Germany is grappling with a budget crisis that has raised significant concerns about the future of state subsidies for deep tech and climate tech startups. The crisis follows a court ruling in November that deemed the allocation of funds from Berlin’s $60bn climate transformation fund illegal. This fund included $20bn for international chipmakers like Intel and Taiwan’s TCSM to invest in the country.
The government’s response has been to freeze payments and put on hold subsidies intended to boost the installation of heat pumps. This decision has sparked fears of a potential threat to semiconductor projects in Germany. Maureen Haverty, a deeptech investor at Seraphim Space, emphasised that withdrawing these subsidies weakens the perception of Germany’s innovation economy.
Uncertainty in investments
Amidst this flux, German VCs investing in deeptech are uncertain about the long-term impact on their portfolio companies. Anna Christmann, Germany’s startup commissioner, assured that the €10bn Future Fund, launched in 2020 to support startups, remains unaffected. However, she emphasized the importance of investment space in climate tech for Germany’s green industry and economy.
A threat to chipmaking
The budget crisis arrives after a robust year for semiconductor startups in Europe, with the EU announcing a €43bn package for chip companies in April. German semiconductor startups have raised a record $50.4m in pre-Series B rounds this year. However, investor confidence in the German semiconductor sector could waver due to the crisis. Haverty suggests that the uncertainty may cause investors to reconsider their investment strategies in semiconductors.
Concerns among generalist investors
Michael Kissner, founder and CEO of Akhetonics, notes that generalist investors, newly focused on semiconductors due to increased government spending, might now hesitate to back German startups. Black Semiconductor, amidst fundraising, expressed concerns about uncertain timelines due to the crisis. Gopalakrishnan Balasubramanian, CEO at XeedQ, highlighted the negative impact of this uncertainty on startups’ funding, recruitment, and infrastructure plans.
Gerrit Jurilj, partner at b2venture, warns that the government’s failure to address the budget deficit will impact deeptech investments, affecting follow-on funding, subsidies, and government contracts.
Will startups leave Germany?
The $20bn German package, the largest in Europe, positioned Germany as a potential leader in semiconductor technology. However, the diminished confidence in Germany’s tech commitment could prompt top startups to relocate to more supportive ecosystems. Prominent climate techs like FREYR, Climeworks, and Marvel Fusion have already expanded to the US, attracted by significant government support.
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