THE IMPORTANCE OF VENTURE CAPITAL FOR THE DEVELOPMENT OF INTERNET/E-COMMERCE STARTUPS IN GERMANY
Presentation Material Accompanying the Discussion Paper
Center for Entrepreneurial Studies EUROPEAN BUSINESS SCHOOL Oestrich-Winkel, September 2000
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WE WOULD LIKE TO THANK THESE COMPANIES FOR THEIR PARTICIPATION IN THE SURVEY
3i Gesellschaft für Industriebeteiligungen mbH AAFORTUNA Venture Capital & Management AG ABN AMRO Capital Gesellschaft für Beteiligungsberatung GmbH Actium Beteiligungs AG AGAB Aktiengesellschaft für Anlagen und Beteiligungen Apax Partners &Co. Beteiligungsberatung AG Arthur Andersen & Co.GmbH Atama AG Global Finance & Technology Management Atlas Venture GmbH BainLab c/o Bain & Company Germany, Inc. BayBG Bayerische Beteiligungsgesellschaft mbH Bayern Kapital Risikobeteiligungs GmbH BEMAG Beteiligungs-Management-Gesellschaft mbH Berlin Capital Fund GmbH (BCF) Berlin Seed Capital Fund GmbH (BSCF) Bertelsmann AG Beteiligungsgesellschaft für die deutsche Wirtschaft mbH bmp AG Venture Capital & Network Management Bonn-Inova GmbH & Co. Venture Beteiligungs KG BTV Beteiligungsverwaltung GmbH & Co.KG BWK-GmbH Unternehmensbeteiligungsgesellschaft ConVenture Beteiligungs AG CREAVIS Gesellschaft für Technologie und Innovation GmbH crossvalley Incubator AG Cybermind AG DaimlerChrysler Venture GmbH Deutsche Effecten-und Wechsel-Beteiligungsgesellschaft AG DVCG Deutsche Venture Capital Gesellschaft mbH Earlybird Venture Capital GmbH&Co.KG ECM Equity Capital Management GmbH Electra Europe GmbH enjoyventure Management GmbH equinet Venture Partners AG EUROVENTURES Deutschland GmbH & Co. KG Firestorm Incubator AG Freyberg Close Brothers GmbH Futura Capitalis AG G+J Multimedia Ventures GmbH GBK Beteiligungen Aktiengesellschaft Genes GmbH Venture Services GENIUS Venture Capital GmbH GFKL Venture Capital GmbH GRP Global Retail Partners Venture Capital
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GUB Unternehmensbeteiligungen AG Halder Beteiligungsberatung GmbH Haspa Beteiligungsgesellschaft für den Mittelstand mbH Heidelberg Innovation GmbH & Co. BioScience Venture KG HANNOVER Finanz GmbH IBB Beteiligungsgesellschaft mbH IMH Industrie Management Holding Treuhand GmbH INI-Ventures GmbH & Co. KG c/o Fraunhofer-Institut für Graphische Datenverarbeitung Innotech Innovationen und neue Technolog. Beteiligungs-Gm Innovativ Capital AG Internet Communities AG IUVENTA Finance GmbH K/L/M Equity AG Wertpapierhandelsbank Kapitalbeteiligungsgesellschaft der Deutschen Versicherungswirtschaft AG Kapitalbeteiligungsgesellschaft für das Land Brandenburg mbH Lampe Beteiligungsgesellschaft mbH LeVenture Kapitalbeteiligungsgesellschaft mbH& Co.KG MBG Mittelständische Beteiligungsges. Rheinland-Pfalz mbH Mediport Venture Fonds GmbH NEWMEX Aktiengesellschaft Norddeutsche Private Equity GmbH ÖKOLOGIK ECOVEST AG Ostwürttemberg Beteiligungsfonds P.E.G.A.S.U.S. GmbH&Co.KG Pari Capital AG PEPPERMINT Financial Partners GmbH PolyTechnos Venture-Partners GmbH pre-IPO Aktiengesellschaft PROXIMITAS AG Quadriga Capital Beteligungsberatung GmbH RBS Kapitalbeteiligungsgesellschaft Rheinisch Bergischer Sparkassen mbH Red Ant Venture GmbH Risikokapital-Fonds Allgäu GmbH & Co.KG RisikoKapital-Fonds Oberpfalz Nord GmbH & Co. KG Saarländische Wagnisfinanzierungsgesellschaft mbH SAP Venture Fund Europe c/o SAP Aktiengesellschaft S-Beteiligungsgesellschaft der Sparkasse FreiburgNördl.Breisgau mbH S-Beteiligungsgesellschaft Mülheim a. d. Ruhr mbH Schleswig-Holsteinische Kapital-Beteiligungsgesellschaft mbH
Seed Capital Brandenburg GmbH (SCB) SHS Gesellschaft für Venture Capital in Württemberg mbH SMP Strategy Management Partner AG S-Chancen Kapitalfonds NRW GmbH S-ReFIT Regionaler Finanzierungsfonds für Innovation und Technologieunt. Verw.-GmbH Start-Kapital Düsseldorf Gesellschaft für Unternehmensbeteiligungen mbH Stauferkreis Beteiligungs AG SUEZ Finanzberatung GmbH Synfis AG Target Partners GmbH tbg Technologie-Beteiligungsgesellschaft mbH der Deutschen Ausgleichsbank Techno Nord VC GmbH Technologieholding VC GmbH TechnoStart Beratungsgesellschaft für Beteiligungsfonds mbH TFG Venture Capital AG & Co KGaA Unternehmensbeteiligungsgesellschaft Transconnect Unternehmensberatungs- und Beteiligungs GmbH Ti Venture Capital AG TRIANGLE Venture Capital Group Management GmbH T-Telematik Venture Holding GmbH TTIB Technologietransfer-und Innovationszentrum Region Bonn GmbH&Co.KG TVM Techno Venture Management GmbH UBS Capital GmbH United Internet AG / 1&1 Beteiligungen GmbH und Co. KG Upside Ventures GmbH VCI GmbH Beratung für Technologieinvestitionen VCM Dresden (Venture Capital Management Gruppe) Venture Select GmbH VentureCap Holding AG Venture-Capital Baden-Württemberg GmbH Venture Vision GmbH Vestec AG Gesellschaft für Beteiligungsmanagement VISION Chancenkapital Gesellschaft der Sparkassen in der Region Bonn/Rhein-Sige/Ahrweiler mbH&Co.KG Wagniskapitalgesellschaft mbH der Kreisparkasse Reutlingen WebMedia GmbH Wellington Finanz Beratungs GmbH win Wagniskapital für Innovation NRW GmbH
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INTERNET/E-COMMERCE STARTUPS IN GERMANY
Profile of the Average Company as of 7/2000
