More financial leeway for innovations

Adequate funding is a precondition for innovations. But it is precisely young, highly innovative growth companies, so-called start-ups, that do not have sufficient capital.

According to the Commission of Experts on Research and Development (EFI), this poor capital base and the absence of an efficient venture capital market in Germany are the main problems facing innovative small and medium-sized enterprises (SMEs). This situation will deteriorate still further in view of the economic crisis. The Federal Government therefore views measures to improve the conditions for funding innovations as an important component of its innovation policy.

The introduction of corporate tax reform has already established more favourable preconditions for private investments in the field of research and development (R&D). The reduction of corporate tax to under 30% is providing financial leeway which benefit investments in research and development. Just what effect measures to counter-finance this tax reduction - relocating functions, taxing licences, purchasing corporate shells - and the flat rate withholding tax will have on the intensity of companies' R&D activities remains to be seen.

The Law on the modernization of the framework conditions for the provision of venture capital (MoRaKG) is intended to encourage financial investors to provide research-intensive companies with more own capital than has been the case in the past. Parts of this legislation, which came into effect in August 2008, still require clearance from the EU Commission. This is the case, for example, with the provisions concerning the use of losses.

Funding is often a serious problem for technology-based and innovative young companies. This is where the High-Tech Start-up Fund takes effect with a volume of approximately 272 million euros. It invests venture capital in young technology companies which transform promising research results into commercial successes. Start-ups can develop their R&D projects up to prototype or market-entry stage with the help of so-called "seed funding" of up to 500,000 euros. The fund is a successful example of a Public-Private Partnership as it is backed by the Federal Ministry of Economics and Technology (BMWi) and the KfW banking group in association with the firms of BASF, Deutsche Telekom, Siemens, Robert Bosch, Daimler and Carl Zeiss.

Foundations are important partners for the Federal Government. In particular, non-profit foundations which are active in the field of education and research are profiting from the 2007 Law to Strengthen Civic Commitment ("Help for Helpers"). The incentives for providing funding have been increased considerably. The law has met with wide approval and has contributed to a positive development in the foundations sector over the last two years.