So, You Want to Start a Fund in Germany?

Navigate the complexities of starting a fund in Germany; from understanding the KAGB and structuring your fund to legal compliance and licensing, we guide you through every step. Connect with us for expert assistance tailored to your venture's needs.

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Starting a fund can feel like venturing into a maze without a map, especially if you have chosen Germany as your jurisdiction. When you approach a new topic for the first time, a good first step is usually turning to a reliable old friend - Google. However, in the case of starting a fund, what you will encounter at best are vague answers that do not quite address the precise process, the parties that need to be involved and the jobs-to-be-done.

After more or less successfully doing your own research, the natural next step is to consult professionals: here you most likely turn to prestigious law firms. But, more often than not, after the initial calls you end up more confused than before. On top of that, you will face 5-to-7-digit costs and seemingly endless months of setup time.

Do not let disillusionment set in; we have walked this path and are here to guide you through each step. Let us navigate this journey together, beginning with the foundational steps.

1. Structure: Understanding the backbone of your fund

The first thing you need to consider (and we cannot stress this enough): Venture Capital is a regulated market. In a bid to bring stability and clarity to the financial landscape after the financial crisis in the late 2000s, the European Commission introduced the Alternative Investment Fund Managers Directive. The AIFMD aims to set clear standards for fund managers across member states of the EU. Germany, known for its “precision and regulatory diligence”, responded to this directive with the establishment of the KAGB (Kapitalanlagegesetzbuch).

If you have set your sights on the Venture Capital arena in Germany, understanding the KAGB is paramount. On the bright side, you also have a structure for funds that gives you a clear framework. Let us unpack these elements that are regulated by the KAGB:

  • General Partner GmbH (GP): Oftentimes referred to as the principal decision maker and responsible for the day-to-day management of the fund. From a legal point of view, however, the GP entity’s main task is to assume liability for the Fund GmbH & Co. KG. In exchange for that, the GP entity usually receives a liability fee from the limited partners of the fund.
  • Management Company GmbH (ManCo): Also known as the AIFM (Alternative Investment Fund Manager) or in Germany, the Kapitalverwaltungsgesellschaft (KVG). The ManCo is the backbone of the fund and is primarily responsible for the overall management and administration of the fund, including tasks like portfolio management, risk management, and compliance. The ManCo hires the people to do this and receives a management fee from the limited partners (see Limited Partners; typically 2% of the total commitments to the fund), which is designed to cover the operational costs of managing the fund, including salaries, rent and other overhead. This fee is distinct from the carried interest (see Carry GmbH & Co. KG). One ManCo can manage several funds.
  • Fund GmbH & Co. KG (AIF): The Alternative Investment Fund (AIF) is the actual fund vehicle that holds the investments. The AIF operates under the guidelines and strategy set out by the ManCo. The fund's assets are managed and deployed based on these guidelines. The costs to set up and run the fund are usually borne by the limited partners.
  • Limited Partners (LPs): Investors providing capital to the fund. They do not usually get involved in the daily operations or management of the fund but cover most of the costs. In exchange, they expect a return on their investment.
  • Carry GmbH & Co. KG: Carried interest ("carry"), is a share of the fund's profits that is given to the fund's investment team (or any advisors, venture partners or other affiliates of the fund) as performance-based compensation. It is common to set up the carry as a separate legal entity to clearly distinguish between the management and the carry fee. Having a separate entity helps in clarifying tax implications, legal responsibilities, and distribution methodologies.
  • Team GmbH & Co. KG: This separate legal entity is often formed to pool and bring in the fund manager's commitment to the fund (commonly referred to as the "GP commitment"). Depending on the structure, this is typically 1-5% of the total commitments to the fund. Sometimes the team entity can also be used as a carry entity, depending on who is to participate in the performance-based compensation. The main reason why larger fund managers, in particular, choose to keep it separate is that not everyone on the investment team is usually required to contribute their own share of the commitment (e.g., analysts), while you may still want them to participate in the carry.

Below is a simplified summary of how those elements intertwine:

2. Banking: Setting up financial foundations

Once your entities are incorporated - at least for the GmbHs - you need to pay in share capital to register them in the commercial register. To be able to pay in share capital you need bank accounts for your entities. However, in most cases, you can only get a bank account when your entity is registered - which brings us back to square one.

