Venture Capital 2026 Comparisons

The 2025 German market for growth companies broadly mirrored global venture capital (VC) trends, but with more moderate momentum and a stronger element of selectivity. Artificial intelligence (AI), healthtech and defence tech were among the strongest industries, while the secondary market saw notable transactions.

Compared to other major markets such as the US and the UK, Germany’s VC activity remains less dynamic, reflecting weaker macroeconomic growth, but benefiting from a stable investor base, significant dry powder and increasing relevance of later-stage and scale-up financings.

The most sizeable VC financing rounds in 2025 included the following.

• German defence technology company Helsing completed a Series D financing round, led by Daniel Ek’s investment firm Prima Materia, raising EUR600 million, following its Series C financing amounting to EUR450 million in 2024, thereby more than doubling its valuation to EUR12 billion.
• Another German defence company, Quantum Systems, consummated a Series C financing round led by Balderton Capital, in which it raised EUR340 million, thereby tripling its valuation to EUR3 billion.
• Furthermore, Tubulis, a German biotech company, completed the largest ever Series C financing round for a European biotechnology company, raising EUR308 million, led by Venrock Healthcare Capital Partners.

In December 2025, Berlin-based digital brokerage and banking platform Trade Republic completed a EUR1.2 billion secondary transaction at a EUR12.5 billion valuation, led by existing investors including Founders Fund, Sequoia, Accel, and TCV and with global long-term investors such as Wellington, GIC and Fidelity joining the shareholder base in what is widely perceived as a pre-IPO stage. The transaction provided liquidity to early shareholders without any primary capital raise. Early 2026 also saw the announcement of a strategic secondary stake increase as Schwarz Group expanded its investment in AI venture Aleph Alpha by acquiring shares previously held by Bosch Ventures.

Notable exits included the following.

• Hornetsecurity, a Hanover-based provider of AI-powered Microsoft 365 security, data protection, compliance, and security awareness solutions, was acquired by Proofpoint, a leading cybersecurity and compliance company, for almost USD2 billion.
• Cognigy, a market leader in conversational and agentic AI based in Düsseldorf, was bought by enterprise software provider NiCE for USD955 million.
• Berlin-based fitness subscription platform Urban Sports Club was acquired by global corporate wellbeing platform Wellhub for approximately USD600 million in a mixed share/cash transaction, with the founders remaining involved post-transaction.

In 2025, Germany saw only one IPO of a growth-oriented technology company: innoscripta SE, a founder-led SaaS company, which listed on the Frankfurt Stock Exchange’s Scale segment with an offering volume of approximately EUR218 million and at a valuation of EUR1.2 billion. The transaction was structured entirely as a secondary placement of existing shares, without any capital increase, underscoring the selective nature of the German IPO market.

Overall Trends

The broader trend of increased cost of capital in Germany and challenged valuations is reflected in both financing round valuations and liquidity events. Overall, investors continue to opt for safer bets and prefer companies with a proven track record or alternative investments over very early-stage ventures, as reflected in the following key numbers.

• The number of financing rounds in 2025 declined for the fourth consecutive year, falling by 5% to 716 transactions compared to 2024. Compared with the record number from 2021 (1,160 deals), the number of financing rounds was down by 38%.
• However, the total value of venture capital investments increased significantly compared to 2024 by more than EUR1.3 billion or 19% to around EUR8.4 billion, trailing only the record years of 2021 and 2022.
• The number of sizeable transactions with a financing volume of more than EUR100 million increased by 30% to 18 deals in 2025, with the total volume of such rounds amounting to EUR3.72 billion (compared to EUR2.25 billion in 2024).

Venture Debt Gains Momentum

Notably, the German venture debt market reportedly reached a record level of activity in 2025, marking its strongest year to date. A total of 52 venture debt financings were reported, exceeding the previous high of 47 transactions recorded in 2022.

This growth has been primarily driven by a cohort of start-ups in later financing stages with increased capital needs, combined with more constrained access to attractive exit opportunities, which has made non-equity financing solutions more appealing. The underlying market dynamics suggest that venture debt has moved beyond a niche product and is becoming an increasingly established financing option for German start-ups, a trend that is expected to continue into 2026.

This trend is further illustrated by major commercial banks’ launch of dedicated growth-debt products. For example, HypoVereinsbank/UniCredit’s “Defence Growth Debt” programme, which was introduced in late 2025, targets defence and technology start-ups with non-equity financing solutions between funding rounds.

Regional Divergence

Geographically, Berlin led with a total of 218 venture-backed financing rounds in 2025, significantly surpassing both Bavaria with 149 and North Rhine-Westphalia with 97 transactions.

In terms of financing volume, Bavarian start-ups accounted for seven of the top ten financing rounds in Germany in 2025 and secured more than EUR3.3 billion in venture funding. Bavaria surpassed Berlin – which attracted approximately EUR2.6 billion – for the second year in a row.

Investor-Friendly Deal Terms

As the VC market is only slowly recovering from moderate levels, companies continue to concede more investor-friendly deal terms. These include founder lock-ups, vesting, and liquidation preferences, as further outlined in 3.5 Investor Safeguards and 5.2 Securities.

In line with the global trend, equity funding in German growth companies in 2025 heavily favoured software and analytics – including AI – with start-ups in this sector securing roughly EUR2.7 billion and thus accounting for more than 30% of the total financing volume, while defence technology and healthtech also emerged as important themes within the broader investment landscape.

Within the software and analytics sector, AI accounted for the lion’s share with EUR1.7 billion, highlighting investors’ appetite for ventures engaged in AI. The largest funding rounds in this sector were Helsing (EUR600 million), Black Forest Labs (EUR257 million) and n8n (EUR154 million).

The energy sector came in next, raising EUR1.2 billion or almost 40% more than in 2024 on the back of two major deals: Green Flexibility secured an equity-and-debt package of up to EUR1 billion and Terra One completed a mezzanine financing of EUR150 million. The health sector attracted around EUR1 billion in start-up financing, with the biotech segment attracting 58% of the funding volume within this industry.

Meanwhile, the food and delivery as well as the e-commerce sectors, which had been prominent investment themes in 2021, continued to lose relevance in 2025, with significantly reduced shares of both deal count and invested capital.

VC-backed exits have overall not concentrated on certain industries and remained subdued in 2025 with 164 exits in VC-backed companies (up from 154 in 2024).

While Germany-incorporated VC funds do exist, neighbouring Luxembourg is more popular with many sizeable Germany-focused VC investors due to its investor-friendly ecosystem, flexible corporate law and robust regulatory framework. When domiciled within Germany, the asset-managing GmbH & Co. KG (a partnership with a limited liability company as the general partner (GP)) tends to be the preferred structure, owing to its fiscal benefits – in particular, its tax transparency and exemption from trade tax obligations.

Structure

When structuring funds as a GmbH & Co. KG, the separation of management and fund is mandatory. The initiators, together with the investors, participate as limited partners (LPs) without any additional payment obligations (Nachschusspflicht).

The German limited liability company (Gesellschaft mit beschränkter Haftung, or GmbH) serving as the fund’s GP is typically excluded from owning fund assets, and its involvement in fund management activities is limited for tax reasons. Instead, fund management responsibilities (day-to-day administration) are assigned to a managing limited liability company (Kapitalverwaltungsgesellschaft, or KVG) (the “Managing LP”).

