Katherina Reiche has presented her startup strategy – and pension capital should finally flow into startups. Why this is exactly right.
For years, Germany has torn itself over this one question: Why are our founders going to the USA? Why is the next Apple being built in Silicon Valley and not in Berlin? Why do we, one of the largest economies in the world, lack money?
Now our government is finally tackling this problem. Economics Minister Katherina Reiche presented her new startup strategy this week. This includes: More money from pension contributors should flow into venture capital. Finally! This is not gambling, as those who have no idea say. But financially smart – for retirees and startups.
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We have to finance German startups – and secure our pensions
This will solve two problems in Germany: On the one hand, we can finally prevent German startups from having to raise money in the USA due to a lack of financing. In the past, high-growth startups in particular lacked the capital to implement expansion plans. This means that know-how, talent, value creation and innovation remain with us. More German VC money also means more jobs and more taxes. Everyone wins.
The return on German pension funds is minus 0.6 percent. So that won’t help us much.
Linus Beck
Reporter at Gründerszene
On the other hand, we can also stabilize pension contributions. These are highly endangered. Keyword: demographic change. While today several contributors finance a pensioner, this ratio will change in the coming decades. In addition, according to Reiche, the average return for German pension and pension insurance funds is currently minus 0.6 percent. So that won’t help us much.
In comparison, pension funds in the USA, which have been investing part of their money in stocks and venture capital for years, sometimes achieve returns of seven to eleven percent. More investments in venture capital and stocks could also help German pensions.
Others have been doing it for a long time – we just have to follow suit
And before there is an outcry among those who describe the capital market as a pure casino: Our neighbors from Sweden and Denmark have been investing pension money in venture capital and the like since the 1990s – the returns here are around seven to ten percent.
What is crucial is that not all assets are invested in the same investments. Venture capital only makes up part of a broadly diversified portfolio. Stocks, real estate and infrastructure are also part of the investment strategy. So to all the alarmists: take a deep breath, not all of your pension is invested in risky startups.
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The practice has also been normal in the USA for a long time: While Germany only invests around 0.15 percent of GDP in venture capital, in the USA it is around 0.8 percent. That’s more than five times as much. The returns are similar to those of our European neighbors.
The question we have to ask ourselves is this: Who should finance the companies that will ensure our prosperity in 30 years? American investors or some from the Middle East? No thanks. We are world champions at saving, maybe we should try investing.