Joe Menninger: The German minister said something this morning that would have moved markets
Joe Menninger: in a normal news cycle. Quote, wir lassen einfach 30 Milliarden Euro liegen,
Joe Menninger: die wir nicht investieren können.
Joe Menninger: We simply leave 30 billion euros on the table every year because German pension
Joe Menninger: funds and insurers allocate one-tenth of one percent to venture capital while
Joe Menninger: their US peers allocate 2%.
Joe Menninger: That is the size of the European scale-up gap, in one sentence from the minister herself.
Joe Menninger: Hello and welcome everybody. This is Joe Manager, recording from Frankfurter Main, Germany.
Joe Menninger: A few hours ago, Startup Radio was invited to attend the online press conference,
Joe Menninger: at the Bundesministerium für Wirtschaft und Energie, meaning the Federal Ministry
Joe Menninger: for Economics and Energy, where Federal Secretary Katharina Reiche presented
Joe Menninger: the federal government's new Startup and Scale-Up Strategy.
Joe Menninger: Together with the cabinet resolution, I want to walk you through what she said
Joe Menninger: and what the, I hope you sit down, 234-page strategy document contains and,
Joe Menninger: as always on the show, what it actually means for founders, investors,
Joe Menninger: corporates, policy makers and the European scale-up gap we so frequently talk about.
Joe Menninger: Today's argument in one line.
Joe Menninger: Germany is no longer asking only how to create more startups.
Joe Menninger: It is asking how to finance, procure
Joe Menninger: from, scale, and retain strategically important technology companies.
Joe Menninger: For years, the German startup debate concentrated on formation.
Joe Menninger: How do universities produce more spinoffs? How do founders access seed capital?
Joe Menninger: How does incorporation become faster?
Joe Menninger: How does Germany create more entrepreneurial ambition?
Joe Menninger: Those questions still matter. But the new strategy marks a more consequential shift.
Joe Menninger: Germany is moving from startup promotion towards scale-up sovereignty.
Joe Menninger: The document contains 152 measures across financing, research transfer,
Joe Menninger: security and defense, bureaucracy,
Joe Menninger: public procurement, talent, corporate cooperation and internationalization.
Joe Menninger: And its stated aim is no longer merely to increase the number of startups.
Joe Menninger: It is to help successful companies reach the growth stage, remain in Germany,
Joe Menninger: and expand internationally from European base.
Joe Menninger: That distinction matters. Germany does not primarily suffer from a lack of innovation,
Joe Menninger: research, or company formation.
Joe Menninger: It actually suffers from an incomplete conversion chain.
Joe Menninger: Research does not reliably become a company.
Joe Menninger: A company does not reliably become a scale-up, and a scale-up does not reliably remain in Europe.
Joe Menninger: The new strategy is the clearest acknowledgement yet that Germany's central
Joe Menninger: startup problem is now the European scale-up gap.
Joe Menninger: A short note on where this comes from, because context matters.
Joe Menninger: Startupway.io has followed the development of Germany's startup architecture
Joe Menninger: across several federal governments.
Joe Menninger: In 2021.
Joe Menninger: We interviewed Thomas Zombeck, then Germany's Commissioner for Digital and Startups,
Joe Menninger: about the federal government's 10 billion euro future fund.
Joe Menninger: The core model was already visible then. Public capital would not replace private investment.
Joe Menninger: It would mobilize it through the European Investment Fund, through KFW Capital,
Joe Menninger: through venture funds, through selected direct investment vehicles.
Joe Menninger: Yet Tom Beck described the public money as patient capital operating across a 10-year horizon.
Joe Menninger: The mission was to multiply the federal commitment through private co-investments,
Joe Menninger: not to build a wholly state-directed venture market.
Joe Menninger: In 2023, we continued the conversation with Anna Christmann,
Joe Menninger: then Germany's Commissioner for Startup and Digital Economy.
Joe Menninger: I may add, Anna Christmann was from the Scholz government and Thomas Herzombek
Joe Menninger: from the Merkel government.
Joe Menninger: Frau Christmann, the first comprehensive federal startup strategy,
Joe Menninger: added a broader institutional agenda. Funding.
