Who are the True Venture Capitalists in Germany?

Abstract

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0416.pdf Non-technical SummaryIn this paper, we analyze the heterogeneity of the venture capital market. Concretely, we investigate whether the governance structures, objectives, abilities and track records of different types of venture capitalists (bank-dependent, corporate, public and independent) have an influence on their investment and divestment patterns. A natural playing field for this analysis is the German venture capital market with its wide variety of venture capitalists' types. In contrast to the US, where venture capital funds typically are independent entities, bankdependent and public venture capitalists have a large market share in Germany. The study is based on a unique hand-collected database of all venture-backed initial public offerings (IPOs) on Germany's Neuer Markt.We find that significant differences among the different types of venture capitalists exist. The behavior of independent and corporate venture capitalists is more similar to that of their US counterparts whereas bank-dependent and public venture capital funds typically are bridge investors rather than true venture capitalists. Independent and corporate venture capitalists usually take larger equity positions, syndicate more, use more often stage financing, invest at earlier stages, finance their companies for longer periods of time and are able to better manage the IPO timing. We explain this behavior by different capabilities and experience on the one hand as well as differing aims on the other hand. Thus, it seems that the joint provision of capital and managerial support, which is a characteristic of venture capital financing, is offered by independent and corporate venture capitalists rather than by public and bank-dependent funds.Who Are the True Venture Capitalists in Germany?

Nothing Ventured — Nothing Gained? Empirical Evidence on Venture Capital Financing in Switzerland

“…This indicates that more experienced VCs are more likely to make use of staging, supporting the results found in Tykvova (2004). This effect is strong with respect to the other size variable of the VCs, the number of funds managed, that also exhibits a positive and significant coefficient (at the 10% level).…”

“…However, the effect is not robust to alternative specifications used. With respect to the use of stage financing Tykvova (2004) argues that local (in her case German) VCs usually invest in later stages and typically also carry out fewer investment rounds. This effect can, however, not be confirmed with the Swiss data.…”

Does Venture Capital Investment Really Require Spatial Proximity? An Empirical Investigation

“…Moreover, it may not be the primary goal of a public VC company to sell its shares on the market but to transfer them back to the company. This is easier for mezzanine products as they mostly have fixed maturity (Tykvova, 2004;Bascha and Walz, 2002). The fewer early stage investments can be explained by their common governmental mission of promoting all kinds of companies and not only start-ups.…”

Smart capital in German start-ups – an empirical analysis

“…The bank-related VC companies have similar investment criteria and employ monitoring and consulting strategies analogous to those of their individual counterparts (Bottazzi et al, 2004). However, their integration into the institutional background of banks and their dependency on their mother company might influence their aims and therefore their investment strategy (Tykvova, 2004;Osnabrugge and Robinson, 2001). Banks often use VC subsidiaries for establishing a financial relationship with the customers and possibly for providing loans to the customers later on (Hellman et al, 2004).…”

“…Public VC firms have a considerable market presence in the entrepreneurial finance sector (see for example Sunley et al, 2005;Fritsch and Schilder, 2007;Schilder, 2006). Their lower return requirements (Bascha and Walz, 2002) combined with their strong ambitions to contribute to local economic development (see e.g., Sunley et al, 2005;Tykvova, 2004) may allow, and even force, these entities to establish a more intensive relationship and closer contact to the portfolio firms than their private counterparts can afford. Therefore, their provision of smart capital might be characterized by intensive flows of information by means of large numbers of consulting services.…”