State support for startups
The development of the country’s economy should be and luckily, nowadays is one of the primary goals for the governemnt. Therefore, for financial support, you can turn to not only private investors, but also to state funds. Unfortunately, at the moment, there are many financial, but also administrative barriers to the implementation and development of entrepreneurial activity. It should be understood that your project will have to pass a strict selection. You need to prove that you are really going to bring your project to life, and one of the most important selection criteria is a personal commitment to success.
If you have passed the selection, you can be sure that there will be no problems with the funding of the startup – all promises will be fulfilled on time. In the next step, you will need to provide financial statements or other results of activities, which will be agreed in advance. Otherwise, the State has the right to withdraw the investment. Therefore, the terms of the contract must be strictly observed.
In this article we will review differences in state support for startups in Germany and USA.
How does the state support a startup in Germany?
The German Federal Government (Bundesregierung) has committed itself to spending about 3% of GDP annually on research and development funding. This means that it has implemented many programs that provide financial support for such projects. Financial incentives are provided at two different levels:
- Incentives for the entire European Union (Horizon 2020 program – EU Research and Innovation Framework Program)
- Federal government grants
The amount of funding available depends on the size of the business, the number of institutions and the type of research undertaken.
In turn, the German Government’s Economic Development Agency (Germany Trade & Invest) can assist in finding suitable funding programs and the application process.
Recruitment support from German agency BA
The Federal Employment Agency (Bundesagentur für Arbeit – BA) offers a range of employment-related bonuses aimed at helping startups to reduce their operating costs. There are four main types of incentives:
– Recruiting support
– Preparing for employment
– Subsidized wages
– On-the-job training
In addition, concessional lending is available for startups in Germany. At the same time, if the debt to the bank is paid and the project is starting to make a profit, then the business remains entirely with the owner. In some situations, this is very convenient, since with venture investments you have to part with a certain share of the company.
In most countries, banks do not give a loan to a startup without startup capital. But Germany has become an exception. There is a preferential system for lending to startups, carried out through the state bank KfW.
To obtain a loan, you will need to prove to a bank representative the prospects of a future project. Without capital, you can get an investment of up to 100 thousand euros at a rate of 2% per year. There are also other programs for obtaining a loan for large amounts.
In addition to supporting startups from a state bank in Germany, there are many more lending programs. ERP/EIF-Dachfonds is a venture capital investment from the European Foundation. Loans for projects on a concessional basis from L-Bank. ERP-Beteiligungsprogramm – is a program to increase the investment of startups. And this is only a fraction of the investment opportunities that exist in Germany.
State support for a startup in the USA
In this part, we will be talking mainly about the SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programs, which provide grants for startups in the United States.
The SBIR program began operating in 1982, and the STTR program in 1992. There are some differences between them, but the conditions for receiving funding through them and the principles of work are principally the same.
The main objective of this program is to provide support to innovative businesses and the development of innovations. The programme is funded from the federal budget. The program’s coordinator is the US Small Business Administration.
Requirements for program participants:
- the existence of an innovative idea and its subsequent implementation.
- a business located in the United States or operating in the United States,
- more than 50% of the company’s capital should be owned by US residents,
- the number of employees should not exceed 500 people.
How does SBIR / STTR work?
The SBIR / STTR program includes three stages. The first one is financing up to 100 000 dollars for a period from six months to one year. If this stage was successful, then at the second stage, you get the opportunity to receive a grant of up to $ 1 million for two years.
Funding can be provided in the form of a grant, contract, or mixed form. There are also conditions for mandatory participation in the work of partner research organizations such as universities and research centres.
The third stage provides for obtaining assistance in business matters, while funding for these purposes from the program is no longer provided. At the same time, if the company is still in the second stage, then there is an opportunity to use a part of the available grant for this purpose. In addition, the agency the startup is partnering with can help raise money from other sources – to finance the stage of market entry and monetization of your idea.
Benefits of participating in the SBIR / STTR program:
- Gratuitous funding in the form of grants, which a startup receives in the first and second stages.
- You get smart money because in the course of implementing your idea, a budding startup receives help from leading American experts in this field.
- Participants get a good opportunity to learn from the inside with their industry. This can help in the future with participation in tenders for the supply of goods or services to government agencies.
- The receipt of grants or contracts for these programs doesn’t affect the owners’ shares. The state doesn‘t claim a shareholding in your company.
If you have made the right choice of a startup support program, there is a great chance that sooner or later you will be successful. The fact is that when you participate in such programs even the losers get a valuable bonus – advice on finalizing the project. If you take note of the comments, then the next time your chances of success will increase significantly.
Governments are often doing their best to develop the scientific and entrepreneurial potential of countries, the task of startups is now only to convey their ideas to investors.