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German venture capital funds - an attractive investment opportunity 09/07/2008. Source: German Private Equity and Venture Capital Association (BVK). Dörte Höppner
 Founders and young companies in Germany continue to have a strong need for capital. Venture capital firms are now again investing more often in German start-ups, with the number of founders who have been financed this year up from the previous year's level. Whether this is a sustained trend or merely a short-term straw fire will predominantly hinge upon the ability of venture capital firms to raise sufficient new capital from investors in the coming months. This continues to be a major challenge for German early-stage investors. Yet there has been a further improvement in the situation by comparison with the years before.
It would appear as though national and international investors now rate the attractiveness of German venture capital funds higher than in the years of consolidation through 2005. With the successful closing of what is now its third fund, SHS offered up a good example that fundraising isn't impossible for German venture capital firms either. These kinds of success stories are important for the German venture capital industry, and give rise to the hope that the other venture capital funds that are currently in the fundraising stage will be able to follow suit with successful closings in the near future.
German venture capital firms, especially those with a national investment focus, have long been suffering from the aftershocks of the demise of the New Economy and from the difficult years of consolidation through 2005. Firms with an international investment focus and an international network of contacts and investors that they had built over the course of the years have been able to interest investors in new funds since 2005; firms with a national focus have faced considerably greater difficulties in connection with fundraising. One reason for this is persistent timidity on the part of national investors, first and foremost, when it comes to engagements in German private equity and venture capital funds, in particular. Many investors had suffered substantial losses when the New Economy bubble burst, and their frequent lack of experience in dealing with venture capital prompted them to withdraw from this investment form.
Yet German venture capital funds' current prospects for success are being underestimated. The fact is that many firms were forced to suffer serious setbacks following the end of the New Economy, sometimes with disastrous impact on the track records of individual firms. However the industry emerged from this crisis stronger and more experienced, and the prospects for German venture capital firms are today significantly more optimistic, giving rise to hopes for a further easing of the situation.
Often underestimated, venture capital firms have been able to regularly celebrate successful trade sales in recent years, thus improving their track records. Various trade sales to strategic investors as well as IPOs of venture capital-financed companies demonstrate the successful work of the venture capital firms, which in addition to capital additionally contribute entrepreneurial know-how to their portfolio companies. Moreover, they are also proof that young German technology companies are capable of implementing successful ideas and concepts. With the trade sales of snom and Novosis, as well as the initial public offering of VITA 34, it has been possible for SHS, too, to refute the widespread misconception that venture capital funds which invest in Germany are less successful and earn lower returns for their investors than their international competitors. The current situation on stock markets and renewed buying interest on the part of strategic investors hold the promise of further trade sales in the future. Because in the future, a documented, long-term track record will continue to be the key to successfully launching new funds and the most convincing argument in dealing with hesitant investors. German venture capital firms have proven that they are again in a position to accompany businesses over the years as they grow, and to then successfully sell them.
This article was first published in the SHS Gesellschaft für Beteiligungsmanagement newsletter.
The Bundesverband Deutscher Kapitalbeteiligungsgesellschaften - German Private Equity and Venture Capital Association e.V. (BVK) is the organisation of German venture capital and private equity companies and representatives of foreign venture capitalists operating in Germany. BVK was founded in Berlin on 29 January 1988. On 8 December 1989, BVK and DVCA Deutscher Venture Capital Verband merged into BVK. At present, BVK has 275 full and associate members. BVK has its headquarters in Berlin. For more information go to http://www.bvk-ev.de
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