Thursday, April 15, 2021

"How foreign investors are tapping into Germany's late-stage VC boom"

An interesting overview.

From PitchBook, April 6:

Germany has become one of Europe's leading VC hubs, but the majority of investment in late-stage companies appears to be coming from well-funded overseas investors.  

German startups raised a record €6.4 billion (around $7.5 billion) in venture capital funding in 2020, up over 20% from the year before, despite a slight dip in deal count, according to PitchBook data. The rise was largely down to an increase in late-stage capital, which accounted for about two-thirds of all VC capital raised in Germany last year. 

However, as the majority of German VC firms are focused on early-stage deals, many have remained on the sidelines, with the country’s largest venture rounds not featuring any local backers. 

"The German startup ecosystem is itself still a bit young compared with markets like the US and in my view, that's why a lot of the investors are still focusing on the early stages and growth capital is largely coming from outside of Germany," Picus Capital partner and managing director Florian Reichert said.

German investors were absent from rounds such as travel booking platform operator GetYourGuide's €114 million round in October and used car startup Auto1's €255 million funding last July. New York-based Searchlight Capital led the former's financing, while San Francisco's Farallon Capital Management and Boston-headquartered hedge fund The Baupost Group co-led Auto1's round.

Compared with other European countries, the German VC industry still accounts for a tiny portion of economic activity. A report from German state-owned bank KfW found that VC investments in Germany represented 0.047% of GDP between 2017 and 2019, compared with nearly 0.1% in the UK. 

The lack of domestic capital for late-stage German startups is leaving a gap for foreign investors to plug. US investor participation in German VC rounds has soared in the past few years. In 2020, a record 150 deals worth €4 billion included US-based firms compared with just 76 deals five years ago totaling €784.3 million, according to PitchBook data.....