All companies Year of founding Age of company Age when first financed by VC firms Size of founder team Age of founders when founding Share of female founders Number of employees (1) Revenues Revenues per employee 1997/98 2.6 years 1.8 individuals 28.5 years 7% 10.1 employees n/a n/a
VC backed companies 1997 3.4 years 1.9 years 2.5 individuals 31.2 years 4% 69.8 employees DEM 9.7 M DEM 139 K
No. of VC firms involved per company Average share per VC firm Total shares held by VC firms(2)
Average investment Average evaluation(3) (first half of 2000)
-
1.4 VCs 21.7% 31.0%
DEM 12.3 M DEM 58.7 M (for orientation only)
(1) Permanent employees only (2) Calculatory figure only – on average 69% would remain with founders, business angels and other investors (3) Book value (investment/equity share received) Source: Survey with 332 VC firms in Germany, own estimate of total segment size, analysis of ~9,000 Internet/E-Commerce startups in Germany
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THE INTERNET/E-COMMERCE SEGMENT IN GERMANY
Current Size and Growth as of 7/2000
All companies Number of investments held by VC firms Active companies (per 7/2000) Increase(1) (expectation for 2000) Growth (expectation for 2000) Startups founded directly with VC backing(2) (expectation for 2000) Total employment(3) Segment's share of total VC market
VC backed companies
Share of VC backed companies
14,800 2,600 (startups) 19%
1,300
800 640 (newly funded companies) 80%
5% 25% (every 4th startup) -
147,000
350 56,000
13% (every 7th startup) 38%
-
10-15%(4)
-
(1) Projection based on number of investments in first half of 2000 (conservative estimate) (2) Companies financed by VC firms in the same year as founded, mostly after a short preparation phase of some months (3) Employment in startups only (4) Estimate for 2000 based on BVK and tbg statistics and own analysis Source: Survey with 332 VC firms in Germany, own estimate of total segment size, analysis of ~9,000 Internet/E-Commerce startups in Germany
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COUNTRY COMPARISON GERMANY – U.S.(1)
Current Size and Growth as of 7/2000
Germany Companies funded 1993-97 Comp. funded 1997-7/2000 Total companies funded Growth (exp. for 2000) Average age of investments 0.8 years Share of companies financed of total 25% Average investments (1st half of 2000) DEM 12.3 M 22 442 464 80%
U.S. 911 2,572 3,483 60%
Relation 2% (1:41) 17% (1:6) 13% (1:7.5) -
1.7 years 25% DEM 25.5 M(2) DEM 73.6 M(2)
48% (1:2) 48% (1:2) 63% (1:1.6)
Average evaluations (pre-money, 1st half 2000)
DEM 46.4 M
(1) Due to different market structures and definitions this comparison is for orientation only To make figures comparable only VC firms were included that match VentureOne's definition (2) Exchange rate 2.30 DM/$ (3) Source: State of the Startup 2000, The Standard (4) Equals the company's evaluation pre-investment (investment / equity share received) - investment Sources: U.S. data courtesy of VentureOne, Corp., survey with 332 VC firms in Germany, estimated segment size
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CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
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CHALLENGE #1: FINDING NEW AREAS FOR GROWTH
Existing fields will not be able to generate further explosive growth • • • • Number of startups founded per year is already declining since the peak in 1996/97 The pool of ready-to-finance companies with industry expertise and established products is increasingly drying out In 2000 every fourth startup will be funded by VC firms from it's launch The recent growth is based on transaction-oriented B2C and B2B concepts. They already account for 40% of all investments. Increasing coverage of subsegments and investor's weakening interest in B2C models will limit growth
•
A new, large wave of startups can not be expected – but a number of smaller ones • • The most recent investments were made in the areas of access technology, broadband applications and media integration Increasing complexity opens up new market niches and – with it – opportunities for specialized service providers. Their share has already reached 13% and will supposedly continue to grow
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CHALLENGE #2: POSITIONING FOR INCREASED COMPETITION ON MOST ATTRACTIVE STARTUPS
The competitive pressure on VC firms will further increase • • • • • Stimulated by the startup wave about 40-50 new VC firms are founded per year in Germany since 1997 46% of VCs have not yet become active in the Internet/E-Commerce segment Incubators and corporate venture activities by Internet and media companies represent new challenges and competitor types The reducing age of companies when financed illustrates that VCs have to compete even earlier on attractive startups Investor's expectations put VCs under pressure to grow and succeed
•
Clear positioning and "coopetition" as chances
• • Concept to support founders (market entry, networks, professional services) needs to be positioned clearly versus key competitors Existing and new competitors also represent chances to cooperate in acquisition, risk diversification and exit via acquisitions or trade sales
