs-GmbH (Business Angel-GmbH) including UG – haftungsbeschränkt – with head office in the EEA including head office of the shareholders in the EEA. The number of partners is limited to a maximum of ten and at least one partner must be of age. If the participation is made via a business angel GmbH, each shareholder must also fulfil the requirements with regard to the investor. A legal form of an EU state comparable to a GmbH is also permitted.
- The business purpose of the business angel GmbH must be the “acquisition and holding or sale of investments”. The business purposes “asset management” and “consulting” are only permissible in addition.
- The acquisition of shares must be economically motivated (intention to make a profit), must take place on the investor’s own account/with the investor’s own money and must not be credit-financed.
- It must also be a first-time investment in the company. Follow-on investments are not eligible for funding.
- The investor must not be affiliated with the company.
The most important rules regarding participation:
- Ordinary, fully risk-bearing shares in a corporation (GmbH, AG, etc.) or a cooperative (eG) that are newly issued. Customary anti-dilution rules and liquidation preferences are harmless if they apply equally to all investors in a round.
- Convertible loans (25%) are also permissible under the following main conditions:
_Convertible loan is issued under standard market clauses
_The company must have additional financial resources at its disposal as a result of the convertible loan, i.e. the money must be made available to the company from outside after the money must be injected into the company from outside after the investor has applied for it
_Subsequent conversion must be provided for in the loan agreement
_Conversion must be carried out within 24 months of the approval notice
_Only one payment call can be made, even if the conversion of the loan takes place in several capital increase rounds
_Payment of the acquisition subsidy only after conversion
_Combination with milestone agreement not permitted
The most important procedural rules:
- Responsible: Federal Office of Economics and Export Control (BAFA) in Eschborn
- Online procedure
- Two-track procedure:
_Company applies for eligibility, the decision is valid for twelve months
_Investor applies for subsidy and provides application number of company
- Payment only after proof of investment, in the case of milestone agreement in accordance with milestone investment, which must, however, amount to at least € 10,000 in each case, in the case of convertible loan only after conversion.
- No reclaiming of the grant within the holding period if the business model has failed, e.g. in the case of insolvency.
II. Exit grant
The exit grant amounts to 25 % of the profit from the sale of a participation promoted with the INVEST acquisition grant.
The most important rules for the exit grant
- Recipients of the exit grant are exclusively natural persons.
- The acquisition of the shares for which the exit grant is applied for must have already been supported by INVEST as of 01.01.2017.
- A minimum holding period of three years and a maximum holding period of 10 years apply, so that the exit grant is only eligible for capital gains from 01.01.2020. The application period ends on 30.06.2031.
- The profit from the sale must amount to at least 2,000 euros.
- The amount of the exit grant is 25 per cent of the gain from the sale of units subsidised with the acquisition grant.
On 27 April 2017, the Bundestag adapted the tax exemption of the INVEST grant to the revised INVEST guidelines, and the Bundesrat approved the resolution on 2 June 2017. The new regulation thus applied for the first time to the 2017 tax year, so that all INVEST grants will benefit from it as of 01.01.2017.