Joe Menninger: Employee ownership, female entrepreneurship, public procurement,
Joe Menninger: resource spinoffs, regulatory sandboxes, access to data.
Joe Menninger: At that point, the strategy had already moved beyond seed stage promotion.
Joe Menninger: The 1 billion euro deep tech and climate fund addressed companies with longer
Joe Menninger: development cycles. The European Tech Champions Initiative targeted Europe's
Joe Menninger: shortage of later stage growth capital.
Joe Menninger: The 2026 strategy does not replace that architecture. It actually extends it.
Joe Menninger: The line running through all these three phases is clear. Germany has spent
Joe Menninger: the past five years building the individual components of a startup financing
Joe Menninger: system, what I also call the financing stack.
Joe Menninger: It is now trying to make those components operate as an integrated scale-up system.
Joe Menninger: That is real difference and it changes how we should read the new document.
Joe Menninger: The numbers show both progress and the unresolved problems.
Joe Menninger: Let me get into the data. The government presents a German startup ecosystem with real momentum.
Joe Menninger: I mean, guys, you know, we'll talk about it frequently.
Joe Menninger: 3053 startups founded in the first half of 2026, almost as many as in an entire
Joe Menninger: 2025, which totaled around 5300.
Joe Menninger: As Minister Reiche puts it in her opening remarks, ein Sprung um 51% nach oben,
Joe Menninger: a 51% jump over the same half of 2025.
Joe Menninger: Start-up and scale-up employment reached roughly 522,000 people in 2024.
Joe Menninger: German startups attracted 7.2 billion euros in venture capital in 2025,
Joe Menninger: and Germany now counts 36 unicorns, up from 32 the year before.
Joe Menninger: Reiche also highlighted a pool of capital that already exists in Germany,
Joe Menninger: Kapitalsammelstellen in German, like pension funds and serious foundations.
Joe Menninger: They manage 2.8 trillion, yes, with a T, euros in assets. Private wealth totals roughly 10 trillion.
Joe Menninger: Talent is not the constraint.
Joe Menninger: Capital is not the constraint. So what is it?
Joe Menninger: Her own answer in one line, Venture capital Investition in Deutschland liegen
Joe Menninger: bei 0,5% des Bruttoinlandsprodukts.
Joe Menninger: In den USA sind es fast 2%, which means we see investments in Germany sit at 0.15% of GDP.
Joe Menninger: So let's say a half percentage point. In the US it's closer to 2%, meaning fourfold.
Joe Menninger: The strategy itself acknowledges that large financing rounds are still frequently
Joe Menninger: led by international investors.
Joe Menninger: The IPOs remain rare. That 92% of German startup exits take place through company
Joe Menninger: sales, not stock market listings.
Joe Menninger: Reicher framed the growth stage problem directly.
Joe Menninger: In größeren Finanzierungsrunden verliert dann Europa Anteil und Unternehmen
Joe Menninger: wandern für große Finanzierungen in die Vereinigten Staaten nach Amerika.
Joe Menninger: That's what we actually say in the startup scale-up gap.
Joe Menninger: In larger financing rounds, Europe loses shares,
Joe Menninger: and companies migrate to the US for capital.
Joe Menninger: This is why a startup strategy based only on creating more companies would be insufficient.
Joe Menninger: A country does not secure technology sovereignty by continuing incorporations.
Joe Menninger: It actually secures technological sovereignty by retaining their ownership capabilities,
Joe Menninger: IP production and decision-making as those companies scale.
Joe Menninger: So, the venture market has to be assessed across the entire capital cycle,
Joe Menninger: fundraising, entry valuations, view flow, follow-on financing,
Joe Menninger: exits, taxation, availability of institutional capital.
Joe Menninger: That is why we at Startup Radio have consistently treated KFW's research,
Joe Menninger: venture capital and private equity indicators, as essential market infrastructure,
Joe Menninger: not just as another quarterly report.
Joe Menninger: The KFW Barometer draws on roughly 450 investors and tracks business conditions,
Joe Menninger: expectations, fundraising, investment activity, valuations, and exit opportunities.
Joe Menninger: That is the readout you need if
Joe Menninger: you want to know whether the political architecture is actually working.
Joe Menninger: Political announcements matter. Capital market conditions determine whether they work.