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CHALLENGE #3: QUALITY ASSURANCE OF INVESTMENTS AND PROFESSIONAL SUPPORT
High growth leads to lower quality of investments made
• • • • • VC's experience in Internet investments on average is only 1.0 years 48% have made their first Internet investment in 1999, 33% in 2000 (1st half only) Share of B2C and B2B models without "proof of concept" currently makes up 40% of the portfolio – comparable figures for the U.S. are significantly lower Already 52% of investments are newly-founded firms without market experience with founder having no previous management or Internet know-how VCs have grown rapidly too, as well as the number of investment managers. A result of this growth is reduced seniority and experience levels
•
VC firms will have to introduce additional means to assure quality of their investment portfolios • • • In selection processes and support of new ventures In professional development of investment managers and other staff In managing portfolio risks
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SPATIAL STRUCTURE OF INVESTMENTS
Key Results of the Analysis
VC firm's activity in the segment is concentrated spatially on five geograpic nodes accounting for 77% of all Internet/E-Commerce investments in Germany
•
• • •
Munich as the leading venture capital city
Hamburg and Berlin as metropolitan areas with high VC activity Frankfurt as the financial services center and main risk capital exporter The densely populated Rhine-Ruhr area with the cities of Cologne, Bonn and Düsseldorf as the most important investment region
This structure results in a clearly visible spatial pattern • • 50% of investments are made nearby, 50% at more than 250 km distance Most important driver is the type of VC firm: Savings banks' subsidiaries have the most local portfolio, large banks' subsidiaries the most distant
Overall, VC firms in the analysed segment seem to react more on interesting investment opportunities independent of their location than to actively exploit the regional potential –> the importance of proximity seems to be relatively small
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CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
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VC INVESTMENT BOOM STARTED AS EARLY AS 1997
Segment's Growth Rates are Clearly Above Those of the Total VC Market
VC investments by year of contract
Growth S=1,347 (until 1. half of 2000) 400 % 380 % 90 %
VC backed startups (year of first funding)
Growth S=796 (until 1. half of 2000) 320 % 340 % 80 %
1.140(e)
640(e)
1997: Opening of Neuer Markt
1997: Opening of Neuer Markt
596
355
4
2 '93
4
2 '94
6
4 '95
12
8 '96
31
18 '97
124
80 '98
358
354
205
185
4
2 '99 '00 '93
4
2 '94
6
3 '95
9
5 '96
19
11 '97
80
46 '98 '99 '00
Investments identified with year of announcement (Σ=826)
Projection/estimate for total segment
Companies identified with year of announcement (Σ=459)
Projection/estimate for total segment
As of 7/2000 Remark: Investment here refers to one or more rounds of financing (1) Projection based on the estimated segment size, figure for 2000 projected from investments made in the first half year Source: Survey with 332 VC firms in Germany, own estimates
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STARTUP WAVE STARTED WITHOUT VENTURE CAPITAL
Expectation for 2000: One in Four Startups is Funded by VC Firms
No. of firms founded p.a.(1)
4000 3500 3000 2500 2000 1500 1000 500 0 1991 1992 1993 1994 1995
Active startups Estimate(2): Active and nonactive startups (incl. mergers, acquisitions and closings)
1997: Opening of Neuer Markt
1000
No. of VC-backed firms founded p.a.(3)
750
500
Investment-boom lagging four years behind startup-boom
250
0 1996 1997 1998 1999 2000 e
(1) Projection based on ~9,000 identified startups (2) Based on a sample of 800 companies: closings accounted for 5% p.a., mergers & acquisitions for 4% p.a. of which half has lost its independence and was integrated by the acquiring company. It was therefore assumed that 7% of active startups are going out of business per year (3) Projection based on 887 identified investments by VC firms. Year refers to first VC funding received. At this point the startups may already exist for some years Source: Survey with 332 VC firms in Germany, own estimate of total segment size, analysis of ~9,000 Internet/E-Commerce startups in Germany
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MORE THAN 50 PERCENT OF STARTUPS WERE ALREADY LAUNCHED WITH VC BACKING(1)
Two Reasons: Trend to B2C/B2B and Pool of Established Companies Drying Out
Age of companies when financed Age distribution by year of financing
No. of VCbacked firms 15
7% 13 % 40 % 27 % 20 % 20 % 1997 or earlier 27 % 1998 1999 2000 (1. half)(2)
34 %
No. of VCbacked firms
27 %
122 98
12 % 11 % 6%
Age when first funded
10 or more y. 5-9 years 2-4 years
30
3% 10 % 33 %
151
2% 8% 26 % 16 % 48 %
156
2% 6% 19 % 21 %
45
38 22
2% 2% 1%
5%
7 0 1 2 3 4 5
8
16
1 year 0 years
52 %
5 7 8
6
Σ=361 Ø=1,9 years
Age of company when first financed by VC firm (in years)
Year of funding