Investors often receive co-decision rights through an investor advisory board, selected by the Managing LP from among significant investors. This advisory board typically oversees, among other things, deviations from predefined investment criteria and extensions to investment timelines. An investment committee (IC) leads the decision-making process, using various approval methods such as unanimous voting or a points-based system to ensure alignment with the firm’s investment objectives. This makes the IC the actual investment manager of the fund.

Standard Documentation

Limited partnership agreements cover key areas such as capital contributions, profit distributions, investment strategies, time horizons such as investment and liquidation periods and governance (including GP and Managing LP rights). The terms may be tailored to the specific needs of LPs through side letters, which qualify as amendments to the limited partnership agreement.

The internationally established “2 and 20” fee model constitutes the default within the German VC industry.

The management fee is an annual fee paid by the fund to the Managing LP for purposes of covering administrative expenses and typically ranges from 2–2.5% of committed capital. It is charged every year the fund is in operation.

Carried interest is the percentage of profits of an investment (typically 20%) allocable to the fund’s Managing LP. The Managing LP is entitled to carried interest once the fund has returned the invested capital and a minimum, annually compounding interest rate (typically 6–8% pa – the “hurdle” rate) (distribution waterfall). However, if carried interest is paid on a deal-by-deal basis or the Managing LP is otherwise entitled to advances on the carried interest, LPs typically demand so-called claw-back provisions to address timing disparities/true-ups – pursuant to which, carry beneficiaries are required to reimburse LPs if the funds received by the Managing LP exceed targeted returns.

Against the backdrop of extended holding periods and delayed exits, the establishment and use of continuation funds has increased. Prominent examples include Main Capital Partners’ first-ever continuation fund (reportedly with a total of EUR520 million in commitments) to acquire a diversified group of three strong-performing portfolio companies across several of its own funds and NORD Holding’s launch of its first single-asset continuation fund, backing the all-inclusive Fitness Group at an enterprise value of over EUR500 million.

In Germany, the regulatory framework for funds (including VC funds) is established by the German Investment Code (Kapitalanlagegesetzbuch, or KAGB). For an entity to be recognised as an investment fund under the KAGB, it must meet certain structural criteria and be overseen by a licensed management company.

Investment funds in Germany are categorised into Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs), which encompass all non-UCITS investment entities. VC funds typically fall under the category of Special-AIFs, which are closed-end funds accessible only to professional and semi-professional investors, excluding retail investors. Even though the market for European Long Term Investment Funds (ELTIFs) keeps developing dynamically, this recently amended fund category has yet to impact the German VC industry in a meaningful fashion.

The Managing LP in an AIF (in the form of a capital management company (KVG)) requires authorisation from the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) to operate. The KAGB provides for simplified regulation for “small” AIF-KVGs managing Special-AIFs below certain asset management thresholds (which includes the fund structures relevant for VC investments). A “small” AIF-KVG manages Special-AIFs with assets not exceeding either EUR100 million, including assets acquired through the use of leverage, or EUR500 million without leverage if there are no redemption rights for investors within five years of the fund’s first investment. German VC-fund KVGs tend to qualify for the exemption, primarily due to their non-reliance on leverage and their average fund size not exceeding the EUR100 million threshold.

Such “small” AIF-KVGs are subject only to registration, reporting, and specific financial statement obligations, as well as audit requirements. Only AIFs structured as limited liability entities or partnerships, where the general partner possesses limited liability (eg, GmbH, AG, GmbH & Co. KG), are eligible for management under this framework.

Government-Backed VC Funds

In Germany’s venture capital and growth financing landscape, a set of government-backed VC funds aimed at crowding in private capital plays a significant role, particularly across key future-oriented sectors.

• In December 2025, the German Federal Government and the KfW development bank launched the “Germany Fund” (Deutschlandfonds), a strategic initiative designed to complement the public investment offensive via a EUR500 billion off-budget fund for infrastructure and climate neutrality to mobilise private capital for investment in Germany’s future-oriented sectors. Under this framework, the Federal Government is providing public funds and guarantees totalling approximately EUR30 billion, with the objective to unlock up to EUR130 billion in total private investments by improving financing conditions for private and municipal investors. Unlike traditional government-backed initiatives, the Germany Fund is structured primarily as a guarantee-based instrument, including so-called “first-of-a-kind” loans intended to support innovative projects that lack established market benchmarks and would otherwise face challenges. The facility is designed to address a structural gap in German scale-up financing, as larger funding rounds frequently depend on foreign investors, creating a risk that high-growth ventures may relocate. The target areas include venture capital, industry and SMEs, energy infrastructure, extraction of critical raw materials, and innovative technologies such as deep tech, AI and biotechnology.
• The Growth Fund Germany (Wachstumsfonds Deutschland), with a volume of EUR1 billion, is a fund-of-fund that invests in German and international VC funds. It is one of the largest German government-backed VC funds, with the government providing approximately EUR350 million alongside institutional investors, such as Allianz, Signal Iduna and BlackRock. It is co-ordinated by KfW Capital, the investment subsidiary of the government-affiliated KfW development bank. The Growth Fund Germany has already committed more than four fifths of its target volume (EUR825 million) to 41 VC funds.
• Another government-backed investment vehicle with assets under management of EUR275 million is Coparion, launched by the European Recovery Program (ERP) Special Fund (mandated by the German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, or BMWE)) and the KfW bank. Coparion focuses on Series A, B and C financing rounds for technology companies with a financing volume of between EUR0.5 million and EUR8 million, with up to a total of EUR15 million per start-up. Coparion invests as a co-investor under the same conditions and usually with the same volume as a private investor, such as a business angel or VC fund.
• Finally, the High-Tech-Gründerfonds does, unlike Coparion, independently provide seed-financing and is backed by the BMWE and the KfW bank, as well as 45 companies and family offices. It has over EUR2 billion in assets under management and focuses on tech start-ups with substantial growth potential.

Impact Investing and Corporate VC

Impact investing has continued as a theme within Germany’s VC landscape, with a notable emphasis on decarbonisation. Cleantech/energy is a key area for impact funds. Examples include BonVenture in Munich, which supports social enterprises and start-ups across sectors such as education and renewable energy across Germany and Europe. Furthermore, the World Fund, headquartered in Berlin, invests in energy, food, manufacturing, buildings and mobility start-ups while Berlin-based Planet A focuses on green-tech start-ups.

Corporate VC plays a prominent role in Germany’s investment landscape, and DAX-listed companies such as Allianz X, SAP Sapphire and DB1 Ventures (Deutsche Börse Group’s VC arm) operate notable, sector-focused VC programmes.

Fund-of-Funds

A discernible trend towards increased fragmentation in private markets investments – particularly within VC funds – and extended average holding periods, has led to a noticeable upswing in fund-of-funds activity. This development derives from an increasing number of investors focusing on niche industries or emerging technologies, thus fostering a broader diversification across the VC landscape. The largest fund-of-funds operator in Germany is KfW Capital, with a volume of around EUR2.5 billion. KfW Capital invests across all phases and sectors in VC and venture debt funds with a focus on Germany.

Dual-Track Exit Strategy

VC funds tend to navigate the increasingly extended timeline by implementing dual-track exit strategies for their ventures. In a dual-track process, a company simultaneously (or sequentially) prepares for an IPO as well as a private M&A deal to maximise exit opportunities once market conditions are favourable. In 2024, the EQT/Flix transaction showed that private equity opportunities may provide a viable alternative to an IPO exit for late-stage enterprises with continued long-term growth aspirations.