Joe Menninger: And here's a line from this morning's press conference that I think may become
Joe Menninger: the most quoted number from the whole event.
Joe Menninger: Asked by newspaper Tagesspiegel Daily Mirror about the private pension pillar,
Joe Menninger: Reiche produced this calculation.
Joe Menninger: If German institutional investors allocate venture capital at 2% of assets like their US peers.
Joe Menninger: That delta alone would produce a 30 billion euro annual investment.
Joe Menninger: Her exact words, wir lassen einfach 30 Milliarden Euro liegen,
Joe Menninger: die wir investieren könnten.
Joe Menninger: We are simply leaving 30 billion euros on the table that we could invest.
Joe Menninger: Her comparison to the mechanism out, during pension funds average,
Joe Menninger: a minus 0.6% real return.
Joe Menninger: Minus 0.6% real return. Swedish and Danish equivalents that invests in venture
Joe Menninger: and public equities run at 7 to 11% plus
Joe Menninger: a pension fund that invests in venture capital performs better and secures pension
Joe Menninger: better than one that does not.
Joe Menninger: Part three, the financing architecture is becoming more direct.
Joe Menninger: The most important change in this strategy is not that more programs are being announced.
Joe Menninger: It is that the government is becoming more willing to intervene across different
Joe Menninger: layers of the capital stack.
Joe Menninger: Here is what a strategy commits to. Extending the future fund beyond 2030,
Joe Menninger: creating scale-up direct through KFW,
Joe Menninger: a direct investment vehicle, investing up to 300 million euros in funds that
Joe Menninger: finance first-of-kind industrial projects,
Joe Menninger: launching HTGF5, the fifth generation of high-tech Grunnerfonds, in 2027,
Joe Menninger: creating Wachstumsfonds No.
Joe Menninger: 2, expanding the European Tech Champions initiative,
Joe Menninger: mobilizing more than 25 billion euros in private commitments through the WIN
Joe Menninger: initiative, we talked about this frequently, improving secondary markets and exit conditions, and,
Joe Menninger: expanding financing for strategic fields including deep tech,
Joe Menninger: AI, biotechnology, and defense tech.
Joe Menninger: Why does this matter? Because different companies fail at different points.
Joe Menninger: A software startup may need seed funding, product market fit,
Joe Menninger: and commercial distribution, a fusion company, a quantum company,
Joe Menninger: a biotechnology company, and an advanced manufacturing company.
Joe Menninger: Those need laboratories, demonstrating facilities, regulatory approval,
Joe Menninger: project finance, venture debt, years of technical validation before meaningful revenues emerge.
Joe Menninger: The strategy recognizes this.
Joe Menninger: It proposes financing for first-of-kind projects.
Joe Menninger: It commits to milestone-based support for fusion startups through Sprint,
Joe Menninger: a German agency for disruptive innovation, including potential co-financing
Joe Menninger: of technology demonstrators for magnetic and laser fusion.
Joe Menninger: Here's the sentence I want you to hold on to. Deep tech cannot be financed,
Joe Menninger: as if it were SaaS with a laboratory attached.
Joe Menninger: That is the frame that should guide how investors and policymakers read the entire document.
Joe Menninger: Germany's economic strength lies in complex industrial systems,
Joe Menninger: scientific research, engineering, specialized manufacturing, and regulated markets.
Joe Menninger: A credible German startup strategy therefore cannot simply replicate Silicon
Joe Menninger: Valley's preferred company and capital model.
Joe Menninger: It has to finance the companies that Germany is structurally capable of producing.
Joe Menninger: That is what the strategy is trying to do.
Joe Menninger: Chapter 4. Germany is building its own industrial reality.
Joe Menninger: This is consistent with what we found in our 2026 analysis of Germany's digital
Joe Menninger: hub and startup factories.
Joe Menninger: Germany's startup ecosystem is decentralized because its economy is also decentralized.
Joe Menninger: Industrial capabilities are distributed across Munich, Berlin,
Joe Menninger: Frankfurt, Hamburg, Dresden, North and Westphalia and many specialized regional clusters.
Joe Menninger: The digital hubs coordinate market-facing ecosystems, the start-up factories
Joe Menninger: increase university spin-off formation, private capital acts as an early validation
Joe Menninger: mechanism, not a late-stage afterthought.
