Why Bavaria's VC decision is more than symbolic politics – the federal government must follow suit

For the first time, Bavaria is allowing non-profit foundations to invest up to five percent of their assets in venture capital funds. A major step, says Carsten Puschmann.

Sometimes a small step is enough to send a big message. What the Bavarian State Parliament passed on July 23, 2025, at the request of the CSU and the Free Voters, could be just that: a turning point for German innovation policy —and a wake-up call to the rest of the country.

Specifically, it concerns a resolution allowing public and private foundations in Bavaria to invest up to five percent of their assets in venture capital funds. This isn't a symbolic PR stunt, nor is it a plea to the " startup nation Germany," but rather a legally sound opening of a previously blocked financial pathway. In my view, this was long overdue.

Until now, there has been considerable uncertainty in Germany about whether non-profit foundations are even allowed to invest in venture capital without jeopardizing their non-profit status. The problem: Investments in startups were often not considered "according to the statutes" under the tax code – even if they made social sense. Many foundations stayed out of it entirely for fear of tax disadvantages or reputational risks.

Bavaria is now creating a clear legal framework: Up to five percent of foundation assets may be invested in venture capital through fund structures (not directly into startups) – without jeopardizing the foundation's non-profit status. This makes investments predictable, audit-proof – and, above all, finally possible.

The coalition agreement between the CDU and SPD at the federal level already stated boldly that they wanted to strengthen the capital base for startups, mobilize institutional investors for venture capital, and modernize the framework. So far, little has happened. Lots of talk, many declarations of intent—but no bold action.

Bavaria has now shown how it's done. Not just with funding programs or startup centers, but with a truly systemic change: the foundation as a source of capital for innovation. Anyone who has spoken with US venture capital funds or Scandinavian pension funds knows how important it is to provide long-term, patient capital for tech and deep tech. This is precisely what has been blocked in Germany so far – due to outdated investment regulations, tax uncertainty, and risk aversion.

Importantly, this decision is not a reckless experiment, but rather reflects common practice in other innovation hubs. The fact that German foundations have so far been forced to invest most of their assets in fixed-income securities or real estate is almost economically negligent—especially in times of inflation, technological change, and geopolitical competition.

Anyone who talks to young founders today repeatedly hears the same problem: Capital is there – but it's not finding its way to them. Especially during the growth phase, most startups lack institutional investors who act with a sense of proportion and foresight. If foundations are now allowed to invest through VC funds, this not only opens up a new flow of capital – it also creates trust and sends a strong signal.

What must not happen now is that Bavaria becomes an innovation lone case, while the rest of the country continues to dither. The other federal states urgently need to follow suit. Because if just one federal state takes a forward-looking capital policy seriously, then Bavaria will become the better Germany – and that would be dangerous for the cohesion of the innovation landscape.

We need the opportunity in all regions for capital to flow to where new technologies are emerging, jobs are being created, and social progress is possible. And we need a shared understanding that venture capital is not the enemy of stability—but rather its prerequisite in the digital age.

The investment approval for Bavarian foundations isn't a game changer in the strict sense—it won't release billions overnight. But it is a much-needed paradigm shift. It shows that the state can act if it wants to. And it must if we don't want to completely lose touch with the US or China.