Legal due diligence is usually conducted by the lead investor and includes a review of the company’s capitalisation table and key corporate documents. The process focuses on material terms and encompasses tax considerations, prior financing arrangements, contractual foundations for revenues, liabilities, employment terms, ongoing legal disputes, and IP rights. Financial due diligence centres on validating the completeness and accuracy of the company’s assumptions underlying its business plan, books and records and financial statements. Business due diligence explores the overarching economic outlook of the target company, examining market trends, industry dynamics, growth opportunities, and revenue forecasts.

In some instances (and unlike under, for example, US standard form NVCA documentation), founders may assume personal liability for the representations and warranties made in transaction agreements. This liability is generally limited to the lower of:

• the amount invested in the financing round; and
• a cap equal to one to three times their annual salary.

Representations tend to be subject to further restrictions such as “tipping baskets”. Unless an entire data room is deemed disclosed against the representations and warranties (which is market standard in German M&A practice), the company will table exceptions in a disclosure schedule, underpinning the critical role of management in the due diligence process.

It typically takes between three and six months to raise a Series B round and the timeline is affected by factors such as complexity of the business model, revenue potential, investor interest, legal set-up and macroeconomic conditions. In general, a preparation and planning phase (centred around key performance indicators and financial information) and the negotiation of financing terms result in the entry into a non-binding term sheet or memorandum of understanding (MoU). Investors will conduct due diligence while, concurrently, long-form documentation such as subscription/investment and shareholders’ agreements are being negotiated. The process is typically significantly accelerated if the funding needs are covered by existing investors that have insights into the business due to (advisory) board representation and information rights.

From a process and stakeholder perspective, the dynamics of a financing round change once a new investor joins the cap table. Existing investors typically do not actively participate in or necessarily benefit from the results of the due diligence conducted by a new lead investor. That said, all investors’ consents are typically required in order to amend the shareholders’ agreement, which is the central document in most financing transactions. To streamline and accelerate negotiations, existing investors (and, in early-stage financings, even all investors) may share legal counsel. In more sizeable rounds or structured transactions that involve a secondary component (“exit opportunity”), however, it is standard market practice to carefully review the need/desire for separate legal counsel in light of prospectively (diverging) interests that are typically associated with varying entry price points and time horizons. Unlike in some other jurisdictions, the costs of investor counsel are less frequently borne by the company in full, although the concept has gained prevalence in recent years.

Governance considerations in these rounds typically evolve around exit rights and reserved matters/veto rights for commercially relevant measures, such as capital increases or amendments to the articles of association (AoAs). With deviations from the “one share, one vote” principle rarely relevant in practice, the statutory default super-majority requirement of 75% for significant measures, such as a new financing round, typically serves as an inflection point for discussions.

Equity-Linked Financing Instruments

Apart from common stock, convertible loans serve as the primary “pre-seed”-type of funding instrument in the German VC market. SAFE (Simple Agreement for Future Equity) agreements (a financing instrument popularised by incubator Y Combinator in the US) do not offer investors any significant advantages over convertible loans and come up against legal challenges, such as uncertainty associated with the issuance of “naked warrants” in a German stock corporation (Aktiengesellschaft, or AG)/European company (Societas Europaea, or SE), and lack of viability of “automatic” conversion (since capital increases are not actioned by the management but require the explicit consent of the company’s shareholders, by means of a formal resolution). As founders may, however, favour SAFEs over convertibles due to the absence of repayment claims and accruing interest, practical needs may ultimately outweigh lingering legal uncertainties.

From a formalities perspective, convertible loan agreements generally do not require notarisation if they are entered into not only by the lender and the company (represented by a managing director), but by all shareholders. In contrast, if the convertible loan agreements have been concluded only by the lender and the company, but without the shareholders, then these agreements require a notarised shareholders’ resolution authorising the managing director, as well as the corresponding registration of this authorisation resolution with the commercial register. The notarisation requirement arises when lenders are subject to mandatory conversion conditions or must comply with shareholders’ agreements setting out relevant obligations (eg, drag-along rights). Given the absence of definitive guidance from the Federal Court of Justice (Bundesgerichtshof) and divergent case law, notarisation is in practice sometimes carried out on a precautionary basis.

Preferred Stock and Multiple-Voting Shares

Preferred stock is a form of equity that includes specific rights or privileges not afforded to common stockholders. In Germany, (non-participating) liquidation preferences and weighted-average anti-dilution provisions are mostly negotiated as a means of downside protection, while cumulative dividends are typically not addressed. Unlike in the US, where such rights are hard-wired as part of the rights attaching to shares of preferred stock and sit in the company’s charter, these preferred rights must be implemented contractually in Germany, typically through the shareholders’ agreement.

Multiple voting shares (so-called “founders’ shares/dual-class shares”) are equity shares with voting rights of up to 10:1. They are intended to help founders retain their influence on the company despite raising capital and notably post-IPO, and are only available to ventures organised as AG, SE, or partnership limited by shares (Kommanditgesellschaft auf Aktien, or KGaA). Unanimous shareholder consent is required to establish multiple voting shares, rendering their introduction at existing public companies impracticable. Multiple voting shares have yet to find broad-based adoption in the German start-up landscape.

Equity-Based Incentive Instruments

Virtual (employee) stock option plans (VSOPs), which embody cash-settled and contingent claims of the holder against the company, are the most commonly used incentive instrument in Germany. They are considered more straightforward and flexible (and may entail tax benefits) when compared with physically settled stock options or shares held in escrow/subject to reverse vesting conditions, as further outlined in 5.2 Securities.

Driven by tax considerations, so-called hurdle shares are sometimes used as an alternative incentive structure, as further discussed in 5.1 General.

By contrast, restricted stock units (RSUs), performance shares and other instruments are less frequently encountered, although German corporate law in a GmbH conceptually permits significant flexibility.

Although there are no universally accepted standard documents for financing rounds in Germany, the most frequently observed key documentation includes the following.

• Investment and shareholders’ agreements (Beteiligungs- und Gesellschaftervereinbarung) – both agreements are either combined or entered into as separate contracts. The investment agreement outlines the primary investment amount and corresponding ownership stake purchased by each investor in the financing round. It specifies the form and timing of fund disbursement to the company; additionally, milestone agreements may be established, linking the release of investment tranches to the achievement of specific goals by the company. Typically, the shareholders’ agreement covers governance matters – eg, board composition, shareholder majorities and exit rights (IPO, tag- and drag-along rights). Since the investment and shareholders’ agreement, in addition to the obligation to carry out a capital increase, regularly includes provisions on share assignments, pre-emptive rights, co-sale rights and obligations or vesting regulations, it does require notarisation in case of start-ups operating as an Entrepreneurial Company (with limited liability (Unternehmergesellschaft (haftungsbeschränkt), or UG)) or GmbH. Against the backdrop of the emergence of secondary transactions, share transfers between existing shareholders are typically documented in separate share purchase agreements (SPAs).
• Articles of association – the additional substantive content of the AoAs is limited, as all essential agreements between founding shareholders and VC investors are typically addressed in the shareholders’ agreement. Nonetheless, the AoAs remain a mandatory component of VC investment documentation, and are publicly filed with the commercial register. The resolution of the shareholders’ meeting to amend the AoAs requires notarisation.
• Corporate resolutions, which are required for the issuance of primary shares (capital increases) and the exclusion of existing shareholders’ subscription rights, are resolved upon by the shareholders’ meeting and need to be notarised. By making use of authorised capital, the shareholders can empower the management of the company in advance, under certain conditions and within certain limits, to decide on the increase of the share capital by issuing new shares to existing or new VC investors. This allows for the swift collection of additional equity when needed. The underlying shareholders’ resolution in practice requires a majority of 75% of the share capital for a GmbH (75% of the capital represented for an AG).
• Preliminary documentation in an initial stage of a transaction includes non-disclosure agreements and term sheets/MoUs. Typical contents of a term sheet are agreements on the investment amount, the valuation of the start-up and investor rights (eg, veto rights and liquidation preference).

