By: Gigaom
July 20, 2012 at 03:57 AM EDT
Austrian startups get $106m boost from the state
The money will go into two funds, one of which also aims to raise angel cash. But will it be enough to shore up a promising but funding-starved startup scene?

The growing Austrian startup scene might be about to get a real shot in the arm, after the country’s finance ministry announced a €110 million ($135 million) ‘Young Entrepreneurs’ scheme.

The cash, not all of which will come from the state, is going to be dished out over the next six years. €65 million of government funding will go into a Founders’ Fund that will buy stakes of up to 49 percent in new businesses, with investments ranging from €100,000 to €1 million. This fund is aimed at entrepreneurs who simply can’t find capital.

Meanwhile, a further €22.5 million of state cash will be set aside to match angel investments euro-for-euro, with investments of between €150,000 to €300,000. With this €45 million fund, the idea is to not only finance startups but also give them a helping hand in developing their business.

“When young entrepreneurs are trying to get their businesses started and lack the necessary risk capital, banks are unwilling to provide sufficient credit and business networks are not yet well established, many potentially lucrative businesses will fail to get off the ground, finance minister Maria Fekter said in a statement.

“In terms of the levels of risk capital financing provided, Austria is ranked only 20th of 25 countries polled. Thus, we have a real need to catch up here and I am certain that our two ‘Young Entrepreneur’ initiatives are the right way to make the necessary changes.”

At no point does the finance ministry specify tech startups in its statement, but Fekter’s spokesman told me that the most important criteria were “the degree of innovation, fast-growing ideas and forecast on the labour market for employees”, as well as “the degree of internationalization opportunity”. Given that, it would be frankly bizarre if a substantial portion of the funding didn’t go to tech.

Potential

It’s not as though there isn’t an Austrian tech startup scene worth funding. Just look at the roster of prominent coworking space Sektor5, or the buzz that’s starting to emanate from companies such as language portal Busuu, fashion outfit Lookk, careers advice service Whatchado or web-life recorders Archify.

As for the angels needed to make the second fund happen, well, angels tend to come from exits. And there have been some big ones recently — in June alone, Paysafecard sold to Skrill for €140 million and Blue Tomato to Zumiez for €75 million.

But, by all accounts, venture capital is a scarce resource in Austria. The situation is better in Berlin and much better in London, and neither of those hubs are particularly far away for Austrian startups. Both cities are also supported by governments are keen to put money into startups.

Of course, it can be argued that state funding discourages VC activity by competing with it, but on the other hand it tends to come with fewer demands than those imposed by venture capitalists. Also, in reality, government money is shoring up much of the European VC scene anyway.

Either way, the money being freed up is not insubstantial. Let’s see how much of an effect it has on a scene that’s already worth paying attention to.

Photograph of Hofburg used under Creative Commons license courtesy of Flickr user Nagesh Kamath

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