(1) Funding is secured in the same year the startup was founded (2) Projection for 2000 based on distribution in the first half year Source: Survey with 332 VC firms in Germany, analysis of VC funded companies
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TREND TOWARDS TRANSACTION-BASED CONCEPTS AND SPECIALIZED SERVICES
Number of investments
26
5% 10 % 4%
61
8% 13 % 5% 4% 8% 6%
291
277
8%
Navigation, information
B2C transaction Multimedia firms Internet service providers (ISPs)
12 %
24 %
25 %
B2C transaction
11 % 6% 3% 2% 7%
15 % 4% 2% 13 % 2%
B2B transaction Multimedia firms Internet service providers Integrators Specialized service providers (ISPs) Software Infrastructure Unknown business model
Software
73 % 46 %
31 %
Infrastructure
24 % 2% 5% 2000 (1. half)
8% 1997 and earlier
10 % 1998
2 2%% 1999
Source: Survey with 332 VC firms in Germany, analysis of VC funded companies
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IN THE U.S. ABOUT 7.5 TIMES MORE COMPANIES WERE FUNDED BY VENTURE CAPITAL FIRMS THAN IN GERMANY
Until 1997/98 the U.S. Clearly Led the Development
Relation U.S.-Ger. 1400 No. of VC backed firms 1200
1000 800 600 400 200 2 0 1993 1994 1995 1996 1997 1998 1999 2000 (1. half) 40 68 2 3 5 133 10 42 327 343 215 185
20x
34x
44x
65x
34x
12x
5,4x
5,0x
Germany (464 firms)
1159
925
U.S. (3,483 firms)
488
Year of first funding
(1) VentureOne only includes VC firms located in the U.S. with more than USD 20 M managed funds (no corporate venture funds and incubators) To make figures comparable, only VCs matching these criteria are included. Figures in this chart therefore differ from other results of the study Source: Figures for the U.S. are courtesy of market research firm VentureOne. Figures for Germany from a survey including 332 VC firms in Germany (adjusted)
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SERVICE COMPANIES IN THE U.S. ACCOUNT FOR A SIGNIFICANTLY HIGHER SHARE OF COMPANIES FINANCED
No. of companies
108
9% 3%
133
10 % 4% 23 % 4%
327
6% 4%
343
6% 5%
488
6% 9%
1.159
8% 8% 2%
925
7%
Content (Navigation, information) E-Commerce (B2C retail only) Business services - B2C non-retail - B2B - Multimedia firms - Integrators - Other services
29 %
29 % 3%
31 % 37 % 59 % 4% 4% 56 %
7%
43 %
51 %
45 %
40 % 32 % 3% 19 %
4% 20 % 8% 2000 (1. half)
Internet service providers Software Infrastructure
9% 1993/94
8% 1995
13 % 1996
14 % 1997
12 % 1998
6% 1999
Source: Figures for the U.S. are courtesy of market research firm VentureOne
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INVESTMENTS NECESSARY FOR MARKET ENTRY AND EXPANSION ARE RISING CONTINUOUSLY
U.S. Investments Double the Amount of Those in Germany
Development of investments over time (U.S. only) Median amount raised in M$ (all rounds of financing) Investments in 1. half of 2000 (U.S. and country comparison)
By business models (U.S. only)
Content E-Commerce Busin. services ISPs
7,0 20,5 10,2 20,1 10,0 15,0
11,1 7,4 4,0 5,0
Software Infrastructure
3,1 2,1 1,8 '94 2,3
Comparison (all business models) U.S.
Germany
11,1 5,4 0 10 20 30
'93
'95
'96
'97
'98
'99
'00
Year of funding
Remark: $1 = DM 2,30 Sources: U.S. data courtesy of VentureOne, Corp., analysis of in investments in Germany in first half of 2000
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Median Amount Raised in M$
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CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
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VC-FUNDED STARTUPS WITH LARGER TEAMS, OLDER FOUNDERS AND A SMALLER SHARE OF WOMEN
Not backed by VCs (n = 430)
4 founders. 6% 3 founders 11% 39% 2 founders 5+ founder 1%
VC funded (n = 570)
5+ founders 4 founders 7% 10% 23% 1 founder
43%
1 founder
Ø = 1.8
No. of founders per team(1)
Ø = 2.5
3 founders
21% 39% 2 founders
40+ 35-39 7% 10% 30-34 27%
35-39 31% 24-
40+ 247% 9% 16% 33% 35% 25-29
Ø = 28.5
25% 25-29 Women 7%
Founder's age when founding
Ø = 31.2
30-34
Women 4%
1 : 13
93% Men
Founder's gender
1 : 24
96% Men
(1) For VC backed startups the original founders were included only. If new investors get involved, in many cases a new company with a different name or legal form is established and a new, extended founder team is presented. Source: Survey with 332 VC firms in Germany, analysis of founder's profiles
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FOUNDERS ARE HIGHLY EDUCATED – MORE THAN 75 PERCENT HAVE GRADUATED FROM A UNIVERSITY OR FACHHOCHSCHULE
Economics Graduates and Ex-Consultants with High Affinity to Venture Capital
Not backed by VCs (n = 430)
PhD (Doctorate) 6% 26% University graduates 48% 20% College graduates (Fachhochschule) Natural sciences Humanities 9% 9% 28% 25% Computer sciences, mathematics Economics
VC funded (n = 570)
High school graduates, attended college or university 20% 18% College graduates 8% (Fachhochschule) 54% University graduates Natural sciences Humanities 8% 10% 38% 25%
High school graduates, attended college or university
PhD (Doctorate)
Education/degree(1)
29%
Engineering
Field of study (Graduates only)
Economics
Engineering 15%
Computer sciences, mathematics
Banks, financial services 6% School, college, university, Publishers, media firms research institutes 7% Service companies, 17% self-employed 9% Industry 14% 22% IT companies 26% Consulting
