Bundesverbandes Deutscher Kapitalbeteiligungsgesellschaften (BVK), the German venture capital association, released investment figures for the first half of 2002, revealing the year’s total investment figure is likely to be down on last year’s. In the second quarter of this year 209 BVK members invested a total of €727 million, compared to €482 million in the first three months. This €1.2 billion total for the first half of 2002 compares with €1.7 billion in the same period last year. Working on the assumption that, as in the past, around two-thirds of investments are made in the second half of the year 2002’s total should be between €3 billion to €3.5 billion. In 2001 German investments totalled just under €4.5 billion.
Repeating the message that has accompanied other recent industry figures that continue to show a decline in investment levels, Holger Fromman BVK managing director, said: “The past two years were exceptional and although this year’s investments will not reach the same level they are still up on 1999’s figures. Lower valuations mean that even if the same number of companies were invested in, total investment could not reach the same volume.”
Other trends highlighted by Werner Schauerte, chair of the BVK’s board and managing partner of Deutsche Venture Capital, who presented the figures, included an increase in buyout activity and continuing consolidation of the early stage sector. International investment, currently standing at 41 per cent for Europe (outside Germany) and 3 per cent for the rest of the world, is expected to increase as private equity becomes increasingly globalised.
In the second quarter buyouts accounted for more than half of the total amount invested (€372 million), compared to less than 20 per cent in the first quarter. Of the seven major German buyouts so far this year six were completed in the second three months. Fromman suggested that the much-lauded change in capital gains tax has now begun to bear fruit for the private equity industry.
Seed and start up financings fell from €167 million in the first three months to €132 million in the second quarter. Fromman said past negative experiences meant companies were scaling back, or completely withdrawing, from early stage investments. He believes this is especially true of firms whose investment strategy covers both early and late stage investments. In relation to the fall in early stage commitments BVK members are currently discussing the “quality and quantity” of the government’s subsidies to start-ups. The existing programmes are due to expire shortly and may be extended or altered. Fears are that a withdrawal of government funding could further damage the sector’s prospects.
Reflecting the move away from early stage and back towards buyouts, investments in traditional industries outweighed commitments to the technology sector. The machine/equipment sector received €174 million of investment in the first three months, electronics €110 million and construction €34 million, all up on the first quarter. In the first quarter technology-related investments accounted for 54 per cent of the total, this fell to 27 per cent last quarter.
So far this year €904 million of exits have been made, although losses represented almost half of this figure- 61 per cent in the second quarter. However, these losses can be attributed to a small number of BVK members, who had not yet made significant write-downs. Fromman believes the period of portfolio rationalisation is now coming to an end. Trade sales continue to provide the main realisation route with no IPOs so far this year and none likely in the near future. In the long term the association expects losses to return to an average of approximately 15 to 20 per cent.