Joe Menninger: This is not a single-city hyperscaler model.
Joe Menninger: It reflects Germany's tradition of research institutions, industrial clusters,
Joe Menninger: Mittelstand companies and hidden champions.
Joe Menninger: The new strategy also reinforces this layered architecture.
Joe Menninger: Exist set of factories address venture formation.
Joe Menninger: A planned Exist Academy should professionalize university entrepreneurship support.
Joe Menninger: A national intellectual property strategy, standardized spin-off contracts,
Joe Menninger: an IP toolkit, and an IP deal database, all aim at reducing friction in technology transfer.
Joe Menninger: Real labore and experimentation clauses are designed to bring regulated innovation
Joe Menninger: closer to market deployment.
Joe Menninger: But, and this is critical, startup
Joe Menninger: factories can increase the number of companies leaving universities.
Joe Menninger: They cannot by themselves create the capital, the customers,
Joe Menninger: and the exit markets required to turn those companies into global category leaders.
Joe Menninger: That is where the scale-up strategy begins. Part 5.
Joe Menninger: Public procurement may matter more than another funding program.
Joe Menninger: Let me point out what I think is the single most economically important measure in this whole document.
Joe Menninger: It received far less attention than the new financing vehicles.
Joe Menninger: Only 7% of German startups had public sector customers in 2025. 7%!
Joe Menninger: The strategy responds by introducing a special direct award threshold of 100,000
Joe Menninger: euros for federal procurement from innovative startups.
Joe Menninger: The related rules enter into force in the first half of July 2026.
Joe Menninger: They are intended to make bilateral negotiation awards easier,
Joe Menninger: reduce excessive eligibility requirements, and accelerate payments.
Joe Menninger: This addresses one of Europe's deepest contradictions. European governments
Joe Menninger: frequently subsidize innovation and then purchase established foreign technology. They fund the supply.
Joe Menninger: They fail to create the demand.
Joe Menninger: So here's the line, Europe does not only have a venture capital gap,
Joe Menninger: it has a venture client gap.
Joe Menninger: For B2B startups, for GovTech cybersecurity, AI, defense and industrial technology
Joe Menninger: companies, a credible, really credible first customer can be more valuable than yet another grant.
Joe Menninger: Public procurement provides revenue, validation, references.
Joe Menninger: A route towards scale. It can also reduce dependence on international investors
Joe Menninger: by improving the underlying commercial quality of European companies.
Joe Menninger: The decisive question is therefore not whether procurement law technically permits
Joe Menninger: public authorities to buy from startups, that is now settled.
Joe Menninger: The decisive question is actually whether procurement officials will actually
Joe Menninger: use these new instruments.
Joe Menninger: Because 100,000 euro direct award threshold that nobody in the ministry knows
Joe Menninger: about how to use is not a scale-up strategy, it's a footnote.
Joe Menninger: Port 6, Defense Tech is a clear signal of the policy shift.
Joe Menninger: The most politically visible section of the strategy is the dedicated feel for security and defense.
Joe Menninger: Germany plans to establish a federal direct investment vehicle for startups
Joe Menninger: and scale-up producing clearly military-used products and services,
Joe Menninger: including products converted by Germany's war weapons control framework.
Joe Menninger: It also plans dedicated investments in defense-focused venture funds and a stronger
Joe Menninger: use of Sprint instruments for security and defense technology.
Joe Menninger: This shift reflects an existing market reality.
Joe Menninger: German defense tech startups and scale-ups attracted one.
Joe Menninger: 0.16 billion euros in venture capital in 2025.
Joe Menninger: That is more than half of European defense tech venture investments.
Joe Menninger: Defense represents approximately 17% of the German venture market compared with about 4% globally.
Joe Menninger: And almost one quarter of German startups reportedly develop some form of dual-use products.
Joe Menninger: 17% versus 4% globally.
Joe Menninger: That number should stop you. This is why Helsing matters more than as an isolated unicorn story.
Joe Menninger: Helsing represents the convergence of AI, defense procurement,
Joe Menninger: strategic autonomy, software-defined military systems and the European growth capital.