Subscription Rights

Statutory subscription rights entitle existing shareholders (by default) to subscribe for a pro rata number of newly issued shares in any capital increase. Additional anti-dilution protection, notably in a down-round scenario, is implemented by providing (additional) subscription/pre-emptive rights within the shareholders’ agreement.

Anti-Dilution Provisions

Anti-dilution clauses are widely used, particularly in early-stage investments. The most common form of anti-dilution protection is the weighted-average method which calculates the subscription price in a subsequent down round as an average of the financing round the existing investor actually participated in and the valuation implied in the down round. Full-ratchet clauses, on the other hand, effectively ensure that investors maintain a relative shareholding equal to their initial investment value irrespective of the valuation underlying the down-round. Full-ratchet protection tends to be “off market”, and can only be secured in rare (distressed) circumstances. “Pay-to-play clauses”, which incentivise existing investors to participate in a new financing (down) round by granting them the economic rights, privileges, and obligations to which they agree during the previous financing round, are less commonly used in Germany than in the US market.

Liquidation Preferences

In addition to dilution protection, liquidation preferences have become market standard and determine the order of payout in a liquidation event (or a deemed liquidation event, which typically includes exit scenarios). They entitle investors to receive a certain multiple (although the German market standard is 1x) of their investment or a specified preference amount before other shareholders receive any distributions. Recently, preferred amounts that annually accrue interest, payable in kind, have become evident in the German growth market and were, eg, reported in respect of senior equity holders of shares in German FinTech N26. By contrast, participating liquidation preferences continue to be an anomaly. Remaining funds/assets are distributed proportionally – ie, on a pro rata basis. This preference can be structured as “participating” in the “second step” pro rata distribution or “non-participating”, with the latter being more frequently seen in later-stage enterprises. Unlike the non-participating liquidation preference, the participating liquidation preference is not limited to hedging against the negative scenario of an exit below expected value, but rather also serves to secure the investor a premium over their investment.

Importantly, non-participating liquidation preference holders generally retain the option to receive value on a per share “as converted basis” ensuring that pro rata participation remains the norm where exit values exceed the amounts invested/entitlements under the waterfall.

In Germany, venture-backed start-ups are typically organised as GmbHs, which gives investors a structurally strong governance position compared to other jurisdictions.

• The GmbH shareholders’ meeting has the authority to issue binding directives (Weisungen) to the company’s managing directors. In practice, however, this statutory power is used sparingly in day-to-day operations, as sustained use of binding directives would require in-depth involvement in the matters of the enterprise.
• Venture-backed start-ups typically set up an (advisory) board or shareholders’ committee (Beirat) in which investors and founders are represented. The (advisory) board serves as the central forum for strategic oversight and discussion, allowing investors to exert influence through guidance, monitoring and approval mechanisms, while generally avoiding direct involvement in operational decision-making.
• Certain transactions will require the approval of the shareholders’ meeting or the (advisory) board prior to execution – whether by statutory law, AoAs or, most notably, shareholders’ agreements. These reserved matters typically include amendments to the AoAs, alteration of the rights attached to or issuance of new shares/instruments, significant corporate transactions and changes in the capital structure of the company.
• Rarely can investors ensure rights over the composition of management, eg, the enforcement of a termination in case of repeated under-performance against a business plan. Such constructs are mostly observable in mature settings where professional management has taken over and private equity sponsors are among the dominating financiers.
• Beyond consent rights, shareholders’ agreements often also set out information rights to regular reporting which go beyond statutory information and inspection rights.

Fundamental guarantees granted to investors – eg, relating to existence, title, or the absence of encumbrances and conflicts – are all but ubiquitous in German market practice. In addition, business-related representations, notably concerning the company’s financial statements/status and adequacy of IP assets, are increasingly frequent, particularly in late-stage financings. However, warranties do not typically extend to the business plan, as inherent risks remain with the investor as part of a VC investment’s nature.

Investors generally confirm that they are authorised to enter into the relevant documentation and fulfil the associated obligations, that they are eligible/accredited investors, and that the execution and fulfilment of the agreement do not conflict with other obligations.

Additionally, a venture often commits to specific operational covenants which may include obligations to:

• maintain adequate insurance coverage;
• comply with specific accounting principles; and
• adhere to predetermined financial ratios or liquidity levels.

They are also often sought to address investors’ diligence findings.

By statutory default, legal consequences of a breach of representations and warranties amount to the restoration of the breached “contractual guarantee” and the payment of damages if restoration is impossible (in rem restitution, or Naturalrestitution). However, in many cases, immediate claims for monetary damages are excluded. The liability concept in an investment agreement will typically be limited to a cap and, besides the company, founders/key employees may stand behind certain representations, typically within the confines of adequacy. In certain instances, investment agreements stipulate the issuance of “compensation shares” at nominal value reflective of the amount of losses incurred by the aggrieved investor as contractual remedy. Upon breach of a covenant, injunctions become relevant as an effective course of action against the defaulting contractual party. This is also the most relevant legal remedy relating to a shareholders’ agreement.

Among the most relevant government programmes directed at enhancing investments in German early-stage companies are the “INVEST – Venture Capital Grant”, the “Venture Tech Growth Financing” programme, and “EIF German Equity”.

INVEST – Venture Capital Grant

The BMWE supports investments by private investors or business angels in young innovative companies with grants for investors (acquisition grant of 15% of the invested amount). The investments can be made by natural persons or via an investment company. Natural persons can receive an exit grant if they sell their shares. The exit grant amounts to a flat rate of 25% of the capital gains realised, and thus approximately covers the tax burden associated with the divestiture. The maximum eligible investment amount per investment is EUR333,333.33 per single investment. Each natural person (as a direct investor or as a shareholder in an investment company) can be supported with INVEST up to a maximum total investment amount of EUR666,666.66 (also for investments in different companies) – ie, the acquisition grants per person are limited to a total of EUR100,000 (cap).

To apply, start-ups may submit an online application to the Federal Office for Economic Affairs and Export Control (Bundesanstalt für Wirtschaft und Ausfuhrkontrolle, or BAFA), providing details, including evidence of innovation, company size, age, and legal structure. Upon approval, BAFA issues an eligibility certificate. The investor can then apply for funding via BAFA prior to subscribing for shares in the start-up or for convertible bonds.

Venture Tech Growth Financing

The KfW’s “Venture Tech Growth Financing” programme supports emerging technology-oriented companies through funding provided by the German Federal Government (via the KfW banking group). The programme is part of the Tech Growth Fund initiative. Financing is exclusively facilitated through collaboration with professional, private credit, or venture debt providers. KfW participates under identical terms as the corresponding private lender, sharing the risk, which usually ranges between EUR0.5 to EUR125 million. The standard risk-sharing ratio between KfW and private lenders stands at 50:50.