To resolve this Catch-22, look out for business banks that allow you to open up a bank account while your GmbH is still in incorporation. Otherwise, this can be a major blocker for applying for your license as an AIFM (see 4. License below) since your ManCo needs to be registered beforehand. Searching for a bank on the fly adds unnecessary time to the process, so make sure to check early enough how to get a bank account. Reach out to us in case you have doubts as we are working with preferred banking partners who can help you out with this.

3. Legal: Crafting the foundation of your fund

At this stage, you will be neck-deep in legal documentation. This includes:

  • Negotiating the first draft of the Limited Partnership Agreement (LPA): Think of these as the constitution of your fund. The LPA does not just sketch out the fund's structure but intricately details the rights, economics, responsibilities, and relationships of everyone involved. Your first draft might feel like a rough skeleton, but through negotiations, it evolves into a finely-tuned blueprint ensuring every stakeholder's interests are represented and protected.
  • Subscription Documentation: Think of these as a formal bridge between an investor's intent and action. When a new investor decides to invest in your fund, these are the papers they will sign. But they are not just administrative paperwork; they reflect the investor's commitment, their contact details, banking information, KYC / KYB and AML documentation, investor qualification, tax information (FATCA / CRS) and any specific terms related to their investment.
  • KID, SFDR (Art. 8 & Art. 9), etc.: These documents are designed to foster transparency, ensuring that investors have a clear lens into the risks, rewards, strategies, and sustainability-related disclosures of the investments. While they might seem like mere formalities, they are critical in setting clear expectations and ensuring your fund operates within the bounds of the law.

This list is not exhaustive - please note that depending on your setup and LP base, more documents may be required. We will cover this in more detail in a future blog post - if you cannot wait, feel free to contact us. Together with our legal partners, we can support you with your entire legal framework to get you off the ground!

4. License: Obtaining the necessary permissions

Once the ManCo is registered and you have the first version of your LPA, it is time to apply for an AIFM license with the local authorities - in Germany the BaFin. This is usually done by a law firm that prepares the respective application and submits it to the BaFin.

In Germany, there are two main types of fund licenses: 

  1. Public Funds (Publikumsfonds) 
  2. Special Funds (Spezialfonds) 

The type of license you secure will indicate the kinds of investors you can cater to. Public funds are available to the general public and have stricter regulations, especially for protecting investors, because they cater to both professional and everyday investors. On the other hand, Spezialfonds are designed for (semi-)professional investors which typically means that they have fewer regulatory requirements than public funds.

Within the category of special funds, there are AIFs and “Spezial AIFs”. The main difference between those two is essentially that Spezial AIFs can only manage up to 100 million euros in assets if they use financial leverage and up to 500 million euros without leverage. It is important to note that all funds under the ManCo are included in this calculation. For example, if under the same ManCo, Fund 1 is EUR 100 million, Fund 2 is EUR 200 million and Fund 3 will be EUR 300 million, then at this point at the latest, you will move into the standard AIF, which comes with more stringent regulations and auditing requirements.

Below is a simplified decision tree:

The license is essential for operating as a fund manager and governs the management and marketing of funds. This process can take months, although, with the right guidance and well-prepared documentation, you could be looking at a mere two weeks from application to completion (for Spezial AIFs).

Before the license is granted, you are limited to pre-marketing activities, but once approved, the fundraising world is your oyster - within the bounds of your obtained license, of course!

5. Conclusion

You might now be pondering the sections you can tackle yourself and those requiring external assistance. For phases 1, 3, and 4, enlisting a law firm to craft the necessary documents and applications is essential. Yet, coming prepared will substantially cut down both time and costs. Your path to launching a successful fund begins here, and we cannot wait to be a part of your story!

Looking to launch your fund? Connect with us at or visit our website. We are here to empower you!

Disclaimer: The content presented herein is solely for informational and discussion purposes only. It is not intended to serve as legal, tax or financial advice or as an endorsement of any investment strategy. bunch does not provide legal, tax or financial advice. Readers should not base their investment decisions on the content presented herein or any other bunch-generated content alone and should seek appropriate professional advice. Nothing contained herein shall constitute or imply an offer to sell, purchase or enter into any transaction in respect of securities. The content contained herein is subject to change without notice. While we aim to present accurate and up-to-date information as part of bunch’s content, we undertake no obligation to update our content from time to time


Johannes Gebendorfer
Strategic Projects Lead

Johannes is leading strategic projects at bunch with a particular focus on the German market and the offerings around funds. Prior to joining bunch, he worked for one of Europe's largest and most active Venture Capital funds, building a portfolio of FinTech companies before switching to the operator side.

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