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No shortage of good business ideas
(FAZ Interview with Uli Fricke et al., January 13, 2010)
Frankfurt, January 13, 2010

There is no shortage of young, enterprising company founders in Germany, apparently even in times of economic crisis. At least that is the impression given by the investors who as venture capitalists take fledgling companies under their wings. “In the past year, over 900 business plans came across our desk for evaluation, and a number of them were quite good”, says Ulrike Fricke, Managing Partner of Triangle Venture Capital Group. Rolf Christof Dienst, who numbers among the most experienced players in the sector with his venture capital firm Wellington Partners, also assesses the market positively: “There are sufficient purchasing opportunities”, he says. And this precise moment is also a good time to invest, adds Hansjörg Sage, who heads the German business of the Belgian venture capital company Gimv. “Many innovations are made in a crisis.” Green technologies in particular are the talk the venture capital arena – some people are even calling them sexy. “The industry is driven by institutional investors, and the investors are simply smitten with the subject of clean tech”, explains Dienst. But other high-tech industries such as medical technology and telecommunications are also enjoying great appreciation. “Germany offers an excellent basis for young medical technology companies”, says Hubertus Leonhardt, Partner of SHS, a venture capital company out of Tübigen, Germany. “We look for companies that can grow dynamically in an already growing market”, is how Ulrike Fricke explains Triangle’s investment philosophy and practice of keeping a close eye on university spin-offs. Often those companies include software developers, of which there are many young, innovative businesses in Germany, reassures Fricke. Risk capital fund managers also consider it a myth that the internet marketplace is completely in the hands of the Americans. “There is a huge number of exciting internet-based business models both in Germany and in Europe”, says Gimv manager Sage. All in all, according to Dienst, the German market for venture capitalists is “attractive and large.” Much bigger, anyway, than can really be covered by the two or three dozen venture capital companies that remained in the wake of the New Economy debacle. Venture capital funds need much less upfront capital for their transactions than do their colleagues in the traditional business of takeovers (private equity); a venture capitalist typically only puts a smaller, single-digit million amount into a new company and ramps that up in subsequent years. Yet, in contrast to their competitors in the USA, German venture capital funds suffer terribly from the fact that institutional investors are nearly impossible to find. “For a new fund we always have to find investors abroad first, before we ever encounter any trust in Germany”, criticizes Ulrike Fricke. For that reason, a venture capital fund with a volume of €50 million, such as that managed by Triangle, is already among the larger ones in Germany. “It would be pivotal for the German venture capital sector if we were to get insurance companies or pension funds into our asset category”, asserts SHS Partner Leonhardt. Although it is true that many of these institutional financiers have gotten burned recently by big investments in classic private equity funds, it is nonetheless highly unlikely that they will suddenly turn around and make their capital available to venture capital firms. “Unfortunately, there is no sign of that happening”, says Leonhardt. A look at the official figures from the German Private Equity and Venture Capital Association (BVK) reveals just how bad the malaise is. In the first nine months of 2009 in Germany just €421 million were invested in the entire venture capital arena (start-up and early-phase financing), compared with €775 million in the year before. “Germany is a clear leader in research, and yet it has the lowest venture capital rate per capita of the industrialized countries”, says Fricke, “which is very bad for development.” Nevertheless, some foreign venture capital funds are just discovering the German market. French venture capital firms in particular, which have access to comparatively higher capital because of special tax allowances, have opened up new offices in Germany in recent months. Sage explains the development this way: “The French see that there are fewer market participants here than they have at home, and are banking on there being less competition, too.”

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