Munich Dark clouds are also gathering over the German start-up scene. The Ukraine war, supply chain problems and stock market setbacks are having an impact. In the midst of the difficult situation, the semi-public High-Tech Gründerfonds (HTGF) from Bonn is reporting signs of hope.
With his fourth fund, he reached a committed volume of 420 million euros in the “First Closing”. More than 130 million of these come from 40 private investors, who are involved alongside the Federal Ministry for Economic Affairs and Climate Protection and the state-owned KfW Capital.
“With the economic crisis looming, it’s a positive sign that we’ve been able to raise more money than ever from so many investors. The start-ups need such encouragement,” says Managing Director Alex von Frankenberg: “Other investors may be reluctant at the moment, but despite the difficult environment they have become active with us.” The manager explains that the “Second Closing ‘ will take place later this year.
Above all, medium-sized companies are well represented in the fourth fund, this time there are four family offices who prefer to remain anonymous, as well as some large companies, such as SAP, Altana, Qiagen and Deutsche Bank. The aim of the new fund is to support young companies from the digital markets, engineering sciences, pharmaceuticals and chemicals in their early financing.
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However, in two cases at HTGF, commitments made were not kept and withdrawn at the last minute – a problem that is well known in the industry. Donors that you had counted on suddenly disappeared.
No new dot-com bubble
However, Bonn society does not currently fear any major dangers. The uncertainties in the market have “not yet reached our investors and start-ups,” explains co-managing director Guido Schlitzer: “We currently do not see the danger of a crash like after the bursting of the dot-com bubble. The venture capital market in Germany is at a different level than it was 20 years ago.”
In fact, some observers fear that the start-up boom could collapse like the “New Economy” of the year 2000. The bursting of the “dotcom” bubble led to years of stagnation in the start-up market and to temporary skepticism about the Internet in Germany. Frankenberg admits that there have recently been “a few exaggerations” in the company valuations: “In this respect it is healthy that a more realistic view is now being taken.”
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Last year all records were broken in the German start-up scene. Investors had put 17.4 billion euros in promising companies, an incredible increase of 229 percent. The consequences of the pandemic triggered this boom. This is now over, the values fall back to an earlier level. So far this year, investors have only invested six billion in German start-ups.
With the turnaround in interest rates initiated in the USA and Europe, tech stocks in particular have collapsed. Start-ups, which are being overwhelmed with capital during the money glut from the central banks, are now viewed more critically. In Silicon Valley, companies are said to have panicked at times. In the case of HTGF, too, the buyer of a start-up apparently reduced the purchase price by a further 25 percent shortly before the contract was signed, according to sources close to the fund company. The deal went through anyway.
Anyone who burns money is threatened with the end
A recent report by the financing company Sequoia Capital is also causing a stir in Germany, the makers of HTGF confirm. The venture capitalists from Silicon Valley, who provided tech companies such as Apple and Airbnb with capital, saw a “moment of truth” approaching the start-up scene in a presentation at the end of May. Anyone who continues to show high “cash burn rates” and burns investors’ money is at risk of a “death trap”.
Now is the time to look at future profitability and limit spending. In fact, previously hyped young German companies such as the delivery companies Gorillas and Gopuff, the tax service Kontist, the blockchain banking service Nuri, the online mortgage provider Better or the Swedish payment service provider Klarna have started to lay off employees on a large scale.
“We tell our start-ups that they should pay more attention to costs – and to the cash burn rate,” explains Frankenberg: “Founders currently have to both step on the gas and step on the brakes slightly.” And the start -up promoter also says that innovations are still “the best remedy against stagnation”: “SAP and Microsoft were founded after the oil crisis in 1973/74, Facebook was created soon after the crash of the New Economy. Even now, despite all the adversities, there are good reasons for optimism.” As a “stable anchor in the market”, start-ups will continue to be financed anti-cyclically, even in a worsening crisis.
The high-tech start-up fund was founded in 2005 and sees itself as “Europe’s most active seed investor”, having already financed 670 high-tech start-ups. In the first round of financing, young companies can receive up to one million euros. More than 150 companies have been successfully sold, including a billion dollar exit and four IPOs.
One of the most well-known deals is the sale of the Bettzeit Group’s (“Emma”) online mattress seller to the Haniel family, which is now one of the financiers of the fourth HTGF fund. 33 medium-sized companies and industrial groups are invested in the third fund of the Bonn-based company, close to the “Second Closing” 319.5 million euros came together, almost 25 percent less than in the new fundraising round. With the fourth fund, a total fund volume of around 1.3 billion euros has now come together.
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