Germany: no sign of improvement

New investments by members of the German Venture Capital Association (the BVK) dropped 40 per cent in 2002 compared to 2001’s figures, falling to 1999 levels. Venture capital and private equity investment activities in Germany amounted to €2.65 billion, including fund-of-funds investments, compared to €4.4 billion in 2001. Werner Schauerte, chairman of the board of the BVK, said: “Both the overall economic situation, tax and basic conditions relating to financial policy meant it was not possible to achieve results similar to the previous years.” The BVK also reports that there are not yet any signs of a substantial improvement in the market in 2003.

Buyouts dominated German investments last year, making up 44.8 per cent of commitments or €1.1 billion. The fourth quarter was the most active period with €477.9 million, or two-thirds of total investments, committed to this deal type. Early stage investing continues to be the segment hardest hit by the on-going market consolidation. In 2002 seed and start-up financings amounted to only €556.1 million, with seed financings reduced to 1997 levels. This is also reflected in the industry distribution of investments. Commitments to technology-based industries continued to decrease and the largest volumes of capital flowed into traditional industries such as machine/equipment construction (17.7 per cent) and chemicals/materials (15.4 per cent).

Once again write-offs were the main exit route, with losses amounting to €926.5 million. “Larger losses from individual transactions and large positions of individual funds dominate the picture,” says BVK managing director, Holger Frommann. The IPO window remains firmly shut to German venture capitalists, with neither domestic nor foreign stock exchanges producing exits. More positively, trade exits were up slightly on 2001, generating €396.37 million in returns last year.

Fund raising also suffered in 2002, with BVK members raising just €3.4 billion, compared to €10.3 billion in the preceding 12 months. However, of this amount €2 billion was allotted to pan-European funds. As in the previous year, uncertain political circumstances and the continuing uncertainty regarding the taxation of fund investors and initiators hampered fund raising.