Publishers, media firms Banks, financial services 1% 3% Service companies, self-employed School, college, 18% 37% university, research institutes Industry 9% IT companies 25% 7% Consulting
Professional experience by industry (last job previous to founding)
(1) Founders graduated in more than one field (e.g. Dipl.-Ing. and MBA) or in cross-functional areas (e.g. Wirtsch.-Ing.) included proratedly Source: Survey with 332 VC firms in Germany, analysis of founder's profiles
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MOST FOUNDERS ARE CURRENTLY IN A MANAGEMENT POSITION
Operative Functions are Most Important: Marketing & Sales and Technology & Operations
Not backed by VCs(n = 430)
Management (2nd level) 5% Retired 1% Supervisory board < 1%
VC funded (n = 570)
Retired 5% Management (2nd level) 9% Supervisory board 2%
94%
Directors, officers (Vorstand, Geschäftsführer)
Current position in the company
84%
Directors, officers (Vorstand, Geschäftsführer
Research & development 4% Human resources 2% Strategy, Chairman, speaker business development 4% 9% Finance & controlling 13% Marketing, 32% sales, products 38% Technology, operations Serial founder (2nd or 3rd startup) Internet industry 9% experience 8% No Internet or startup experience
Research & development
Human resources 4%
Current function in the company (1) ("business card")
Strategy, 8% business Chairman, speaker development 10% 26% 13% Finance & 12% controlling 23% 18% Marketing, Technology, sales, products operations Serial founder (2nd or 3rd startup) 18% Internet industry 7% experience No Internet or startup experience 75%
Expertise/background
83%
(1) Allocated according to function or title, founders without description are not included. Founders responsible for more than one function allocated proratedly Source: Survey with 332 VC firms in Germany, analysis of founder's profiles
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CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
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ABOUT 80 PERCENT OF VC-BACKED COMPANIES ARE FOUNDED NEWLY BY PRIVATE INDIVIDUALS
VC-funded companies by type of founding
79 % 8% 6% 6% 1%
407
Spin-off from Internet/ E-Commerce companies Spin-off from companies in other industries
30
43 9 21
32
7
Foreign startups • Founded abroad • Currently active in Germany with own office/location
New startups Re-positioned startups(1) Established firms Spin.offs • Private individuals • Existing small • Only partly active • "Founded" as founders company used as in Internet/E-Com. by other • New company a vehicle to enter • Already establ. companies the Internet market before Internet • Often change of boom name or new owner structure
(1) This category includes small firms with up to 5 employees only (mostly privately owned companies when entering the market) Source: Survey with 332 VC firms in Germany, analysis of VC funded companies
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NEW STARTUPS AND SPIN-OFFS ARE ABOUT 2 YEARS OLD, ESTABLISHED FIRMS AND RE-POSITIONED STARTUPS 10 YEARS
New startups
No. of VC funded companies S=365 Øage= 2.3 y.
136 19 4 7 14 1994 27 1995 32 1996 52 1997 53 40 2000 (1st half) Year founded 1999 0 0 0 1994 1 1995 2 1996 4 3 2 2000 (1st half) Year founded 1999
Spin-offs
No. of VC funded companies S=31 Øage= 1.6 y.
1992 1993 and earlier
1998
1992 1993 and earlier
1997
1998
Established firms
No. of VC funded companies S=26 Øage= 10.0 y.
Re-positioned startups
No. of VC funded companies S=40 Øage= 9.5 y.
17 2 1992 1993 and earlier 2 1994
28 3 2 1996 0 1997 0 1998 0 1999 0 3 1992 1993 and earlier 4 1994 3 1995 1 1996 0 1997 1 1998 0 1999 0
1995
2000 (1st half) Year founded
2000 (1st half) Year founded
Source: Survey with 332 VC firms, analysis of VC funded companies
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HALF OF COMPANIES NOT FOUNDED WITH INTERNET AS A FOCUS HAVE THEIR BACKGROUND IN SOFTWARE
VC-funded company's industry background (1)
Print shop, pre-press
Banks, savings banks
Travel businesses, airlines
Telecoms Network eng. Service companies, consulting Software (manufacturers of standard SW) Publishers, media companies
3% 4% 5% 5% 5% 6%
2% 2%
44 %
Software integrators, system houses
9%
Retailers, mail order companies
101 companies analysed
15 %
Advertising agencies, related service providers
(1) If a background exists. Included are precursors for new startups, incubator companies for spin-offs and, for established and re-positioned companies, the business they were in prior to entering the Internet/E-Commerce market Source: Survey with 332 VC firms, analysis of VC funded companies
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VCs PREFER GROWTH-ORIENTED BUSINESS MODELS
Most Attractive: Software and Transaction-Based Concepts (B2C, B2B)
E-Commerce companies 52 121 54 49
55 %
Service providers 21 14 54
Technology providers 182 19 21 S=578
50
32 %
25
19 % 13 % 9% 5% 2%
Navigation, information B2C transaction B2B transaction Multimedia firms
9%
10 %
8% 4%
Internet service providers
8% 2%
Integrators
9% 5% 2%
Specialized service providers Software (manuf.)
