Saturday, August 14, 2021
“Completely past the problem”
Do startups really need more money?
By Niklas Wirminghaus and Caspar Tobias Schlenk
More money for founders and their startups! Then there will be a startup boom in Germany, promises the start-up scene. But it’s not that simple.
The lament has been a part of the German start-up scene for years: there is simply not enough money for startups in Germany, complain about representatives of the start-ups – and so it is not surprising that no new Facebooks or Googles are emerging in this country.
On Thursday in the “Handelsblatt” the criticism of the supposed lack of capital for digital companies was renewed. The reason for this was a study that confirmed a decline in start-up activity in Germany. “For everyone who wants to make a difference, Germany has become unattractive,” said FDP leader Christian Lindner. The cause, it was said, was a lack of borrowed capital – and the fact that Germany was not attractive enough for tech IPOs. Lindner therefore called for “a new stock exchange segment for growth companies” – this “could strengthen the capital base and become the most visible symbol that Germany wants to switch back to the offensive mode”.
Germany must “become significantly more attractive for startups when it comes to IPOs,” added Markus Müschenich from the digital health incubator Flying Health. In the case of the entry-level segment on the Frankfurt Stock Exchange called Scale, which was introduced in 2017, entry barriers would be set too high for companies – they would have to make profits before the IPO and turn over at least 10 million euros.
And CDU politician Thomas Jarzombek, startup commissioner for the federal government, wanted the state newspaper to have a second future fund that would invest around 100 billion euros. The first fund started in the spring with 10 billion euros.
A lot of money flows
The question is whether these instruments can solve the problem – whether another state fund is needed or a new stock market segment with even lower hurdles. And whether it really is the money that stands in the way of a really big startup boom in Germany.
Because actually more capital is flowing than ever before. In the first half of the year alone, according to EY, a record sum of 7.6 billion euros was invested in German start-ups – more than in the whole of 2020 and three times as much as in the same period of the previous year.
The tech expert Philipp Klöckner, known for his “doppelganger” podcast, therefore does not consider the proposals to be expedient. “There is really no shortage of available venture capital in Germany,” he told “Capital”. Venture capitalists are currently investing “at a record level”. If the state “wants to stimulate at any cost, this will only distort the market or fuel overheating,” said Klöckner.
More state money could also lead to an adverse selection: “Venture capitalists are already in fierce competition for the best startups, government grants threaten to be drawn into less promising start-ups as ‘dumb money’ or could be abused to give unsuccessful startups an unnecessary lifetime grant. ” Klöckner is convinced: “Both the money and, above all, the qualified staff would be better off elsewhere.”
“Not everyone has to start a business.”
Nikolas Samios, managing partner of the venture capitalist PropTech1, is bothered by the plans for a new stock market segment with lax rules: The demand “completely misses the problem”, he said to “Capital”. Even today, every major startup “that can read and write and that hires an appropriate lawyer to meet the simple formal admission criteria.” What is lacking are “strong, institutional investors who invest in IPOs of smaller companies with company values below around EUR 500 million”.
Many funds, which otherwise act as anchor investors for IPOs, are not liquid enough on the stock market when they are small. “Repainting the scale segment would not change anything,” says Samios. He would like more institutional and private investors on the stock exchange: “In Germany we have a terrifyingly bad stock investment culture, which is only slowly turning.” An “even less regulated stock exchange segment would possibly even harm rather than benefit the necessary gain in confidence,” said the investor.
Klöckner also considers lax rules for IPOs to be dangerous: “If the conditions are softened even further, the risk from high-risk bets such as air taxis or biotech research will be outsourced to private investors. That could be the emerging interest in equity and ETF investments in the worst case suffocate again by rapid disappointments. “
Klöckner does not consider the alleged lack of founders to be dramatic anyway. The comparatively low start-up rate is simply connected with “attractive job conditions at large corporations and the successful medium-sized companies in the Federal Republic”. The decisive factor is not “how many people start up, but that startups and growth companies have trained staff available. Not everyone has to start up.”
This text first appeared at “Capital”.
.