BVK Study - Fundraising Intensified Despite Strong International Competition

German private equity firms go on intensifying the raising of funds. Numerous firms are in the process of raising capital or plan to launch new funds in the next few months says the latest BVK Study on Fundraising 2006/2007 presented today by the German Private Equity and Venture Capital Association.

„Venture capital firms specialised in early stage and buy-out investments are trying to raise funds but face great challenges in doing so.”, says BVK Managing Director Dr. Holger Frommann.  “ Funds provided by German investors are not lavish at all,  German private equity firms have to compete hard with their international counterparts and have to contend with locational disadvantages as a result of unfavourable tax and legal conditions.” As a consequence,  investors turn towards big international buy-out funds.  German funds and venture capital funds in particular are considered less attractive.

In prepaparation of the study the BVK asked its members plus other German private equity firms to evaluate their state of fundraising.  94 firms of which 52 are early stage and the remaining 42 are later stage and buy-out investors replied to the questionnaire and reported on 64 funds under management.  More than one third of this number of funds was closed before 2001.  In 2005,  13 private equity firms could close their latest funds,  in 2006 it were 18 firms.  The funds total 7.7 billion € of which 3.1 billion € allocate to the early stage sector and 4.6 billion € to the later stage/buy-out sector.

“Between 2002 and 2004 the raising of funds in Germany had come to a standstill,  only a handful of funds was closed.  Since 2005,  German private equity firms have been increasing their efforts to raise funds and in 2006 more and more firms followed this trend.”, says Frommann.

More Funds in the Pipeline

The year 2007 promises to be a successful year for raising funds if we look at the firms’ plans.  Only 20 of the 75 private equity firms working with external investors reported that they do not plan to raise new funds or do not need to.  22 firms are in the process of raising funds, another 24 are preparing for launching funds in 2007.  Most of the funds are meant for the early stage and small and medium-size buy-outs.  Every second fund is planned to invest in seed and start-up companies.  The envisaged amount of all new funds are 5.7 billion €.  3.1 billion € shall be raised by 29 early stage firms,  the remaining 2.6 billion € by 16 later stage and buy-out firms.  “We hope that German and international investors will be able to cover the immense demand for capital.  Eventually,  the investors’ commitment will be decisive for a successful fundraising.”,  comments Frommann.

International Investors Most Attractive

The most attractive investor groups for the respondents are private invstors and family offices, fund of funds and pension funds,  international investors are considered to be more attractive than German investors.  The group with most individual entries were private investors and family offices followed by international pension funds and fund of funds.  “Traditionally,  German private equity firms have good contacts to national investors.”, explains Frommann.  “Unfortunately,  they still hesitate to invest so that funds can only be raised successfully in cooperation with international investors.  As a consequence we must convince more international investors to commit in Germany.” 

Almost two thirds of the respondents came to the conclusion that the perceived atmosphere among investors and their attitude to commit in German private equity funds has improved if compared to the results of 2005.  Simultaneously,  some respondents see an increasing competition between the various funds to raise capital because of a permanently high number of private equity firms.

Investors Still With Reservations / Private Equity Law Offers Big Chance for Germany 

It is not denied that the conditions for raising funds have improved but nevertheless private equity firms are still facing considerable challenges.  Asked for the most severe obstacles private equity firms face in raising funds more than 50 per cent of the responding  firms named the unfavourable tax and legal conditions in Germany and the often missing track record of many funds.  Moreover,  many private equity firms feel the reservations of investors against the German private equity market.  

With regard to the environmental tax and legal conditions the industry sticks to its critical evaluation.  Less than half the respondents evaluate the environmental conditions as “fair” while the vast majority gave them a “satisfactory”.  “This evaluation proves the need for revision of the tax and legal treatment of German private equity funds which so far is not clearly settled.  The prevailing German regulations which are internationally unusual deter investors from abroad to invest in Germany.”, Frommann explains.  Other European states like UK, France, Italy, Spain or Switzerland reacted long ago and established special legal structures for private equity funds.

The Private Equity Law announced for 2008 offers the German Government the unique chance to make considerable progress with German private equity funds in the international competition for capital.  More favourable and guaranteed tax and legal regulations could convince more investors to commit in German funds and provide the urgently needed funds for start-ups and technology enterprises.”, Frommann finalises.

For press enquiries please contact:

Bundesverband Deutscher  
Kapitalbeteiligungsgesellschaften e.V. (BVK) 
Dr. Holger Frommann, Managing Director  
Reinhardtstrasse 27c 
10117 Berlin
Germany 
Phone: +49.(0)30.30 69 82-0 
Fax:     +49.(0)30.30 69 82-20 
bvk@bvk-ev.de 
www.bvk-ev.de

VOCATO public relations
Birgit Brabeck / Jessica Amthor
Bahnstrasse 19
50858 Köln
Germany
Phone: +49.(0)22 34.6 01 98-18/-17
bbrabeck@vocato.com
jamthor@vocato.com

About us

Bundesverband Deutscher Kapitalbeteiligungsgesellschaften - German Private Equity and Venture Capital Association e.V. (BVK) is the organisation of German venture capital and private equity companies and representatives of foreign venture capitalists operating in Germany.  In its work the Association focuses on representing its members interests and fostering public understanding of the work of private equity and venture capital investors as reliable partners for enterprises, initiators of economic growth and a stability factor for Germany’s economy.