In Germany, venture capital is scarce for young companies. Large funds from Asia, the USA and Great Britain step in. But this increases the risk of companies and know-how migrating.
BerlinNaren Sham succeeded in the last spectacular deal by a Berlin start-up in August. The founder of the booking platform Omio from Mitte had collected 100 million US dollars from investors. The donors came from Singapore, Silicon Valley and Sweden. Two years ago, the start-up brought 150 million dollars to Berlin. At that time, the Chinese e-commerce giant Tencent was also involved. What was unusual about the latest financing round was that the travel company Omio was able to increase its capital in the middle of the Corona crisis. In contrast, it is normal for the money to come almost exclusively from abroad.
Germany continues to fall behind
This is shown by a study that has now been published by economic researchers at KfW. In it, the authors show that venture capitalists from Germany are rarely able to provide local start-ups with the necessary financial resources, especially in the growth phase. Consequence: When it comes to a low double-digit million amount and more, foreign investors are involved in nine out of ten financing rounds. “The German venture capital market is indeed on the upswing,” says Fritzi Köhler-Geib, chief economist at KfW. “But the pace is too slow.” In an international comparison, Germany is falling further behind.
In terms of economic strength, the study shows that the investment volume in Germany is below the EU level. In the UK and France in particular, people are more willing to invest. “Germany threatens to lose touch internationally in important technology areas for which venture capital plays a major role,” says Köhler-Geib. Large rounds of financing would have to be possible more often without foreign investors – also in order to “reduce the risk of companies and know-how leaving”.
It is well known that investors have Berlin start-ups on their radar. Of the 6.2 billion euros that went to German start-ups last year, 3.7 billion euros went to Berlin. And there are plenty of examples of international participation. The around 100 billion US dollar investment fund “Visions” of the Japanese Softbank group, for example, invested half a billion dollars in the Berlin company Auto1 in 2018. Last summer, the booking platform GetYourGuide.de also collected an even larger amount from Softbank and Singapore’s state fund Temasek.
“All large Berlin start-ups in foreign ownership”
Tencent from China not only has a stake in the travel company Omio, but also has shares in the smartphone bank N26. And Alibaba, the Amazon of China, completely took over the Berlin start-up Data Artisans and, with the software company, got a technology with which very large amounts of data can be processed very quickly. So the question arises as to how much Berlin start-ups as “an important job engine for the city” (Senator for Economic Affairs Ramona Pop) depend on foreign capital?
At the auditing and consulting company Ernst & Young (EY), Thomas Prüver is the start-up expert for the German-speaking area. He has his office directly at the Friedrichstrasse train station and is particularly familiar with the start-up scene in the capital. He estimates that more than three quarters of the capital invested in young Berlin companies comes from abroad. Especially when it comes to financing growth with at least 10 to 15 million euros, the founders rely on the money of large funds from Asia, Great Britain and the USA. The result, according to Prüver: “All major Berlin start-ups are owned by foreign investors.”
Christian Miele does not contradict this. “If there were no outside money, we would hardly have unicorns in the city,” says the President of the Federal Association of German Start-ups. From the point of view of the founders’ chief lobbyist, however, it would be a far greater disadvantage if no capital were to flow into local start-ups. Economically and politically, however, he considers the situation to be worth discussing: Because with large foreign investments, “not only shares flow away, but also added value, participation and intellectual property”. In addition, of course, the probability increases that a start-up will relocate parts of the management, development or other business areas to other regions if one of the main investors comes from this region. An exodus of all unicorns
There is enough money. Risk taking necessary
The authors of the KfW study nevertheless consider it imperative to make more venture capital available to start-ups. “There is enough private capital in this country, it just has to be mobilized for the VC market,” says KfW chief economist Köhler-Geib. The young companies would help to make new technologies marketable and socially acceptable or at least break up encrusted economic structures and thus ultimately create sustainable jobs. In this respect, according to the KfW banker, many are at stake. “If we want to benefit from the possible growth impulses from digitization and the transformation to climate neutrality, we need a different approach to risk.”
Meanwhile, foreign investors are still looking. In May, the Japanese Softbank subsidiary SBI teamed up with the Berlin-based risk capital specialist Redstone to launch its first European start-up fund in the city. From here, hopeful young companies, especially from the Industry 4.0 sector, are to be pushed. According to their own statements, the Japanese value the innovative strength and technological expertise for future-proof industrial solutions in Europe. You want to use that. The Berlin partner Redstone should help “to identify the most promising investment targets here precisely and objectively”.