1%
3%
4% 0,5 %
Business model unknown(1)
Infrastructure
No. of VC-backed companies
Share of total startups
Share of total VC-backed startups
(1) Mostly very young companies still in startup mode – information on business concepts not yet available via Web sites or other public sources Source: Survey with 332 VC firms in Germany, own estimate of total segment size, analysis of ~9,000 Internet/E-Commerce startups in Germany
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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ON AVERAGE, VC-FUNDED VENTURES OCCUPY 70 EMPLOYEES
Selection Process and Capital Inflow Result in Larger Companies
No. of employees (all companies)
Business model
Navigation & information
Comparison of company sizes by business model
Av. number of employees
38,0 9,5 44,5 8,9 31,8 22,8 107,3 6,7 87,4 10,6 93,3 16,0 36,1 15,3 45,4 30,6 73,0 28,6 69,8 10,1
Size (no. of employees)
Data points 29 54 28 31 14 6 (!) 29
501-1,000 251-500 101-250 51-100 26-50 11-25. 1-10. 0
5 9 43 36 78 93 54 100
2% 3% 14 % 11 % 24 %
B2C transaction B2B transaction Mulitmedia firms Internet service providers Integrators Spec. services
29 %
Infrastructure
7 (!)
118 316
17 %
Software All business models
Σ=318 Ø=69,8 MA
All startups Source: Survey with 332 VC firms in Germany, analysis of ~9,000 Internet/E-Commerce startups
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
VC backed startups only
e-STARTUP PROJEKT
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CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
-29-
SHORT INVESTMENT HISTORY IS THE MAIN REASON FOR A LOW SHARE OF SYNDICATED INVESTMENTS
No. of VC funded companies
Number of VCs involved per company(1)
500
72 %
18 %
5%
2%
1%
<1 %
<1 %
<1 % S=574
250 417
106 0 1 2 30 3 11 4 5 5 3 6 1 7 1 8
No. of VCs involved
(1) Co-investment firms are not included. If the 171 investments by tbg and Bayernkapital are included, the share of syndicated investments would rise from 28% to 46% Source: Survey with 332 VC firms in Germany
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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VCs PREFER MINORITY STAKES AND LEAD FUNCTION
Management Control Remains With Founders
VC's equity share in portfolio companies
VC's share
VC's role in managing portfolio companies
VC's role
50 up to 100 % 25 up to 50 % 10 up to 25 % <10 %
23
6%
Lead
283
68 %
163
40 %
Co-Lead
91
22 %
131
32 %
Investor
87
22 %
44
10 %
n/a
n/a 427 0 100 200 No. of investments
413
0
100
200
300
No. of investments
Remark: Co-investment firms are not included in this analysis Source: Survey with 332 VC firms in Germany
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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COMPARED TO THE U.S. EVALUATIONS ARE STILL LOW
For Orientation only – Figures are not Cross-Checked by VC Firms
Investments per portfolio company
Investment volumes in DEM (of all VCs involved)
>50 M 6 %
Evaluation at VC investment(1)
Company's evaluation
>500 M 100-500 M 3% 6% 22 % 44 %
No. of investments 6
No. of companies 3
10-50 M
25 %
10 21
41 13 6 S=94
25 % 50 % Share of all companies
27
50-100 M
5-10 M
31 %
33
10-50 M
1-5 M
27 %
29
5-10 M 14 %
<1 M
11 %
12 S=107
25 % 50 % Share of all investments
<1 M 6 % 0%
0%
Average investment DEM 12,3 M
Average evaluation DEM 58,7 M
Remark: For orientation only. Only larger investments tend to be published. The data was collected in first half of 2000, when evaluations reached peak levels (1) Calculated from agreed investment volumes and equity shares taken by VCs Source: Survey with 332 VC firms in Germany, separate analysis of 107 published deals from press releases, newsfeeds or VC newsletters and Web sites
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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OPENING OF THE NEUER MARKT HAS TRIGGERED A WAVE OF NEWLY-FOUNDED VC FIRMS
VCs Founded after 1997 are Strongly Engaged in the Segment
Startup activity for German VC firms No. of VC firms
102 Opening of Neuer Markt VC firms with investments in Internet/EC companies (173) 39
65 52
37
80
28
38
35
?
