funds, have formed the basis for VC investments in an institutional framework that has been, and
seems to have remained, clearly distinct from that of the UK or the US.
4. Why Are There so Few IPOs and so Little VC in Germany?
Potential Reasons
The low number of IPOs and the fairly low volume of VC financing in Germany, in particular
before the Neuer Markt boom, are striking when compared to the US or UK. The reasons are
much debated.
Before we proceed with a discussion of the potential reasons, it is important to note that
IPOs and VC financing are complements since IPOs are an important exit mechanism for VC
financiers. Black and Gilson (1998) argue that a well-functioning stock market with an active
IPO market is a prerequisite for an active VC market. In this case what needs to be analyzed can
be reduced to the question why there are so few IPOs. But the reverse causality may also be
relevant: It could well be that there are few IPOs because VC financing plays such a modest role.
However, the lack of VC financing cannot explain why so few non-venture backed or established
firms want to go public and seek a listing on the stock market.
The potential answers to the question posed in this section’s headline are manifold; they
range from differences in mentality to differences in the legal and institutional system.
Mentality. The limited use of stock markets and venture capital as a source of financing is often
attributed to national peculiarities in mentality. The argument could be developed along the
following lines: US-style venture capital is not needed in Germany because of a lack of
entrepreneurial initiative, and it is not provided because entrepreneurs are not willing to give up
control, investors are too risk averse and Germany lacks qualified entrepreneurs and venture
capitalists. Similar arguments could hold for IPOs and the stock market: there may be a “lack of
equity culture” because Germans are too risk averse and owners and managers fear a loss of
control and higher disclosure requirements.44
44 For extensive discussions along this line, see for example Gerke et al. (1995).
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