Where are we ?
a quick recap
- Venture capital in Germany began with such a burst of energy and enthusiasm somewhere around the end of 1996 and the beginning 1997. Perhaps March, 1997, was the pivotal date -- that is when the Neuer Markt (remember that?) launched. Venture-backed German-based technology start-ups had a hot IPO exit channel right at home. The Neuer Markt gave focus and momentum to a new Silicon Valley-style of venture investing. Yes, there were VC's and VC funds prior to the Neuer Markt, but it was a different game.
- So we had a gold rush from 1997 through, when was it?, perhaps mid-2000. People poured out of consulting firms, accounting firms, law firms and major companies such as SAP and Siemens, and poured into venture funds and start-ups. I was then a lawyer at Arthur Andersen and took on a project to form a venture fund for a group of entrepreneurs sellings goods and services to start-ups in Germany's extensive network of technology centers. Before I could complete and circulate the first of the fund documents the entire team had quit and joined an Internet start-up (indeed, one of Germany's first Internet portals -- now long since bankrupt). It was typical of the times.
- The nuclear winter set in sometime in the course of 2000 and laid waste to the German venture scene. The story does not need to be repeated. But think a moment how the landscape has changed: the Neuer Markt is long gone, almost every major German company has pulled out, or at least back, from their venture capital programs (selling their portfolios off at fire-sale prices), the proud governmental supporters of new venture, the TBG and the KfW, are no longer important factors, the German tax scene has changed for the worse (causing Germany to earn placement at the bottom of the list of VC-friendly European jurisdictions) and countless VC funds have disappeared.
- Somewhere out there in the German universities, the Max Planck Institutes, the Fraunhofer Institutes, in the ashes of crashed start-ups, and, indeed, in the virtual garages of ganz Deutschland the fires of innovation may still be burning, but they burn weakly and cast dim shadows.
- In the cheerless employee offices of Siemens and SAP the faint hearts of German code writers and engineers beat quietly and loyally, and no one any longer stays up all night writing business plans. Better not even to talk about such things on the job. At McKinsey, KPMG and Haarmann, the traffic is inbound only.
- The once-vital Venture Capital Forum NRW, which I formed with group of friends in Duesseldorf in 1997 to serve as a catalyst and networking-platform for the exploding venture capital community, has just this month changed its name to the "Private Equity Forum," whatever that may mean. What it does not mean is "excitement" or "passion." It might as well now be called the "Consultants, Lawyers and Accountants Forum." No one without a necktie admitted.
- Wellington Partners is one of Germany's best and most respected VCs, with savvy leadership from Rolf Christof Dienst, and a team of some of the best young VCs in all of Europe in Frank Boehnke, Bart Markus and Joerg Ueberla. Wellington reached a long-awaited first closing of its third fund just prior to Christmas -- at EUR 85 million. Enough said.
- Cipio Partner is perhaps the most vibrant and exciting new fund in the German VC scene. Based in London and Munich, it was founded by three well-qualified guys from Atlas Ventures, Broadview and b-business partners. With the help of a deep pocket investor, Cipio has rapidly acquired a portfolio of 55 companies by buying secondaries from, among others, Infineon, Daimler Chrysler and Deutsche Telekom. Now they are staffing up and hiring some of the best and the brightest from the German VC community. Congratulations to them. But what does this say about the German VC scene, when the hottest action lies in working over the desolate portfolios of terminated corporate VC arms? The investment managers in this game must acquire a new skill set: bankruptcy law, employment contract termination, and venture triage. They must become experts in closing companies rather than starting them. Instead of start-ups, this is about finish-ups. We are at the beginning of this new era, and it bears watching.
In this blog, which will continue, I want to try to make sense of what is happening today in the German VC scene, and I hope to provoke comment from others who are out there trying to survive and make good things happen.