THE CHANGES IN THE GERMAN VC SCENE

Thomas Grota ist Investment Director bei der T-Venture Holding und beschreibt in seinem Blog die Venture-Capital-Welt aus seiner persönlichen Sicht. Sein über den CBInsights-Newsletter veröffentlichter aktueller Blogbeitrag diskutiert die Veränderungen in der deutschen Venture-Capital-Szene. Sehr interessant:

THE CHANGES IN THE GERMAN VC SCENE

Lately I was realizing that there were more changes in the German VC scene happening while less people and even journalists have reported on. So I was wondering why so less people took note of that. When I started in the VC industry some six years ago I met some amazing and very skilled peopled from whom I learned a lot. Whenever there was an event it was like classmates reunion and we all came together to discuss new deals – new exits – new opportunities. We were always sure to have a fellow VC we could talk to and get some behind the scenes insides. This is still the case to some extend however I recognized a major shift in the VC scene lately and I was thinking if it is me alone who is feeling the change too.

We have seen the old guys leaving their funds like Patrick, Jan, Stefan for the most highest level to mainly found their new funds and making a fresh start based on their huge experiences. Especially Patrick and Stefan will make an impact running the most recent Corporate Venture Capital fund for Commerzbank in the high times of Fintech out of the German center of Finance. As always those new funds need to make the first bets on later stage investment to mitigate the risk and have a good standing inside a VC inexperienced corporate environment. On the contrast Jan is starting his new fund to help fueling the Berlin ecosystem with international founders giving them a head start with his huge international network and relationships in his former corporate ecosystem and other corporations to get this much needed customer base. But also on the lower level we saw some personal changes: Jan left his old role and took a long break before recently joining his new role in one of the most successful corporate VC funds to pursue his passion for tech investments.Thomas left his old fellows in Hamburg to start another Hanseatic CVC fund for media investments and Gabriel left his role in Berlin to become independent but maybe we will see some of his new activities as well very soon. Earlier this year Christian left his Venture Partner role to join as a VC the freshly funded, well-known, Berlin based VC fund. (Apologize for all the ones I missed out this time but I am sure we all will note your moving and shaking.)

With all this changes – and I am pretty sure there will be more to come during this interesting times of 2015 – I started to think why those are happening during the last year. All this well experienced and leading investors made the decision of moving on within the last twelve months. So what made them all to move at the same period or are there overlaying trends which have an influence on the German VC scene in general?

I believe in the later and those are the trends which are changing the VC industry in Germany and it will cause more moves and changes in the coming months – if my observations are true:

1.) Big funds are essential for making an impact: In times of unicorns and Mega rounds, it is hard to make an impact as an investor with a medium sized investment. Even a $10m investment is not making you an overall lead investor in a financing round anymore. Why is that a founder might ask? Because either you get a big round – and you as a founder give a damn good reason to be worth the risk – or you don’t get nothing. Investors are rather pooring much money in very few deals nowadays. Investors don’t give just $1m in a deal when they are not totally convinced. If they are convinced than they have no problem to go deep into the deal with big bugs. To be able to make this big beds they need to have a large fund. Keeping in mind that VCs – and not talking about accelerators – need to keep funds at hand to pay in the following rounds to keep their stake with a pro-rata at least. That leads to the need of $10m for the whole investment period until the exit even if your initial investment was just $1-2m. Having a fund of $100m that means you can do a maximum of ten deals in five years which is an average of two deals a year. To do more deals a year you need a bigger fund – ideally $250-500m. That is not happening in Germany lately or even at all. Biggest fund raised were Earlybird, HTGF, Holtzbrinck, Samwer’s Entrepreneur – all of them between $150m up to $250m. (Image source:http://www.slideshare.net/szasz1/ernst-young-venture-capital-and-startups-in-germany-2014 )

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2.) Investing in Europe is risky, not talking alone in Germany: There are good companies and their founders in Germany, but in total the number is low compared to the overall number of startups in Europe. Those good ones out there have access to enough funds and can pick & chose from the best. However the best are the US and UK VCs from a founders perspective. Ask a founder from whom he rather take the money – independent from valuation and investment size. They all will prefer the top 10 US VCs including those having a UK presences as well (or vice versa). Usually those funds will not allow co-investments from smaller funds in the same round. They are happy to have you in the next rounds to confirm higher valuations and taking risks at higher prices while giving them an increase of book values of their first investments. All fair – I am not complaining hence the risk profile is lower as well for later stage investment. However those larger investment rounds come with minimum investment sum and are in competition with smaller private equity funds seeking a pre-IPO opportunity. So for German VCs it is critical to be the first in a deal – however those are risky by nature. So the overall risk profile for German VCs in German and European deals are getting higher due to the money flooding into the space from overseas. Not all VC funds are willing to follow this metrics: take higher risks in early deals or pay high prices in later stage deals pushed by bigger VC funds early investment strategy. https://www.cbinsights.com/blog/european-startups-us-venture-capital/

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3.) Coporates re-evaluating their position in Startups: Historically we had seen the number of corporate venture capital funds increase and decrease in the past since 1997. At the end of a hype cycle corporations increased their investing capacities and paid high prices to get into the game. They left the space when it was too late and loosing large funds. During the last two years they came back to the repeating high times and are in the danger of losing big bets again. However they are smarter and more careful than back in the days. Also they found the way of partnering to get involved with startups without betting money on the equity side but rather on the OPEX side. Taking note of the unicorn development it doesn’t come as a surprise that corporates are tending to partner with US company rather than with local startups. When investing at unicorn valuations the potential uplift from an equity investment is very limited for those corporations. However the partnering deals with well funded unicorns can actually bring revenues for installed apps or revenue shares from transactions. In times when unicorn exits are in danger the shortcut of revenue streams are more profitable for corporations. Also corporations might not be as loyal as founders might think. One the one hand corporations cannot give exclusivity from competitors of the startup and may just implement their dual vendor strategy in this space as well. Still those partnering will ensure steady revenues for startups and bring a good reference when pitching to other fortune 500 clients. One side effect of this analysis is also the future of accelarators we will see in the coming years. (Source of image: https://www.cbinsights.com/blog/unicorn-acquisitions-2015-ytd/

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Considering all this changes in a shifting Venture Capital world it isn’t a surprise that the main movers & shakers of this industry will consider changes as well to find their position in a rollercoaster ride. Expect more changes ahead on all levels. Be prepared to keep your network up to date all the time and make new friends – you never know where your old friends end up. Next time when meeting your friends from the VC industry do not talk only about the market und your own startup.

So keep yourself updated on the personal changes in the market and keep track who is in charge where and for what. The next fundraising is just around the corner as always and you will need this information to build your strategy.

Quelle: http://thomasgr.tumblr.com/post/119963892420/the-changes-in-the-german-vc-scene

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