EIF German Equity (ERP-EIF Facility)

EIF German Equity (formerly known as ERP-EIF Facility) is a partnership between the German Federal Government and the European Investment Fund (EIF) aimed at bolstering venture and growth capital financing, in particular for high-tech growth companies in Germany. The facility’s funding has been successively increased (in January 2026 by an additional EUR1.6 billion), and its volume is currently up to EUR5.8 billion. As a fund-of-funds, EIF German Equity invests in VC and growth funds with a focus on Germany. With more than 5,000 small and medium-sized enterprise (SME) investments in Germany and across Europe, the ERP-EIF Facility covers all technology areas through supported funds and forms a relevant part of the pan-European VC ecosystem. Since its kick-off in 2004, the partnership has successfully supported companies like DeepL, GetYourGuide, Flix and N26.

Direct Investment

The following overview reflects German tax law as of 1 March 2025.

Shares held by individual shareholders as non-business assets (Privatvermögen)

Capital gains from the sale and other disposals of shares which an individual shareholder holds as non-business assets (generally, participations below 1%) are generally subject to a 25% flat tax (plus 5.5% solidarity surcharge thereon, resulting in an aggregate withholding tax rate of 26.375% plus church tax, if applicable). Losses from the sale of shares may be subject to loss offset restrictions – eg, can only be used to offset capital gains or other investment income. The amount of the taxable capital gain from the sale is the difference between: (i) the proceeds from the sale; and (ii) the cost of acquisition of the shares (including sale-related expenses).

Shares held as business assets (Betriebsvermögen)

In respect of gains on the disposal and other disposals of shares held by an individual or corporation as business assets, taxation generally depends on whether the shareholder is a corporation, an individual or a partnership.

• For corporations, capital gains from the sale of shares are, as a general rule and currently irrespective of any holding period or percentage level of participation, effectively 95% exempt from corporate income tax (including solidarity surcharge) and trade tax plus solidarity surcharge.
• For individuals, 60% of capital gains from the sale of shares are taxed at the individual income tax rate plus a 5.5% solidarity surcharge (plus church tax and trade tax, if applicable) on such income tax if the shares are held as business assets by an individual who is subject to unlimited tax liability in Germany. All or part of the trade tax levied may be credited on a lump-sum basis against the individual income tax.
• If the shareholder is a partnership, the individual income tax or corporate income tax is not levied at the level of the partnership but at the level of the respective partners. The taxation of each partner depends on whether they are a corporation or an individual. Thus, (corporate) income tax (including solidarity surcharge) and, if applicable, church tax will be assessed and levied only at the level of the partners. Trade tax, however, is assessed and levied at the level of the partnership if the shares are attributable to the permanent establishment of a commercial business of the partnership in Germany. Generally, 60% of a capital gain attributable to an individual partner and 5% of a capital gain attributable to a corporate partner are taxable. The trade tax paid by the fund and attributable to the individual’s general profit share is completely or partially credited against the partner’s individual income tax in accordance with this lump-sum method (see above).

Foreign tax residents

Capital gains from disposals by a shareholder not tax resident in Germany are generally only taxable in Germany if the selling shareholder holds the shares through a permanent establishment or fixed place of business in Germany or as business assets for which a permanent representative is appointed in Germany. In this case, the description above for German tax resident shareholders who hold their shares as business assets applies accordingly.

Interposition of funds

Typically, investments in growth and start-up companies are made in funds structured as partnerships, which tend to be tax-transparent structures if certain criteria are met. Simply put, merely managing one’s own assets, regardless of size, is not considered a commercial activity. However, details are heavily disputed in practice, and whether or not tax transparency of the fund can be achieved requires a case-by-case analysis. If it is the case, then, due to the tax transparency of the fund, the above considerations regarding a direct investment in a portfolio company apply accordingly – ie, there is no difference as far as an investor is concerned. By contrast, if the fund qualifies as trading (gewerblich), it is subject to trade tax; the trade tax paid by the fund and attributable to the individual’s general profit share is completely or partially credited against the shareholder’s individual income tax in accordance with the lump-sum method (see above).

Carried interest

Carried interest received by VC/private equity fund initiators (typically managing LPs) is, in case of a tax-transparent fund, subject to the partial income method – ie, only 60% is subject to tax at the marginal income tax rate of the carried interest participant. Political attempts to abolish this tax advantage for carried interest resulting from tax-transparent funds have been effectively resisted. It should, however, be noted that the tax treatment of the carried interest received by the initiators of a trading (gewerblich) fund is heavily disputed.

Germany has introduced a series of co-ordinated legislative and policy initiatives aimed at strengthening equity financings, capital markets access and innovation-driven growth.

Location Promotion Act (Standortfördergesetz)

The Location Promotion Act from early 2026 aims at strengthening private investment, reducing regulatory burdens and improving the financing landscape for growth and innovative companies. It allows AGs, SEs and KGaAs to issue shares with a nominal value below EUR1, increasing flexibility in equity structuring. From a tax perspective, the legislation provides selective adjustments to the investment tax framework with the objective to enhance the attractiveness of venture and growth capital investments, while reducing frictions that previously discouraged fund-based investment into innovative and scaling businesses.

Future Financing Act (Zukunftsfinanzierungsgesetz)

The Future Financing Act came into effect in 2023 and represents a key legislative initiative designed to facilitate access to equity and capital markets for start-ups, growth companies and SMEs by digitalisation, deregulation and internationalisation in the areas of capital markets law, corporate law, and tax law. Key elements include the following.

• Multiple voting shares with voting rights of up to 10:1 were introduced for companies organised as AG, SE, or KGaA, allowing founders to maintain control over a company, even after selling shares to investors or undergoing an IPO. Multiple voting shares cannot be issued when utilising authorised capital. The tenure of multiple voting rights generally terminates ten years after the company’s IPO or inclusion in the open market (Freiverkehr) (the so-called sunset clause), and may be extended by up to ten years via a resolution passed with a majority of 75% of the capital represented.
• The permissible volume for capital increases with simplified exclusion of statutory pre-emptive rights has been increased from 10% to 20% of share capital, significantly enhancing issuers’ flexibility. At the same time, shareholder litigation risk has been reduced, as such resolutions can no longer be challenged solely on the basis of an allegedly unreasonably low issue price.
• Conditional capital increases to finance stock options for management and employees can now be conducted up to 20% (previously 10%) of the share capital. This change is expected to impact start-ups where a significant portion of compensation may be provided in options.
• Legal remedies allowing shareholders to block or delay capital measures through contestation actions (Anfechtungsklagen) have been curtailed, with valuation-related disputes shifted to appraisal proceedings, thereby increasing deal certainty for equity financings.

WIN Initiative: Growth and Innovation Capital for Germany

The WIN Initiative, launched in November 2024, aims to further establish Germany as a leading location for innovation and growth capital by 2030. Together with a broad alliance of businesses, associations, politics, and the KfW, the Federal Government intends to sustainably improve the overall conditions for growth and innovation capital in Germany. The participating companies together plan to invest around EUR12 billion in the German VC ecosystem. According to recent announcements, the German Federal Government aims to double the investment volume of the WIN Initiative to around EUR25 billion.

Founder/employee arrangements remain highly customised, taking into account various factors such as the negotiating leverage of the founding team, the complexity of the required structure, the specific incentives the company intends to offer, strength of desire for retention on the part of investors, tax considerations for employees, and the intricacy of technical implementation.

