Venture capitalists in Germany scale newer heights of success in 2017
According to Trading Economics, Germany’s investment climate is good as Corporate Profits increased to 189.11 EUR Billion in the second quarter of 2017 from 187.97 EUR Billion in the first quarter of 2017. Based on investment climate projections, Germany’s GDP will grow by 0.8% in 2020.
Overview of venture capitalism in Germany
A typical venture capital deal is classified as per their applications at various stages of business. The three principal types of venture capital are early-stage financing, expansion financing, and acquisition or buyout financing.
Early stage financing is subdivided into start-up financing, seed financing, and first-stage financing. Startup financing is given to a company to finish the development of products or services. Seed financing, on the other hand, is provided to entrepreneurs to enable him/her to qualify for small amount loans. First-stage funding is given to companies in need to begin their business processes and activities.
Expansion financing is divided into second-stage financing, and mezzanine financing. Second-stage financing and mezzanine financing are both given to companies for expansion. Mezzanine financing is focused on firms planning a more radical expansion.
Acquisition or buyout financing can be done either by acquisition finance and management or leveraged buyout financing. In acquisition finance and administration, the financer assists a company to acquire shares or the whole group. Leveraged buyout financing, on the other hand, helps an organization to obtain a product from another company.
To date, Germany raised the second largest amount of venture capital after the UK and surpassed France and Israel.
The structure of venture capital Industry in Germany
Image courtesy of Planetware
Most of the start-up companies are located in Berlin having as much as 63% of the top 100 companies. Munich loosely follows this. The rest are found in Hamburg, Frankfurt, Karlsruhe, Cologne, and Dusseldorf while the remaining 11% are in other cities such as Freiburg and Mannheim.
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At first, the source of finance of the venture capitalists was with the banking and finance industry. By 2000, foreign pension funds and industrial firms began to increase its investment. The top 10 most active local investors in Germany are as follows:
- High-Tech Grunderfonds;
- Bayern Kapital;
- Global Founders Capital;
- IBB Beteiligungsgesellschaft;
- HV Holtzbrinck Ventures;
- Michael Brehm;
- Rocket Internet SE;
- Index Ventures; and
- B-to-V Partners
Meanwhile, here are the top foreign investors in the German market:
Some examples of successfully venture-funded companies in Germany
2016 saw a rise in various technology ventures. These startup newcomers are included in the top 10 funding volumes. The list below contains a brief description of these newcomers.
Instead of focusing on explaining about companies where they invested, I feel, talking about the nature of investments in various domains will be good. Anyway, we will stand with the current version now, and if the buyer asks to change, we will do so.
- Spotcap: Spotcap, established in 2014, is an online credit platform that provides for short-term loans to small and medium enterprises.
- eGYM: The company is established in 2010 and offers cloud-connected gym technology with cloud supported software to connect gym equipment with an application for fitness training programs.
- N26: N26 is an online banking facility established in 2013. It has expanded its network outside Germany through partnering with Wirecard and Transferwise.
- Finanzcheck.de: This firm operates an online comparison site for personal loans and private financial products. The objective of the company is to make the loan process in Germany more efficient and transparent.
- Tado: Tado is a smart thermostat company that acts as a home climate control provider.
- HomeToGo: This home rental search engine was established in 2014. It offers about 6 million rentals for tourist. It has partnered with 250 home rental providers and search engines nationwide to reach a wide variety of clients.
- Junique: Junique, established in 2014, is a marketplace for curated art.
- Watchmaster: Just like Junique, Watchmaster provides a venue for buy and sell of luxury watches.
- Dubmash: Dubmash is an audio network established in 2014 which provides video sharing services.
- HUMANOO: HUMANOO is a digital health company that provides its clients with integrated fitness training programs based on their lifestyle assessment.
- AmbiGate: AmbiGate is the company providing software that uses a motion sensor to provide physical therapy solutions to back problems.
- Personal MedSystems: Personal MedSystems uses a mobile ECG technology to monitor your heart rate, circulation and rhythm.
Venture capital, in general, is set to grow with tech start-ups rising continuously. Germany in its 2017 Growth Strategy has engaged in a series of reforms to foster healthy, sustainable, balanced and inclusive growth. Among such structural policies are:
- INVEST- Program: The program intends to improve the financing situation for young, innovative companies by promoting the provision of private venture capital to increase the number of business angels and the volume of their investment.
- Reorganisation of financial relations between the Federation and the Lander: Reform bills on finance provide administrative measures to streamline the decision-making process. The statements focused on three reform areas. First is for the Federation to ensure annual relief to the Lander from 2020 onwards. Second is on granting federal assistance for essential investments in the field of local education infrastructure to authorities with inadequate financial resources. Finally, to give inspection rights for the Federal Court of Audit in the area of joint financing at the Lander level.
- Consultancy to support public investment projects (“Partnerschaft Deutschland – Berater der öffentlichen Hand GmbH”)
The abovementioned reforms are in view of the projected outlook by Economists in 2017. They forecasted the following:
- Fewer new EU funds will enter the market;
- Series and Seed A valuations will level off;
- interests from non-EU venture capital companies in Germany will continue to increase;
- Brexit will have a positive impact for Germany’s business climate;
- Large incubators will shift to venture capital investing; and
- Germany will surpass the UK in terms of venture capital funding.
According to Trading Economics, Germany’s investment climate is good as Corporate Profits increased to 189.11 EUR Billion in the second quarter of 2017 from 187.97 EUR Billion in the first quarter of 2017. Based on investment climate projections, Germany’s GDP will grow by 0.8% in 2020 as shown below:
|GDP Growth Rate||0.60||0.5||0.6||0.5||0.5||0.8|
Moreover, the key players of GDP are alternative investments such as venture capital to foster competition and innovation in Germany. Some of the key players and their total funding value are as follows:
|Name||Target profile||Funding value (USD)|
|Delivery Hero||Food delivery service||1.391 million|
|HelloFresh||Food boxes||364 million|
|Westwiing||Retailer for furniture||237 million|
|Auxmoney||Peer-to-peer lending||198 million|
|SoundCloud||Music streaming||193 million|
Source: EY-Studie Venture. Funding, Growth and Profitability: Tech Startups finding the right balance 2016.
Image credit: www.istockphoto.com
Other good sources of information