New investments in the German venture capital market are on a downward spiral, according to figures from the German venture capital association, BVK. The amount invested in new companies fell by over a third to DM1.1 billion in the third quarter. This compares to DM1.5 billion in the first quarter and DM1.7 billion in the second quarter.
Dr Holger Frommann of the BVK predicts that the fourth quarter will bring in a similar figure, with total new investments for the full year amounting to around DM5.5 billion. This is equivalent to the levels reached in 1990. “The decrease in levels of investment is a heavy one,” said Frommann.
He cites the reason for the slump as the global economic downturn and also players with little liquidity that are seeking fresh money and are having difficulty raising funds. “Players in the German market are more cautious than ever,” he said.
German VCs are more concerned with their current portfolio and the increase in follow-on investments from 30 per cent in the first and second quarters to 50 per cent in the third quarter is testament to this.
In terms of sector, Frommann observes a shift of focus from telecommunications and software, which are losing their appeal with investors, to an increased interest in biotech and medical deals.
Divestments for the first nine months of the year ramped up a total of DM1.8 billion from 664 companies. Of this total, only five were through IPO and 69 were accounted for by trade sale. However, Frommann says the Neuer Markt is showing signs of recovery in the light of the recent reforms for delisting of companies. He said: “Recently some of the technology shares have been trading well, but we do not expect a boom just yet. We do expect further growth, but it will be moderate.”
On the down side, it appears total losses due to write-offs are increasing. Last year, write-offs accounted for around 20 per cent of exits while current figures reveal a third of all exits as write-offs. Frommann sees this as an ongoing trend until at least the second half of 2002 due to a number of VCs restructuring their portfolio of investments. “The time needed for restructuring portfolios is between 12 to 15 months. This may be the moment when we will see new investments increasing again.”