Equity Ownership and Vesting Mechanisms

Equity ownership combined with vesting remains a core retention tool in German VC-backed companies. Founders and, in some cases, key employees typically hold physical shares, with vesting or reverse-vesting arrangements used to secure long-term commitment. Vesting schedules are frequently revisited or reset in early-stage financing rounds, particularly where new financial investors seek to align continued participation with the company’s long-term development. Transfer restrictions and lock-ups are usually set out in the shareholders’ agreement and may be reinforced by claw-back or repurchase rights in favour of the company.

Option-Based and Virtual Incentive Instruments

For broader employee participation, option-based and virtual participation structures are widely used in VC-backed companies.

• With the distribution of stock options, employees receive a (call) option to acquire company shares at a predefined exercise or strike price, provided certain conditions are met and the options are vested. Transfer restrictions for options are generally comprehensive and may further attach to the shares which are granted as part of a physical settlement.
• Sometimes (untechnically) referred to as ESOPs, under a “reverse vesting” scheme, the ownership of company shares is transferred to the employee. To ensure that the company is protected against fraudulent use or transfers, the power of disposal (Vinkulierung) and the rights of membership are restricted. In general, vesting conditions (so-called reverse vesting) are part of the mechanism and grant the company the option to claw back the equity granted in case of certain circumstances such as a leaver event.
• VSOPs are designed to simulate the economics of a stock option while providing the advantage that no membership/governance rights attach to the instrument (pure cash settlement). VSOPs embody the right for a (deferred or contingent) cash payment claim if an exit event occurs. The payment amount is based on the (increase in the) company’s fair market value since the date of grant. In complex transactions, the determination of the equity value underlying the transaction can be complex and prompt an acquirer to demand that settlement agreements be entered into.

Hurdle Shares

As an alternative or supplement to option-based instruments, some companies also use hurdle shares as a means of incentivisation. Introduced as a construct primarily as a result of their tax treatment, hurdle shares are physical shares that participate only in value above a defined threshold, effectively embedding a “negative liquidation preference”. The implementation of the negative liquidation preference as part of a company’s (GmbH) articles may be required.

Through participation programmes such as ESOP/VSOP, employees financially engage in the start-up’s success via physical or virtual equity incentives. The exercise of the right is typically subject to several conditions (eg, duration of employment (vesting), performance of the company/employee or acquisition of the company).

Vesting conditions ensure that employees have only access to their shares after a certain period of time. This vesting period is typically between two and five years, with a one-year cliff vesting period. If employees depart before the end of the vesting period, they cannot exercise the unvested part of their stock option, nor do they receive payments from the unvested part of their VSOPs which are forfeited. Vesting conditions can be used for all of the previously mentioned instruments.

Additionally, employee participation programmes like ESOP/VSOP or hurdle shares may include good leaver/bad leaver clauses which permit the company to reclaim equity granted to an employee upon departure (typically, a reverse vesting call option at nominal value). Bad leaver qualifications tend to be limited to gross misconduct or criminal activity, as well as voluntary terminations on the part of the employee – making Germany an instrument holder-friendly jurisdiction.

Recent case law from the German Federal Labour Court (Bundesarbeitsgericht) in March 2025 has heightened awareness around the enforceability of forfeiture and (bad) leaver provisions by restricting the effectiveness of forfeiture clauses in a bad leaver event in respect of vested virtual options. As a result, companies increasingly focus on careful structuring of vesting, payout mechanics and settlement processes. In complex transactions, it has become more common for acquirers to require separate settlement agreements to ensure clarity on valuation, timing and liability exposure considering the revised legal framework.

In practice, reverse vesting, which consists of the granting of a call option over the shares obtained in favour of the venture or the other shareholders, is often agreed upon for founder vesting. The founders are initially allocated their full shares and, at the end of the vesting period, all shares become vested and secured. However, premature departure from the company during the vesting period results in the loss of the unvested portion, potentially compensated for only partly or at a discount. The decision between a VSOP agreement with vesting or a submission of previously held founder shares to a reverse vesting mechanism should always be analysed from a tax perspective.

Non-compete and non-solicitation agreements are widespread as part of shareholders’ agreements. This is to safeguard the company’s interests and prevent founders and key employees from engaging in competitive activities or soliciting customers, employees, or business partners upon leaving the venture. Post-contractual restrictive covenants are generally enforceable only if an appropriate compensation (Karenzentschädigung) is provided for the restricted period.

The following overview reflects German tax law as of 1 March 2025.

German tax law basically offers two benefits for the grant of physical company shares – ie, tax benefits only applicable to ESOPs, stock options and (likely) hurdle shares but not to VSOPs.

German tax law may, subject to the satisfaction of certain conditions, permit a deduction of up to EUR2,000 from the income resulting from the acquisition. In practice, this deduction is, due to this low amount, not important for the structuring of incentives.

More importantly, income tax resulting from the acquisition of discounted shares may be deferred until the occurrence of certain events (Section 19a of the German Income Tax Act (Einkommensteuergesetz, or EStG)). This may result in an avoidance of the dry income problem while enabling the employee to acquire the company shares at an early point in time so as to receive a preferential Capital Gains Tax treatment on the future increase of company value. This rule should generally also apply to Profit Participation Rights. However, this must be examined on a case-by-case basis, depending on the specific structure of this instrument.

The enhancements to, and a broadening of, company eligibility criteria of Section 19a of the EStG under the Future Financing Act and the Fund Location Act (Fondstandortgesetz) led to a significant increase in incentive programmes under the regime of Section 19a of the EStG. Notably, the change of employer or reaching of a minimum holding period of 15 years will no longer necessarily result in the termination of the tax deferral. As a result, tax is only due at the time when the company shares are actually sold by the employee, thereby avoiding the dry income problem. Since the amendment was introduced, shareholdings in any affiliate of the employer company (within the meaning of Section 18 of the AktG) are also subject to this benefit, which is of particular interest for foreign start-ups with subsidiaries in Germany.

To sum up, with the Future Financing Act and the Fund Location Act, the legislator successfully attempted to offset the competitive disadvantage that Germany faced compared to other jurisdictions such as the US. However, certain issues persist. For example, the provision (still) excludes later-stage companies despite its broadened eligibility criteria. Finally, social security contributions incurred at the time of acquisition are not deferred and fall due within the dry income window.

From a process perspective, investment terms are typically outlined in non-binding term sheets, following an assessment of the market, team and an initial validation of the business model by investment teams. As due diligence progresses and binding documentation is entered into, investors in a round often sign and close their investments concurrently, contingent upon fulfilling conditions precedent. The “option pool” or VSOP – whether newly established or expanded upon (ie, the creation of additional awards within an existing pool or scheme) – would ordinarily take effect at the time of a financing round’s closing or, in particular, if additional structuring work is required, may be implemented thereafter.

New investors generally expect growth companies in which they invest to increase or “refresh” the size of their employee equity incentive pool at the time of their investment. This becomes a key topic of negotiation because it is ultimately a commercial question with direct bearing on the company’s valuation. As part of the key investment terms, existing shareholders and new investors will be required to find alignment on who bears the dilutive effects of an increase of the incentive pool or the (additional) number of instruments to be awarded. The point has been labelled “option pool shuffle” and concerns the questions as to whether the prospective dilution will be borne by existing shareholders only (and run against the pre-money valuation on a fully-diluted basis) or by all – ie, existing and new investors alike (in which case the increase in instruments runs against the fully-diluted post-money capitalisation).

