Closing the gap
Recommendations for the creation and expansion of innovation financing in Germany.
Our goal is to see to it that successfully launched projects for disruptive innovations, along with their added value, remain in Germany – rather than emigrating from the country follow-ing takeover by foreign investors. That is why we need a closed cycle of financing for all phases of business development, ‘from the cradle to the IPO/exit’, so to speak.
In addition to early-stage, mid-stage and late-stage funding (A.1 – A.3), the tools we need to accomplish this in Germany also include the possibility of simpler spin-offs from universi-ties and institutes (B) and an intact market for IPOs and exits (C) by firms that are still quite young.
Many of these topics are well-known – they are systematically aggregated here.
This aspect of financing in Germany has since become internationally competitive. The es-tablishment of High-Tech Gründerfonds (HTGF), which provides venture capital for high-tech founders, created a successful public tool for early-stage financing that provides meaningful support to private stakeholders.
A new fund of funds could act as a “lighthouse investor” here and make larger invest-ments, on the order of EUR 10-100 million, in new funds of existing VC companies. With this tailwind, additional funds (private, EIF) can then be raised to quickly foster competitive mid-stage funds in Germany. A list of potential candidate funds can be quickly identified.
Late phase and restructuring
A waterfall model for asymmetric distribution of risk would be helpful, but one can also in-vestigate whether risk buffering for private investors is necessary at all. This fund should aim at a minimum size of EUR 10 billion, growing to more than EUR 100 billion in the medium term (see A.3.1).
This fund could be set up under the aegis of SPRIND.
Or as a sister organization that should have principles and objectives similar to the agency’s, particularly where keeping economic benefits in Germany is concerned.
Scaling the late-phase fund from EUR 10 billion to EUR 100+ billion
Not unlike France, investment firms could be motivated to invest a relatively small percent-age of their fixed assets. This can be done through the new late-phase fund (A.3) and the fund of funds (A.2, similar to bpifrance and Caisse des Dépôts in France).
The companies can be motivated through appropriate legislation (French model) and/or by guarantees from the German federal government, e.g. a guarantee that the invested capital will always be secured at Libor terms, thus guaranteeing deterioration protection (risk facili-ties). Because late-stage vehicles are typically profitable, the risk of guarantee-based payout is quite low.
This would make it possible to create a fund volume that can hold its own alongside the leading stakeholders on the global market (Softbank Vision Fund, Singapore & Norway sovereign wealth fund, China).
Spin-offs from scientific institutes
IPO / Exit
The situation never recovered in the wake of the collapse of the New Market in 2001. Suc-cessful IPOs for mid-cap tech firms (EUR 10-100 million in revenue, less than EUR 1 billion in market capitalization) are practically impossible. The absence of a mid- or late-phase fund makes it very difficult for German companies to grow large enough to carry out an IPO. This is where the cycle of financing is completely interrupted.
An initiative should be launched – preferably in partnership with Euronext / France and perhaps with the Scandinavian stock exchanges as well – to create a common European stock exchange with sufficient liquidity. This has been attempted occasionally, but these efforts have run out of steam. This thread should urgently be taken up again. This is some-thing these stakeholders would remain willing to pursue.