The federal government is to use loans or participations to prevent interesting start-ups from going to foreign investors at a bargain price in the crisis.
Joachim Faber, 69, is as familiar with start-ups as he is with share prices. The chairman of the supervisory board of Deutsche BOrse AG himself is involved in some young companies. Now the doctor of law thinks about the time after the “lockdown”, after the peak of the corona crisis – and calls for “a new start-up initiative, an hour zero of the founders”.
The German start-ups that still exist after Corona would “bring the modernization of the German economy forward significantly,” believes Faber. They are agile and could find gaps. “A large part of the gross domestic product will no longer be served by traditional industry in the future.”
Last but not least, President Donald Trump’s recent push to secure the United States’ vaccines from the Tubingen company Curevac has made it clear that start-ups are part of geopolitics. “We can’t fool ourselves: restrictions on selling good ideas abroad have long been a matter of course in China and the United States,” explains Faber. “Only we Germans are the model boys of free world trade.”
It is therefore legitimate for the federal government to prevent loans or participations from “allowing interesting start-ups to go to foreign investors at bargain prices in the crisis”. Along certain “preference sectors”, “a sell-out of German start-ups must be prevented in the next three to six months”. That would be a sales moratorium for young German companies, so to speak.
Venture Network initiatives
The Chairman of the Supervisory Board also announces initiatives by the Venture Network of Deutsche BOrse. It is an ecosystem of founders that currently comprises 200 companies and 400 investors: “We have achieved a lot with this platform. That can and must double. ”
According to Faber, the German start-up scene has so far relied too much on foreign investors. In large financing rounds, only ten percent of the capital comes from Germany. But it is “illusionary” to believe that long-term investment companies like Sequoia from California “always provide reliable support to local founders,” warns Faber.
The corona crisis has ended a longstanding boom. In 2019, 6.24 million euros were invested in 704 financing rounds, of which 75 percent came from abroad. Funds such as Softbank from Japan or Temasek from Singapore were noticeably represented.
According to Faber, the one-sided distribution by Germans with large fortunes should change. “We need lighthouses for domestic investors and family entrepreneurs who will stick to it when things get risky but also interesting when it comes to financing growth,” he says. Such investors would need capital organizations that check start-ups and separate the wheat from the chaff. This is different from the brothers Andreas and Thomas Strungmann or the SAP co-founders Dietmar Hopp and Hasso Plattner, who themselves had large research departments. Faber emphasizes: “The worst thing is when a smart founder encounters naive money. That has to go wrong. ”
Worries about startups
The stock exchange chief supervisor cites the venture capital company UVC from Munich as a positive example, which is connected to the entrepreneurship start-up center. Its managing director Helmut SchOnenberger confirms surveys in the industry, according to which eight out of ten start-ups are currently worried about their existence: “Many have currently switched to remote control, are putting the brakes on costs and are in intensive exchange with investors and customers,” says SchOnenberger: “In the consumer sector, the markets are breaking away, and some business models are being put to the test.” On the other hand, the corona crisis also opens up opportunities: “People are open, everyone is moving closer together.” This spirit must be used to promote cutting-edge technology, in artificial intelligence, cybersecurity and medical technology, for example. Everyone would have to contribute a table and their know-how: family entrepreneurs, top managers, state institutions, universities, research institutions – “only then will we bring the start-up scene forward sustainably.” thereby stipulating a clear strategy in which technologies Germany leads SchOnenberger wants to be successful. The federal start-up’s immediate aid of two billion euros is praised by the professor at the Technical University of Munich, whose network is largely financed by BMW entrepreneur Susanne Klatten.
Reluctance among private investors
Fortunately, public capital providers such as KfW Capital or the European investment fund EIF are stepping on the gas, says SchOnenberger. “But a lot of private investors are holding back, that’s a danger.” The best thing for founders, however, is “to get the money from the state as a pilot customer and not through alms”. In China and the United States, too, young entrepreneurs grew up with their government buyers, creating an ecosystem.
Foreclosure from foreign investors is not the solution, explains SchOnenberger, rather, all resources in the country have to be specifically promoted so that the founders remain in the Federal Republic. “In the past, they only migrated because they lacked support and appreciation.”
Investor Faber, who is leaving Deutsche BOrse at the Annual General Meeting in May, knows the scene from a variety of supervisory board positions. In the future, he will head the central supervisory board for four financial firms for the Harald Quandt (“HQ”) family in Bad Homburg. And as the supervisor of the ESMT European School of Management and Technology in Berlin, he happily registered that some students are starting a company.
Faber is now optimistic for those start-ups that have already won private equity or venture capital as donors. These funds would typically have unspent funds in the reserve. There is only a marginal share in the corona crisis. It could be difficult for those who would have to rebuild. Young companies in the tourism, hotel and travel sectors were particularly hard hit.
Checking credit risk
Faber currently sees problems with government loan support for medium-sized and larger companies. Under the lending regulations, the banks involved would understandably have to “check their ten percent risk like a hundred percent risk”. And if the state too often directly gets into valuable start-ups, there is a risk of enormous bureaucracy. Because budget law does not allow risky grants to be simply given away.
Finally, the long-time board of the insurance giant Allianz takes up an old suggestion: “We urgently need to allow insurance companies and pension funds in Germany to participate in start-ups.” Today’s approach to regulation takes too little account of that over a long investment horizon significantly more risk must be allowed than for systems available at short notice. The problem here is securing capital preservation. That was still feasible with a five to ten percent return on federal bonds, says Faber. Today, however, a “significant proportion of risk paper is essential for investments over 30 to 40 years”. And that also includes capital for start-ups.
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