When it comes to valuation and dilution, investors participating in a round will seek to have visibility regarding the amount of euros they are investing and what their investment amount translates into in terms of their fully diluted pro rata ownership in the foreseeable future. If the increased incentive pool were to be factored into the post-money valuations and all investors equally shared the dilutive effect, new investors would immediately be diluted after closing, and the relative stake purchased would require adjustment. Therefore, ESOP and similar increases are mostly counted against the pre-money capitalisation and are non-dilutive in respect of newly issued shares.

Discussions typically evolve around the substantiation of hiring and retention needs during a predefined timeline that the founding team will be incentivised to demonstrate in order to limit the size and, consequently, the dilutive effect of a pool increase and the new investors’ argument that equity-based incentives are the critical tool of aligning stakeholder interest in a start-up and therefore should be available in adequate quantum.

Share Transfer Restrictions

To safeguard existing shareholders, a GmbH’s publicly available AoAs typically incorporate transfer restriction clauses (Vinkulierung), a violation of which will render a purported transfer null and void. These clauses reflect requirements set out in the shareholders’ agreement and may either restrict the transfer of shares without the company’s authorisation or bestow pre-emptive rights to existing shareholders or the company (redemption at a discount).

Pre-Emptive Rights/Right of First Refusal (ROFR)

A shareholder seeking to dispose of shares is under market standard shareholders’ agreements obligated to offer its shares to shareholders (albeit not – as tends to be the case in other jurisdictions – the company) for their acquisition in proportion to their relative stakes in the company at the conditions offered by a third party within a specified acceptance period (Andienungspflicht). These rights tend to be structured as so-called “Rights of First Refusal – ROFR” which permit existing shareholders to take a “last look” and not only to put forth a price they would be willing to pay; this would then set the floor for a third-party transaction (so-called right of first offer).

Rights of first Refusal can be structured in a multi-stage process: (i) unless all existing shareholders have exercised their ROFR in a first round, those who did exercise their ROFR are entitled to acquire the residual (“unexercised”) shares in a second round, set within a specific timeframe; or (ii) only if the ROFRs are not fully exercised for all shares subject to the sale in such second round, may the selling shareholder then proceed in a transaction with a third party, which sale would still be subject to existing co-sale rights.

Tag-Along Rights

Co-shareholders would typically have the right to demand from the selling shareholder that the sale be only carried out if their shares are (reflective of their pro rata stake in the company) sold alongside the selling shareholders’ shares and subject to the same conditions. If the co-sale requirements are not complied with, there is no obligation to consent to the sale and the shares remain subject to existing transfer restrictions. In German market practice, the drafting of the “pro rata” language is not always as concise as is the case in the NVCA ROFR & Co-Sale Agreement and the determination of the quantum that may be co-sold can be subject to interpretation and dispute.

Drag-Along Rights

Co-shareholders may compel the sale of shares under predetermined conditions. Often, so-called drag-along rights are not confined to share deals, but extend to other exit routes, notably change-of-control transactions that take the form of mergers or the divestiture of substantially all assets (asset deal). However, share deals remain the most prevalent form of M&A transaction in the German marketplace and drag rights are primarily geared towards this situation.

While drag-along rights are usually contingent upon obtaining a qualified majority, there are occasionally drag sales granted as a unilateral option – eg, in scenarios where key milestones have not been met. Notwithstanding the contractual position, enforcement of drag rights in practice may be challenging and depend on management’s willingness to endorse, or at least permit, an orderly sales process which may be challenging in case of significant shareholder opposition. Certain legal professionals consider drag-along rights that, as is typical, tie into the liquidation preference subject to legal concerns on contra bonos mores grounds given that incentivisation mechanics relating to a maximisation of sale proceeds are not equally distributed throughout the waterfall.

Put/Call Options

In certain rare cases, strategically focused shareholders may succeed in negotiating call option rights over other shareholders’ exiting stakes at a price that is typically reflective of, or based upon, a company’s fair market value (FMV), as existing at the time of the option window. Call options may permit a (group of) specific investor(s) to initiate a change-of-control transaction – eg, in the event of a significant strategic value for a corporate VC or if shareholders seek to pre-agree on a set “path to liquidity” after a certain time. Call option arrangements are often mirrored by corresponding put options and may entail a premium over, as well as a mechanism to fairly determine, the company’s FMV.

IPO Force Right

A right by one VC investor to request that the company undertake preparations for an IPO/listing after a pre-defined period has been argued to conflict with the statutory authority of a management board of an AG/SE to act in the company’s best interest, as existing from time to time. That said, IPO initiation rights are often structured so that all shareholders inter se commit to using their corporate governance rights to procure that an IPO will be initiated. These rights can be subject to value hurdles and/or timing requirements.

IPO exits are typically driven by easier access to new capital, increased liquidity of the shares, a transparent valuation, improved branding and marketing for the company, and enhanced attractiveness to employees due to employee participation programmes. However, the predominant exit strategy in the current German market environment is an M&A exit, primarily by strategic buyers.

When publicly listing shares, issuers can choose from two market segments:

• the regulated market with higher admission and post-admission requirements leading to elevated transparency and typically greater liquidity; and
• the open market with lower entry and compliance costs, which may be more attractive for SMEs.

The Frankfurt Stock Exchange’s Prime Standard is the sub-segment of the regulated market with the highest ongoing transparency requirements. Meanwhile, its Scale open market sub-segment is currently the only registered German SME Growth Market, which allows SMEs to make use of certain alleviations under applicable EU prospectus and market abuse rules.

In order to be admitted to the regulated market, the issuer is required to have been in existence for at least three years (subject to exemptions, eg, for special purpose acquisition companies (SPACs)), have sufficient free float, publish a prospectus including three years of audited financial statements, and report on a semi-annual (Prime Standard: quarterly) basis going forward.

An inclusion of securities in the open market is not governed by statutory law but, rather, the relevant market operator’s general terms. Accordingly, the admission and post-admissions requirements vary more between markets – for example, with regard to admission documentation, requisite term of issuer’s existence, free float and market capitalisation – and thus provide more flexibility for early-stage companies. Uplistings from the open market to the regulated market are possible but not very common.

The preparation and execution of an IPO can be divided into three phases.

• Conception phase (between five and seven months) – creation of the issuance concept, including investment case, placement volume and source (company vs shareholders), holding obligations (lock-up), use of proceeds, choice of market segment, and placement strategy/target investors.
• Implementation phase (between three and four months) – preparation of investor presentations as well as the securities prospectus and application for BaFin approval. The prospectus is based on a comprehensive due diligence of the issuer by the global co-ordinators of the bank consortium.
• Placement phase (one month) – underwriting agreement with the lead consortium bank(s), book building, and pricing. Trading usually commences one day and closes two days after pricing.

General economic conditions and capital market sentiments influence the timing. The issuer’s IPO readiness is also critical, including factors such as financial performance, growth trajectory, corporate governance structure and regulatory compliance. As most start-ups in Germany are organised as a GmbH, the IPO tends to necessitate a structural conversion into a legal form suitable for public listings (AG, SE, or KGaA).

Alternative capital market exit strategies to a traditional IPO involve:

• a direct listing, whereby the issuer’s existing securities are admitted to trading without a concurrent public offering – sometimes a private placement with institutional investors is organised immediately prior to the listing; or
• a de-SPAC transaction, in which a private entity goes public by merging with a publicly listed SPAC.

There is a tangible market need for pre-IPO secondary market trading, particularly to facilitate liquidity for certain investors and employees who hold equity-based compensation in privately held companies. In Germany, the use of virtual instruments such as individualised, non-transferrable VSOPs has made it challenging for incentive entitlement holders to obtain meaningful liquidity.

