Access to growth capital German Government Unveils Start‑Up Strategy with a Defence Focus

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Less bureaucracy, more capital: the government’s new start‑up strategy aims to retain innovation in Germany and make it easier to spin out companies from academia — with a first‑time emphasis on security and defence.

The federal government will from now on provide targeted support to young, innovative companies in their growth phase. For the first time, the state’s promotion agenda explicitly includes the security and defence sector. This is the core of the new "Start‑up and Scale‑up Strategy" adopted by the coalition government in cabinet. The strategy is intended to prevent successful start‑ups from relocating abroad as they expand internationally, the paper says.

Economy minister Katherina Reiche (CDU) said the new strategy lays "the groundwork for the next generation of German global market leaders." She set out three objectives: "make founding easier, accelerate growth and keep innovation in Germany." To achieve these aims, the government will remove administrative hurdles, mobilise more private and public venture capital and facilitate spin‑outs from universities. For the first time, the federal strategy also explicitly targets start‑ups in the security and defence industry.

Opening the funding bottleneck

To widen access to urgently needed growth capital, the federal government plans, among other measures, to expand the Deutschlandfonds. The Deutschlandfonds is a government guarantee and support programme designed to de‑risk investments and to mobilise up to €130 billion of private capital for future and infrastructure projects in Germany. The strategy paper envisages a larger role for venture capital within pension fund investments and also proposes measures to encourage foundations to invest more in start‑ups.

On the regulatory side the government aims to cut red tape for founders. The "Faster Founding" project will digitise administrative processes end to end. At EU level the plan calls for a harmonised legal form to make cross‑border activity materially easier for companies.

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Funding rounds decline, but capital concentrated

The need for political action is underlined by the latest start‑up barometer from consultancy EY. While the domestic market raised around €5.3 billion in venture capital in the first half of 2026 — a 14% increase year on year — the number of financing rounds fell by 11% over the same period.

Investors are increasingly channelling funds into perceived safe bets and a small number of mega‑deals above €50 million, leaving many young and smaller start‑ups at a disadvantage in the race for capital. The government’s strategy seeks to strengthen the broad foundation of the founding ecosystem and to make access to capital more robust across all growth stages.

Business welcomes the initiative — but now action is needed

The Start‑up Association welcomed the new strategy but stressed that quick implementation is key. "The paper must rapidly become reality. Given the difficult economic climate and high job losses in traditional industry, we must open up much more to new ideas," said Helmut Schönenberger, deputy chairman of the association.

The plan also found support in industry. Hildegard Müller, president of the Association of the Automotive Industry (VDA), said closer cooperation between the automotive Mittelstand and start‑ups is crucial for the sector’s transformation. While start‑ups act as rapid innovation drivers — particularly in software — Mittelstand firms bring industrial scaling capability. "It is therefore positive that the start‑up strategy emphasises stronger collaboration between start‑ups and established industry," she commented.