BIO Deutschland Opposes Further Discrimination against Innovation Funding
In a statement issued on 17 August 2012, BIO Deutschland urged the Federal Ministry of Finance to allow investments in innovations in its bill on implementing the Alternative Investment Funds Managers Directive (2011/61/EU) (the Act Implementing the AIFM Directive).
The ministry’s bill currently prohibits closed-ended public alternative investment funds (AIF) from investing directly in companies. Under the terms of the bill, such funds may only invest in companies via a fund of funds. This means that a major component of a functioning system that provides one of the few remaining sources of equity capital for private-sector research and development (R&D) will be unnecessarily prohibited.
BIO Deutschland therefore suggests
- that direct corporate investments in innovative small and medium-sized enterprises (iSMEs) be included in the catalogue of investment types in Article 1, Section 225 (1) of the Act Implementing the AIFM Directive;
- and, in order to avoid greater risks for private investors, that these investments be limited to a maximum of 15 per cent of the investors’ liquid assets; alternatively, investors must be explicitly informed prior to investing that this percentage is the limit set by the state.
The amount of continual R&D in SMEs is an important indicator for an economy’s future sustainability. Such companies help to create value directly where they are based. As a result of the inherent R&D risk, it is almost only possible to develop advanced technology via equity capital (investment capital, venture capital), as iSMEs in particular have virtually no access to outside capital (bank loans). The internationally proven models for funding young, innovative companies via equity capital receive no support whatsoever in Germany – on the contrary, these models are hampered by legal uncertainty and misguided (tax) regulations. This has led to a large-scale withdrawal of sources of classic venture capital from Germany. The gaps created by this withdrawal are being filled not only by large private investors such as family offices, but increasingly also by alternative funding models based on public funds.
The already difficult situation as regards funding innovations in SMEs is now to be made worse by the suggested regulations in the Act Implementing the AIFM Directive. However, the act should in fact do the opposite, that is, create incentives for investors to invest their capital in Germany.
A copy of the statement submitted to the Federal Ministry of Finance is available in German at www.biodeutschland.org/positionspapiere.html.