MBGs, which had experienced little deal flow during the 70s, became active again. Moreover, in
order to offer non-institutional, especially retail, investors an indirect investment opportunity in
the equity of non-listed small to medium-sized companies, the German parliament in 1987
enacted the law on Unternehmensbeteiligungsgesellschaften (UBGs: equity finance companies).
Among other things, this law determined that UBGs, i.e. such regulated VC companies, had to be
stock corporations (Aktiengesellschaften, AGs), had to strive for a listing at the stock exchange
and should invest in the equity of non-listed German companies.22 In order to provide incentives
for entrepreneurs to make use of UBGs, the government granted considerable tax advantages. For
example, UBGs were exempted from trade tax and the capital gains tax. However, UBGs play a
minor role in the German VC market. From 1996 to 1998, the number of VC companies that
were organized as UBGs decreased from 16 to 9.
All in all, the range of VC activities became broader; a movement towards the successful
strategy of American venture capitalists was noticeable.23 On the one hand newly-founded
venture capitalists started to specialize in technology companies that demanded early-stage
financing.24 On the other, VC companies started to focus on management buy-outs and buy-ins.
Buy-backs by entrepreneurs, which used to be the dominant exit strategy, were increasingly
replaced by trade sales and some IPOs.25 In summary, the German VC market developed
considerably from 1983 to 1990, both with regard to professionalism as well as to size. As
illustrated in figure 2, the total invested VC volume quadrupled from approximately € 0.4 billion
in 1983 to € 1.7 billion in 1990.26
22 These regulations have first been relaxed in 1994 and later on by the changes of the 3. Finanzmarktforderungs-
gesetz in April 1998. See footnote 30.
23 For a detailed description of venture capitalists operating on the German VC market in the 1980s see Nevermann
and Falk (1986). Schmidt (1988) provides an early assessment.
24 However, since investments in these growth companies experienced considerable losses, the focus was shifted
back to expansion financing of more mature businesses only a few years later.
25 Between 1983 and 1990 Leopold and Frommann (1998) identify eight companies going public on the German
market that were venture-backed. To compare, for the same time period Black and Gilson (1998) report more
than 500 venture-backed IPOs in the U.S.
26 Numbers on the German VC market given here and in the following are those of members of the Bundesverband
Deutscher Kapitalbeteiligungsgesellschaften (BVK: German Venture Capital Association), which account
(according to the BVK) for 90% of the volume of the German VC market.
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