While no fully developed secondary trading infrastructure has yet emerged in Germany or Europe, initial steps have been taken to address this gap. In April 2024, Forge Global Holdings Inc., a leading private securities marketplace, together with Deutsche Börse, announced the launch of Forge Europe. Forge Europe seeks to establish a marketplace for direct secondary transactions in late stage/pre-IPO start-ups.

Pre-IPO secondary market trading faces certain legal challenges. Generally, a published securities prospectus is required for a public offer of shares (as further outlined in 7.1 Securities Offerings). Given that most start-ups are organised in the form of a GmbH, a prospectus is not required, as a GmbH share is not a security within the meaning of the EU Prospectus Regulation.

Pursuant to the German Asset Investment Act (Vermögensanlagegesetz, or VermAnlG), the public offer of investments (which encompasses GmbH shares) requires the publication of a prospectus. Exceptions are made in Section 2, paragraph 1, VermAnlG. No prospectus is needed, inter alia, if: (i) there is only a low distribution of the investment (maximum of 20 shares); (ii) the sales price of the investment offered within a period of 12 months does not exceed a total of EUR100,000; or (iii) the sales price of the investment amounts to at least EUR200,000 per investor.

Determining the fair market value of privately-held company shares (or virtual instruments) for secondary market transactions can be challenging due to the absence of publicly available pricing data and market benchmarks. As there is a shortage of investors facing a significant number of potential investment targets, an information asymmetry persists on the buy-side.

Shareholders’ Agreements tend to stipulate various share transfer rights and restrictions such as ROFRs, ROFOs, co-sale and tag-along rights which apply in respect of secondary transactions and can complicate, or even block, trade sale transactions.

It remains to be seen how well transfer restrictions in German market practise and the continued use of virtual instruments permit an evolution of secondary trading and whether shareholder agreements will pre-clear certain transactions relating to vested shares in late-stage companies. Against this backdrop, Trade Republic’s EUR1.2 billion company-led secondary in December 2025 illustrates how structured secondary liquidity can successfully substitute for a near-term IPO.

For an AG, SE, or KGaA, in the event of a sizeable transaction such as a capital increase with no (statutory) pre-emptive rights, a prospectus is not required in case of a public offer if the offer is exclusively directed to qualified investors (who are deemed to have sufficient sources of information to obtain the necessary basis of knowledge). If a public offer targets non-qualified investors, a prospectus is not required if it is addressed to fewer than 150 natural or legal persons.

The public offer of GmbH shares does not require the publication of a prospectus under the VermAnlG if the offer is addressed to a limited number of persons or it is addressed only to employees by their employer or by an affiliate of their employer.

If numerous employees/entitlement holders exist in a (late-stage) start-up organised as an AG, the transferability of shares is usually largely restricted. Consequently, in such cases, these shares may not qualify as securities under the EU Prospectus Regulation. Even in instances where transferability is not restricted, a prospectus is not mandatory for a public offer to existing or former directors or employees by their employer or by an affiliated undertaking if a document is provided containing information about the quantity and characteristics of the securities, as well as the reasons and particulars of the offer.

Foreign Direct Investment (FDI) Screening

FDI screening has become a central consideration in German VC transactions over the past few years. Successive amendments to the German FDI regime have significantly broadened the scope of review, extending mandatory filing requirements from critical infrastructure of significant scale to a broader range of sectors irrespective of business size. At the same time, more than a third of the venture capital invested in German start-ups is reported to originate from investors outside the EU, which makes FDI approvals a recurring and strategically relevant workstream in VC financings.

The current German foreign investment screening framework is governed by the Foreign Trade and Payments Act (Außenwirtschaftsgesetz) and the Foreign Trade and Payments Regulation (Außenwirtschaftsverordnung) (see below for an outlook on forthcoming reforms). The competent authority, the BMWE, has the authority to examine whether the investment in a domestic company through the direct or indirect acquisition of voting rights is expected to negatively affect the public security or order of Germany, another EU member state or with respect to projects of EU interest.

As part of the cross-sector regime (sektorübergreifendes Verfahren), the law currently lists 27 categories (including critical infrastructure in a number of sectors and other business activities in many different areas, such as software, healthcare, AI, semiconductors and others) where the acquisition by a non-EU investor requires a mandatory filing and prior clearance by the BMWE. Voting rights thresholds of 10% or 20% apply – depending on the applicable category. In case the German company is active in certain areas of military, defence or security of government information technology, acquisitions by non-German investors of 10% or more of the voting rights trigger a mandatory filing and pre-closing clearance requirement as part of the sector-specific regime (sektorspezifisches Verfahren). In all other cases, the BMWE is entitled to review any acquisition by non-EU investors of at least 25% of the voting rights, even if no mandatory FDI filing is required.

For an investor who already owns a participation above the entry thresholds, the crossing of certain further thresholds may require prior clearance (20%, 25%, 40%, 50% and 75%). Pursuant to guidance from the BMWE, the acquisition of additional voting rights as part of capital increases or financing rounds is only covered by the German FDI regime if the percentage share of voting rights crosses a relevant threshold as a result of the transaction (ie, not if an investor acquires shares only to the extent required to prevent a dilutive effect). Importantly, FDI clearances are not “evergreen”: a subsequent increase in shareholding may trigger a fresh filing requirement, depending on the resulting voting percentage and, where applicable, any additional rights (such as governance or information rights) that may confer additional influence acquired in connection with the transaction.

The EU is in the process of revising its FDI screening framework, following a provisional political agreement reached between the European Parliament and the Council in December 2025. The revised screening regulation is expected to introduce further harmonisation across EU member states, including a broader and more consistent coverage of sensitive sectors (such as semiconductors, AI, critical medicines and dual-use technologies) and enhanced co-operation between national authorities. For transaction practice, this is likely to further increase the relevance and complexity of FDI assessments in cross-border deals. However, the revised screening regulation will only become fully applicable after a transitional period, with substantive changes at the national level not expected to take effect before 2027.

In parallel, Germany is preparing a reform of its national FDI framework through a dedicated Investment Screening Act (Investitionsprüfungsgesetz). The reform, for which a draft is expected to be published in the course of 2026, aims to consolidate the existing fragmented regime into a coherent standalone act, and to implement the revised FDI screening regulation at national level. While no fundamental changes to the overall structure of the German FDI regime are expected, the reform is likely to result in targeted adjustments, including a broader sectoral scope in line with the revised FDI screening regulation and potential extensions of filing requirements.

Investments in Regulated Banks, Financial or Payment Services Providers and Insurance Companies

In the fintech/insurtech space, an investor that intends to acquire a direct or indirect participation in a German regulated bank or other financial institution – such as a financial services provider, payment services provider, e-money institution or investment firm – of over 10% of the capital or voting rights is required to submit a notification to BaFin and obtain pre-closing approval in the context of an owner control procedure (Inhaberkontrollverfahren).

During this procedure, BaFin reviews, among other things, the strategic plans, financial standing and reliability of the investor. The legal basis depends on the company’s regulatory status. Crossing of 20%, 30% and 50% thresholds requires additional clearances. In case of German banks that fall under European banking supervision, the approval process involves the European Central Bank.

An owner control approval is also required for direct and indirect investments in insurance and reinsurance undertakings as well as in certain regulated asset (fund) management companies – in each case, also starting at 10% of the capital or voting rights.

Stamp Duties and Currency Control

The German government imposes no stamp duties nor any control on the purchase or sale of foreign currencies.