3 questions to smart minds

Growth financing in Germany must grow

For this 3 questions to W. Seibold

Photo: W. Seibold | GROWTH INVEST
15. Octo­ber 2013

Many young compa­nies still often have diffi­culty finding inves­tors for their growth plans. Although the German Minis­try of Econo­mics has been addres­sing this issue for some time with the aim of impro­ving growth finan­cing for young inno­va­tive compa­nies in Germany and has laun­ched the “Euro­pean Angel Funds” in the form of the Euro­pean Invest­ment Fund, there are still finan­cing gaps. The ques­tion remains why the venture capi­tal market is shrin­king rather than growing.

For this 3 ques­ti­ons to Mana­ging Part­ner of GROWTH INVEST Part­ners in Munich

1. You recently foun­ded a new venture capi­tal firm in the growth capi­tal envi­ron­ment after more than 12 years at Early­bird. Which compa­nies, sectors and finan­cing phases will you focus on? Will there be a fund?

As the name indi­ca­tes, Growth Invest Part­ners will focus on finan­cing fast-growing compa­nies in the elabo­rate growth phase. Speci­fi­cally, we are targe­ting tech­no­logy compa­nies in the IT, Inter­net, tele­com­mu­ni­ca­ti­ons and energy tech­no­logy sectors with sales of around EUR 10 million and high-margin core busi­ness. We support these compa­nies with growth capi­tal and stra­te­gic input when ente­ring new markets, inter­na­tio­na­li­zing or pursuing a buy-and-build strategy.

We do not coll­ect the capi­tal for this in a closed-end fund, but put toge­ther the opti­mal finan­cing syndi­cate for each invest­ment from among our inves­tors — these are leading family offices and large insti­tu­tio­nal inves­tors. For the compa­nies, this has the advan­tage that we are flexi­ble with regard to the opti­mal finan­cing struc­ture. The parti­ci­pa­ting inves­tors can decide for them­sel­ves when and to what extent they want to invest in certain topics.

2. How do you assess early-stage finan­cing in Germany?

The VC market in Germany is still in the deve­lo­p­ment phase. A lot has happened in recent years, espe­ci­ally in the early stages. With the High Tech Grün­der­fonds and a number of regio­nal seed programs, as well as an incre­asing number of busi­ness angels who were successful startup entre­pre­neurs them­sel­ves, not only new capi­tal but also a lot of entre­pre­neu­rial expe­ri­ence ente­red the early stage VC market. This has a very bene­fi­cial effect on the variety and quality of the start­ups we are deal­ing with today. At the same time, the total amount of venture capi­tal available, espe­ci­ally for the subse­quent growth phase, decli­ned signi­fi­cantly. For a startup with initial succes­ses in its home market, it has become even more diffi­cult since the onset of the finan­cial crisis to raise five or ten million euros in growth finan­cing for inter­na­tio­nal expan­sion, for exam­ple. There are hardly any German VC funds left that can handle such rounds.

The posi­tive news is that initial large US VCs such as Klei­ner Perkins, Union Square and Accell have again made spora­dic invest­ments in promi­sing compa­nies. But there is still a big gap here. Toge­ther with our inves­tors, we are focu­sing speci­fi­cally on this criti­cal phase in the company’s development.

3. What gaps do you still see in growth finan­cing? What needs to be impro­ved in this coun­try? Which count­ries do it better and how/why?

It remains extre­mely diffi­cult to mobi­lize suffi­ci­ent private capi­tal for the growth phase. This is due on the one hand to the long holding peri­ods, the diffi­cult exit envi­ron­ment in Europe and certainly not least to the compa­ra­tively less favorable frame­work condi­ti­ons for venture capi­tal in Germany. This is why Germany is well below the Euro­pean average, parti­cu­larly in terms of capi­tal for the growth phase (in the early phase, we are now roughly in the Euro­pean midfield). Count­ries such as France and the UK are much better at mobi­li­zing capi­tal at all stages of finan­cing. Of course, as part of the BVK’s asso­cia­tion work, we will conti­nue to campaign for an impro­ve­ment in the frame­work condi­ti­ons here in Germany — but that will take time. With our deal-by-deal approach and clear focus, we are alre­ady able to signi­fi­cantly shor­ten holding peri­ods for our inves­tors. And with our Advi­sory Board, we are actively working to deve­lop the Euro­pean tech exit markets.

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