Germany plans to acquire direct equity stakes in defence technology start-ups as part of a broader strategy to stimulate innovation and support economic growth. The announcement came from the government led by Chancellor Friedrich Merz, which intends to channel investments through the state-owned development bank KfW. Additional measures include tax incentives and streamlined, digitalised procedures to facilitate company formation.

Economy Minister Katherina Reiche emphasized the objectives of the policy as making it easier to establish businesses, accelerating growth, and retaining innovation within Germany. The initiative marks a shift toward a more interventionist industrial policy aimed at addressing criticism from entrepreneurs about bureaucratic hurdles and insufficient venture capital availability. Despite being one of the top recipients of venture capital funding in the European Union, Germany has trailed behind countries such as the United Kingdom and the United States in fostering high-growth technology firms.

Germany’s economy, heavily reliant on traditional export-oriented sectors like automobile manufacturing and steel production, has faced challenges from increased global competition, particularly from China. Companies such as Volkswagen have responded by reducing jobs and closing plants domestically. After Merz’s coalition—comprising the Christian Democrats and the Social Democrats—secured office last year, efforts have focused on revitalizing the economy, including leveraging a planned €700 billion defence spending programme through 2030.

Officials close to the government noted the desire to maximise economic benefits from the large-scale rearmament, stating concerns that major financing rounds for promising start-ups are often dominated by foreign investors. This situation, they argue, could undermine technological sovereignty and threaten long-term job creation and value retention in Germany and Europe.

The government’s proposal includes creating a dedicated investment vehicle targeting start-ups and scale-ups engaged in producing defence-related products and services, some of which are subject to strict export controls. The plan also aims to facilitate start-ups’ access to public procurement processes. Furthermore, more than 150 measures are under consideration, including the development of a strategically oriented arms export policy intended to provide greater predictability for defence and dual-use technology companies. The government also pledged to expedite export control license reviews and increase oversight of potential technology outflows.

Reactions within the defence sector have been mixed. Some industry figures, such as Marc Wietfeld, CEO of unmanned vehicle firm ARX Robotics, welcomed the move as a clear indication that start-ups and scale-ups will be central to Germany’s future economic landscape. However, others expressed skepticism regarding the state acquiring equity stakes in private companies, suggesting that a preference should be given to procuring finished products rather than participating as shareholders.

Overall, the German government’s approach seeks to balance fostering innovation and safeguarding technological assets amid heightened focus on defence capabilities and economic recovery.