Getting the most out of state and federal startup programs

James Riley
Editorial Director

When the German federal government unveiled its first national startup strategy in the middle of 2022, its biggest surprise perhaps was that it had not arrived earlier.

German industrial muscle and the strength of its Mittelstand – the prosperous strata of mid-sized industrial and technical companies – may have made it more difficult for startups to get the attention of policymakers.

But in July 2022, a federal startup strategy arrived with ten areas of focus. There is no reinvention of the wheel here. The areas of focus will have very familiar ring to anyone who has spent time in a startup ecosystem anywhere in the world, including here in Australia.

The big themes in startup policy are quite consistent across the advanced economies. Comparing the way Germany approached its federal startup plan is interesting in the Australian context because it is similarly organised around a federation of states, and deals with the competing complexities of that structure.

The Australian federal government does not have a formalised national startup strategy, although it does run programs that correspond to the ten policy themes that the German federal government put in place in 2022.

Inside the dome at the Reichstag – the German Parliament – in Berlin

Federal startup policy in Australia has been largely taboo in Australia ever since an electoral backlash against the Turnbull government at the 2016 election was blamed – at least in part – on Malcolm Turnbull’s National Innovation and Science Agenda.

Individual policy programs have continued to exist, but since the withering of the NISA grand strategy, there has been no overarching, central strategy.

Industry minister Ed Husic has been a long-time friend to the startups generally (and deep tech startups in particular).

But it is still not clear whether this government has an appetite for playing a more proactive coordinating role in relation to the states in the way the German program has sought to do. The German system has attempted to encourage specialised ecosystems of startup in different regional centres.

This is not something Australia has done well. The states have each gone their own way, often competing with sub-scale efforts that duplicate work being done elsewhere.

The ten policy focus areas in the German national startup strategy roughly correspond to individual programs that benefit startups run by the Australian government. You can tick them off.

First, to strengthen funding for startups through a commitment of €10 billion (A$16.6 billion) over an investment period to 2030. The aim is to use the taxpayer commitment to mobilise a total of €30 billion in public and private capital for startups.

Secondly, the government has a plan to make it easier for startups to attract talent by making employee shares schemes more attractive.

Thirdly, it aims to make the process of setting up a company easier and more digital. This is a commitment to bureaucratic reform.

The fourth: Strengthen female founders and promote diversity. The fifth area of focus is to improve the performance of spinouts from academic institutions, thereby improving commercial performance. It will do this by reforming the way intellectual property is treated, as well as strengthening industry/academic networks.

The sixth targets ‘social good’ startup enterprises with the promise of reformed funding models and incentives that recognises the essential driver of innovation in organisations that are not structures around profit.

The seventh focus aims to mobilise public procurement as a mechanism to support startups, the notion that the best way a government can support a startup is to become a customer of that startup.

The eighth focus is data. From opening up public data sets, to establishing incentives for data sharing (within existing data protection legislation), as well as specific financial incentives to encourage German SME’s to engage startups for data innovation and artificial intelligence projects.

The ninth focus is in setting up the regulatory equivalents of sandboxes – the Germans call these Reallabs – to allow new business models to be tested in an environment of investment certainty – and with the ability to then scale projects that have proven out.

The final, tenth area of focus in the German national startup strategy was a commitment to put startups at the centre of government activities across a broad swathe of the economy, and to establish a network of touchpoints for startups in all federal ministries and agencies.

Katarzyna Grajner works at Berlin Partner für Wirtschaft und Technologie (the Berlin Startup Unit) as the coordinator for Berlin IoT and fintech.

Berlin Partner is the state/municipal startup program (Berlin is both a city and a state in the German federation). Ms Grajner is the coordinator through the federal de:hub Digital Ecosystem program for IoT and FinTech, which seeks to build specialist startup ecosystems in different regional centres.

Under the federal de:hub program, Berlin is a centre for fintech and IoT, whereas Hamburg and Dortmund are being encouraged as centres for digital logistics startups, Munich on mobility and Insurtech startups, and Frankfurt/Darmstadt is focused on fintech and cybersecurity.

Other centres cover things like digital health, or artificial intelligence or mediatech. Each location hosts an ecosystem that has grown organically in the area of its specialty, but the additional federal resources helps to encourage that specialisation, Ms Grajner said.

In the case of Berlin, the city has attracted a large number of disruptive fintech companies – despite Germany’s financial centre being located in Frankfurt.

Berlin is host to about 4,000 startups from across all industries, but fintech have turned up in droves. The city boasts the largest community of fintech companies in the European Union and about 30 per cent of all German fintech companies.

Berlin Partner provides community facilities like event spaces, runs a ton of events to bring the different parts of the community together, helps to facilitate networking between funders and the founders, and encourages startups from outside of Germany to find a home in Berlin.

It is interesting that Berlin has become a fintech centre despite the German financial sector being in Frankfurt. The startups come to Berlin for a number of reasons Ms Grajner said. Culture, nightlife and lifestyle – and cheaper rent – are hugely important to founders who want to attract staff.

For many fintech she says the preference is to stay out of Frankfurt. These disrupters don’t want to collaborate with the entrenched financial sector, they are seeking to disrupt it.

“As a business development agency, we have hundreds of different services,” Ms Grajner said. “We help to find office locations, whether that’s going through co working spaces or finding extra [office space] for you up,” she said.

“We can help with some grants, helping with the application for some grants, whether from the city or from federal ministry. And we can help you find the right talent. We have a special team that can help your talent search.

“And we can help you with networking. We do a lot of events where you can join in and get in touch with different people from different communities.”

James Riley participated in a study tour of German innovation systems as the recipient of the German Grant for Journalism through the National Press Club of Australia and funded by the German Foreign Ministry.

Do you know more? Contact James Riley via Email.

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