21
14
9 5 n/a 1992 1993 and earlier
25
11
7 4 1994
12
7 5 1995
13
5 8 1996 18 1997 13 1998
26 8 9 1999 3 2000
VC firms without investments in Internet/EC companies (182)
Year of founding
Sources: Indentification of active VC firms in Germany, VC's Web sites, MARKUS company database
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
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SPECIALIZED, INDEPENDENT VC FIRMS LEAD THE FIELD
"Young Specialists" Have Already Gained the Lead Compared to Established Firms
No. of Internet/E-Commerce investments 28% 26% 8% 7% 6% 6% 6% 5% 2% 2% <1% 4%
242
220
64
58
Foreign VC firms
52
Bank's VC subsidiaries
50
Incubators(2)
50
40
18
18
1
39
VC type:
Young Established Corporate specialists specialists venture (from 97) (until 97) (industry) • bmp • Earlybird • IVC • 3i • Apax • Atlas
Savings Corporate Corporate Public VCs Mittelst. Other/ bank's VC venture venture (support Beteil.-ges. unknown subsidiaries (Internet) (media comp.) schemes) (MBGs) type of VC • IBB • S-ReFIT • TMK Technomedia • Cybermind • Bertelsmann • SCB • United • Burda • BIG Internet • G+J Venture • 1x per federal country
Ex.:
• SAP Venture • CMGI • Siemens • Index • T-Venture Venture • Invision
• DVCG • BmU • IKB
• BainLab • Econa • Pari Capital
Remark: Company names were used for illustration purposes only Sources: Identification of active VC firms in Germany, survey with 332 firms
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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ONLY 55 PERCENT OF VC FIRMS HAVE INVESTED IN INTERNET/ E-COMMERCE COMPANIES
Additional Market Entries Will Further Increase Competitive Pressure
Number of VC firms 55 68 19 41 47 17 59 16 6 5 14 49
29 13 25 42 39 41 22 7 10
Foreign Bank's VC VC firms(1) subsidiaries Incubators(2)
45 40
5 14
14
16 6 3
2
13
1
9
VC type:
Young Established Corporate specialists specialists venture (from 97) (until 97) (industry) • 3i • Apax • Atlas
Savings Corporate Corporate Public VCs Mittelst. Other/ bank's VC venture(1) venture(1) (support Beteil.-ges. unknown subsidiaries (Internet) (media comp.) schemes) (MBGs) type of VC • IBB • S-ReFIT • TMK Technomedia • Cybermind • Bertelsmann • SCB • United • Burda • BIG Internet • G+J Venture • 1x per federal country
Bsp.: • bmp • Earlybird • IVC
• SAP Venture • CMGI • Siemens • Index • T-Venture Venture • Invision
• DVCG • BmU • IKB
• BainLab • Econa • Pari Capital
Without Internet investments (Total=179) With Internet investments (Total=217) -36-
Remark: Company names were used for illustration purposes only (1) 100% share is caused by the identification method – only firms were selected that have invested in the segment (2) Six incubators have investments in preparation but not yet closed Sources: Identification of active VC firms in Germany, survey with 332 firms
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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VC FIRMS PREFER METROPOLITAN AREAS FOR LOCATING OFFICES
Source: Identification of 346 VC firms with 387 offices in Germany
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
Locations of VC firms' offices in Germany
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LEADING CITIES ARE MUNICH, BERLIN AND HAMBURG
Frankfurt and the Rhine-Ruhr Area are Important Regions
Top 10 cities (supply side)
Top 10 cities (demand side)
32 % 13 %
229
S=727 13 % 11 % 4% 3% 2% 2% 2% 2%
25 % 13 % 12 %
213
S=848 4% 3% 3% 2% 1% 1% 1%
97
97 82
110
103 37
28
19
Stuttgart
18
Bonn
26 13
Köln
13
Montabour
11
Düsseldorf Munich Frankfurt Hannover Hamburg Berlin
25
14
Bonn
11
Köln
10
Montabour
7
Hannover
Düsseldorf
Munich
Frankfurt
Remark: Supply side refers to the location of the VC's office managing the investment, demand side refers to the portfolio company's headquarter Source: Survey with 332 VC firms in Germany, analysis of 887 identified investments
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
Hamburg
e-STARTUP PROJEKT
Stuttgart
Berlin
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SPATIAL PATTERN OF INVESTMENTS SHOWS FIVE KEY NODES
Source: Survey with 332 VC firms in Germany, analysis of 887 identified investments
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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CONCENTRATION IN FEW MAJOR CITIES LEADS TO SPLIT 50 PERCENT LOCAL TO 50 PERCENT DISTANT
Exceptions: Rhein-Ruhr Area and Frankfurt (Many VCs, More Local Business)
Distance VC to portfolio company from VC's perspective
Distance < 10 km 10100 km 100250 km > 250 km 211 km 198 km 183 km 225 km 239 km Distance
Distance VC to portfolio company from company's perspective
< 10 km 10100> 250 foreign 100 km 250 km km county
6 %2 % 25 % 5% 3%
Munich
46 %
11 % 9 % 3% 1%
34 %
229
Munich
57 %
10 % 2%
186
148 km 206 km 229 km 161 km 233 km
Berlin
54 % 5%
42 %
97
Berlin
50 % 0%
40 % 4% 40 % 5% 0% 33 %
103
Hamburg
56 %
34 %
97
Hamburg
56 %
97
Frankfurt
17 %
17 %
30 %
36 %
82
Frankfurt
52 %
10 %
21
Köln/Bonn/ Düsseldorf
19 %
27 %
12 %
42 %
59
Köln/Bonn/ Düsseldorf
16 % 16 %
22 %
34 %
12 %
51
0%
50 %
100 % # In- Dist. vestm.
0%
50 %
100 % # In- Dist. vestm.
Remark: Distances by car (source: route planner www.falk.de), co-investment firms are not included Source: Survey with 332 VC firms in Germany, analysis of 887 identified investments
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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VC's ROLE AND SHARE DEPENDS ON DISTANCE – BUT ONLY TO A SMALL DEGREE
Influence of distance on VC's role
Distance < 10 km 10100> 250 Foreign 100 km 250 km km countries
3% Lead 40 % 13 % 15 % 29 %
Influence of distance on VC's share
Distance < 10 km 10100> 250 Foreign 100 km 250 km km countries
2% 9% 22 % 22 % 3%
283
3%
179 km
> 50 %
45 %
23
162 km 175 km 188 km 207 km
25-50 %
44 %
13 % 14 %
26 % 1%
163
Co-Lead
35 %
13 % 12 % 5%
37 %
91
205 km
10-25 % 38 % 13 % 11 % 37 %
131
3%
Investor
32 %
9%
34 %
20 %
44
235 km
< 10 %
34 %
15 % 13 %
35 % 7%
87
7% All roles 33 % 13 % 12 % 35 %
781
208 km
All investm.