Joe Menninger: It is precisely the kind of company a new strategy is designed to support, retain and reproduce.
Joe Menninger: This policy shift is broader than the often used headline that Germany will
Joe Menninger: now fund weapon startups.
Joe Menninger: The real shift is that Germany has begun treating selected startups as strategic infrastructure.
Joe Menninger: This also explains the government's focus on faster Bundeswehr,
Joe Menninger: procurement, on SVI Connect and the Defense Alliance in Munich,
Joe Menninger: on NATO Diana and the NATO Innovation Fund, on the Bundeswehr own,
Joe Menninger: innovation structures, and on more predictable export control processes.
Joe Menninger: DefenseTech is not separate from new startup strategy, it is the sharpest expression of it.
Joe Menninger: Part 7. Startup Germany and the Friction Between Layers.
Joe Menninger: The government also plans to expand Startup Germany into national umbrella brand
Joe Menninger: and network connecting federal, state, and regional programs.
Joe Menninger: The stated objectives include improving transparency, helping startups identifying support programs
Joe Menninger: and international partners, strengthening the cooperation with established companies,
Joe Menninger: and marketing Germany more effectively to investors, founders, and talent.
Joe Menninger: Branding alone will not solve the scale-up gap, but current positioning matters
Joe Menninger: in an ecosystem that international investors often find fragmented and difficult to navigate.
Joe Menninger: Fortunately, there is Startup Radio, of course.
Joe Menninger: An international investor may understand Berlin Software or Munich Mobility
Joe Menninger: or Frankfurt Fintech, but they may not automatically see how German research
Joe Menninger: institutions, federal programs, state-level agencies,
Joe Menninger: the partners from Mittelstand digital hubs, and startup factories all fit together.
Joe Menninger: Startup Germany can be useful when it makes that system legible.
Joe Menninger: But let me be clear, Germany does not need another slogan for entrepreneurship.
Joe Menninger: It needs a navigable market architecture.
Joe Menninger: Because the deeper problem, and this is the thesis of this whole episode, is this.
Joe Menninger: Feud separately, Germany already has many other required components.
Joe Menninger: Public Venture Commitments, KfW Capital, the European Investment Fund,
Joe Menninger: the German ATGF, the Deep Tech Climate Fund, Sprint, the Exist Programmes,
Joe Menninger: Startup Factories, Digital Hubs,
Joe Menninger: universities, and applied research institutions, strong industrial customers,
Joe Menninger: a large SME, Mittelstands-based, world-class engineering, a grown population
Joe Menninger: of venture-backed technology companies.
Joe Menninger: The unresolved problem is the handover between the layers. Research must reach founders.
Joe Menninger: Founders must reach investors. Investors must fund forlorn rounds.
Joe Menninger: Startups must reach the Customers and public institutions must become the venture clients.
Joe Menninger: Scale-ups must access the industrial infrastructure.
Joe Menninger: And European capital markets must eventually provide liquidity.
Joe Menninger: Germany's challenge is not the absence of building blocks. It is the friction between them.
Joe Menninger: Closing remarks and the benchmark that matters. So, the final assessment.
Joe Menninger: Germany's new startup strategy is directionally stronger than its title suggests.
Joe Menninger: It is also financing strategy.
Joe Menninger: It is a research commercialization strategy, and it is also a procurement strategy.
Joe Menninger: It is a defense tech strategy.
Joe Menninger: It is an industrial policy strategy.
Joe Menninger: And above all, it is an attempt to close the German and European scale-up gap.
Joe Menninger: But the strategy's success will not be determined by the number of programs it announces.
Joe Menninger: It will be determined by whether Germany can turn scientific excellence
Joe Menninger: into investable companies, investable companies into scalable businesses and
Joe Menninger: scalable businesses into enduring European technology leaders.
Joe Menninger: Germany has learned how to support startups. It must now prove it can help build scale-ups.
Joe Menninger: That is the benchmark. And this time, the market should judge the strategy not
Joe Menninger: by its intentions, but by the companies that remain, scale, and win.
Joe Menninger: This is Johan Menninger for Startup Radio, Europe's voice on startups,
Joe Menninger: venture capital, and innovation.
Joe Menninger: I'll be back soon. Until then.