Initial Public Offerings and Venture Capital in Germany

findings can be reported for the UK and the US market (see table 2). Moreover, 36 % of all
portfolio companies had to be written off in 2001. Silent partnerships, used particularly in later-
stage operations, had a share of 16% of the divested volume in 2001. However, compared to
former times this has dropped dramatically (1996: 57%).

In 2001 Germany followed the trend of the US and UK where a tendency towards bigger
funds with less early-stage and more later-stage financing has been discernible for quite a few
years. In line with this, buy-out activity, which is also particularly pronounced in France, has
become more important in Germany and increased to a level of about 36% (in terms of volume)
in 2001.

While US venture capitalists report returns on investment,⁴² to date no comparable data on
the performance of the German VC market are available. There merely exist surveys on what
venture capitalists expect to receive as return on their initial investment. According to
Feinendegen, Hommel and Wright (2001) venture capitalists operating on the German market
demanded an annual minimum rate of return ranging from 24.7% p.a. (buy-out specialists) to
32% p.a. (venture capitalists focusing on early-stage) in 2000. Comparing these numbers with
those recently reported by Venture Economics (2002) for a sample of European VC funds, there
is a considerable gap, at least for early-stage investments, between demand and reality. For 2001
Venture Economics reports an annualized pooled IRR for buy-out investments amounting to
18.5% and early-stage investments amounting to 9.2%.⁴³

Summarizing the development of the German VC industry since 1965, we must emphasize
the roles played by the government on the one hand and by banks on the other. The numerous
government initiatives of the 1960s, 1970s and early 1980s were fruitful in the sense that, by
putting the equity financing of small to medium-sized companies on the agenda, they started and
actively supported a movement towards a noticeable VC industry. Moreover banks, which served
as founders of most KBGs in the 1960s and 1970s by providing the major share of the investment

⁴² Bygrave, Hay, and Peeters (1999) provide a good overview on internal rates of return (IRR) in the UK and the
US.

⁴³ The IRR of each fund of the analysed sample is measured from its interception to 31 Dec 01. Moreover, Venture
Economics (2002) recently reported that the private equity industry in Europe showed a long-term 10-year return
of 16.5%, a medium-term 5-year return of 20.4% and a short-term 1-year return of -2.3%.

15

<<   14   15   16   17   18   19   20   >>

More intriguing information