33 %
13 % 12 %
35 %
781
208 km
Role
# in- Dist. vestm.
Share
# Be- Dist. teilig.
Remark: Distances by car (source: route planner www.falk.de), co-investment firms are not included Source: Survey with 332 VC firms in Germany, analysis of 887 identified investments
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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REGIONAL INVESTMENT STRATEGIES ARE DRIVEN BY THE TYPE OF VC FIRM
Distance between VC and portfolio company by type of VC firm
Distance Bank's VC subsidiaries Corporate venture (all types) Young specialists Established specialists < 10 10km 100 km
16 % 10 %18 %
100250 km
> 250 km
56 %
50
302 km 257 km 218 km 187 km 144 km 105 km
29 %
9%9%
53 %
116
34 %
12 % 17 %
37 %
237
39 %
17 % 12 % 0%
32 %
216
Incubators Savings bank's VC subsidiaries Type of VC firm
67 %
3 % 30 %
39
62 %
12 % 10 % 16 %
42
# in- Dist. vestm.
Remark: Distances by car (source: route planner www.falk.de), co-investment firms are not included Source: Survey with 332 VC firms in Germany, analysis of 887 identified investments
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
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HIGH DENSITY OF VC FIRMS DOES NOT NECESSARILY LEAD TO EARLIER FUNDING AND FASTER GROWTH OF LOCAL VENTURES
Hypothesis Could not Be Proved – Investment History is Too Short
Year of funding by location Share of VC funded companies
Munich
Average number of employees by location(1) (new startups only) Ø age of investment Average number of employees
38,5
No. of new startups
3% 11 %
7%
46 %
40 %
94
0,8
Munich
60
Berlin
17 % 0%
40 %
36 %
58
1,0
Berlin
52,7
33
Hamburg
4%
57 %
39 %
56
0,8
Hamburg
40,4
25
Frankfurt 8 % 0% Köln/Bonn Düsseldorf
34 %
58 %
12
0,6
Frankfurt
27,1
9 (!)
3 % 41 %
56 %
34
0,5
Köln/Bonn Düsseldorf
63,6
21
First investm. announced
1997 1998 1999 2000 Data points or earlier
(1) Total number of employees per company (all locations/offices). Only investments with VC firm and portfolio company at the same location were analysed Source: Survey with 332 VC firms, analysis of VC funded companies
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
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CONTENT
Overview: Three challenges for VC firms Market development and trends
Founder profiles
Companies funded Investment structures Competitive situation in the segment Spatial structure of investments Appendix: Definitions and background
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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THIS STUDY FOCUSSES ON INTERNET/E-COMMERCE COMPANIES WITH A LOCATION IN GERMANY
... Industry Bio tech Materials Systems design
E-Commerce Internet
BVK member firms Classic types of VC firms Companies with location in Germany VC firms Nonmembers
New concepts • Incubators, accelerators • Internet companies with corporate venture activities Foreign companies (without location in Germany) Founded and active in Germany Foreign comForeign company panies (without with location in location in Ger.) Germany Companies funded
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
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SEGMENTATION USED FOR INTERNET/E-COMMERCE BUSINESS MODELS
Products and services via the Internet (E-Commerce) Internet-related services (Internet) Internet technology (Internet)
Information Navigation • Web.de AG • Endemann!! AG • Hurra.com GmbH • Allesklar AG • • • • Content C2day AG Urbia.com AG Gatrixx AG Ciao.com AG Internet Service Providers (ISPs) • • • • ISION Internet AG Cybernet AG Strato Medien AG Schlund & Partner AG Infrastructure • BinTec Communications AG • Tixi.com GmbH • PolyTrax Information Technology AG • Teledis AG
Internet users
Multimedia firms • Kabel New Media AG • Pixelpark AG • I-D Media AG • WWL Internet AG
Transaction B2C • Ricardo.de • AG • Artnet.com • AG • • Vitago.de AG • • Buecher.de AG B2B goindustry. com AG Newtron AG DCI AG Web2CAD AG
Integrators • Articon Information Systems AG • GFT Technologies AG • GEDYS Internet Products AG • Avinci AG
Software • Intershop Communications AG • Brokat AG • living systems AG • Hyperwave Information Management GmbH
Specialized service providers • Webmiles AG • DocCheck GmbH • Webvertising AG • Link4Link GmbH
Proximity to Internet users and customers Competence in marketing & sales Technological competence Remark: Company names were used for illustration purposes only
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
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PARTICIPATION RATES BY TYPE OF VC FIRM
51 %
43 %
42 %
–
19 %
53 %
39 %
38 %
50 %
80 %
7%
12 %
39 27 38 41 28 29 11 8
VC- Young spe- Established Corporate Type cialists specialists venture (From 97) (until 97) (industry) Ex.: • bmp • Earlybird • IVC • 3i • Apax • Atlas Foreign VC firms
36 43 8 9
Bank's VC subsidiaries
23
11 5 3 3 4 1
9
Incubators
13 1 6
Other/ unknown type of VC
Savings Corporate Corporate Public VCs Mittelst. bank's VC venture venture(1) (support Beteil.-ges. subsidiaries (Internet) (media comp.) schemes) (MBGs) • IBB • S-ReFIT • TMK Technomedia • Cybermind • Bertelsmann • SCB • United • Burda • BIG Internet • G+J Venture No participation • 1x per federal country
• SAP Venture • CMGI • Siemens • Index • T-Venture Venture • Invision
• DVCG • BmU • IKB
• BainLab • Econa • Pari Capital
Participation Total=120 Ratio=36%
Remark: Company names were used for illustration purposes only Sources: Identification of active VC firms in Germany, survey with 332 firms
E-Startup.org-VC-Study-26Sep00-Lutz Krafft
e-STARTUP PROJEKT
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