In a boost to the German venture capital market, a new €500 million ($608 million) state-sponsored fund of funds has been launched.
ERP-EIF Dachfonds is a joint venture between the German Federal Ministry of Economics and Labour (BMWA) and the European Investment Fund (EIF). Both parties are committing €250 million to the fund, which will be managed by the EIF and which has an investment period of up to five years and divestment period of up to ten years.
The BMWA is investing through its European Recovery Programme (ERP), which was established in 1948 as part of the Marshall Plan to help rebuild post-war Germany. The ERP is now used by the Government to finance a range of projects aimed at promoting start-ups, innovation, regional development and access to equity capital.
ERP-EIF Dachfonds’ main aim is to support funds focusing on investments in early and development stage technology companies in Germany (seed, A and B rounds). It will also provide finance for funds offering follow-on financing for high-tech companies (B and later rounds). It will target “experienced” teams, while first-time teams “may also be considered”.
Funds receiving capital from ERP-EIF Dachfonds are not restricted to investing solely in German companies, but Germany is expected to be the main geographical focus of the fund.
Through its Dachfonds investments, the EIF will act as a cornerstone investor, taking an average participation of 30 percent. The EIF says it will invest “in line with market standards…seeking an appropriate return on its investments” and may also play a role fundraising on behalf of the funds in which it participates. “This new fund should not be considered as a subsidy vehicle, but as a professionally and commercially managed instrument,” said Wolfgang Roth, vice president of the European Investment Bank.
“Innovation remains of utmost importance for the development of employment and is the basis of the venture capital market in Germany,” said Alfred Tacke, State Secretary of the BMWA. “One of the central problems is the lack of liquidity in the venture capital market, and this point is now specifically addressed by the ERP-EIF Dachfonds.”
According to figures from the German Venture Capital Association (BVK), investment in high-tech sectors accounted for 25.4 percent of total private equity investment in the country in 2003, compared with 32.3 percent the previous year. In a statement, the BVK predicted a recovery in later-stage venture capital in 2004 but that the early-stage segment would demonstrate only limited growth.