No ‘Soundcloud’ effect: for all the hype “not much money is flowing into Berlin”
This year is crunch time for Berlin as a startup hub, according to many watchers. After all the hype, it’s time for Berlin to start packing a real punch. Who will be the next big successes after Soundcloud? Nicolas Gabrysh, M&A lawyer at Osborne Clarke (Berlin & Cologne) and Andreas Thümmler, founder of CFP, “leader in internet M&A” see these trends:
1. For all the hype, there’s not much money flowing in
According to Thümmler, the press may have found Berlin, but not the investors. Andreas Thümmler: “We’re not seeing any hype, and to be honest, not a big increase in foreign investments. Some players are putting feelers out, but the activity is very tentative.”
Big investments into German players like KPCB investing in Soundcloud (photo: Soundcloud founder Alexander Ljung) is more exception than rule, says Gabrysch. He also thinks that for foreign investors, late stage investments are more interesting.
The foreign funds are hunting for bigger investments, because they’re top heavy with money. “Billion heavy,” Thümmler calls it. According to the two experts, the foreign funds are looking to make investments between 15 to 30 million, and there’s not many startups that can even use that kind of money.
Thümmler: “You have to ask yourself how many Berlin startups can use a € 50 million round for a minority investment.”
2. The Berlin scene is mostly a business angel scene
At the moment, it’s the business angels who are making the largest volume of deals. Gabrysch sees an increasing class of business angels who make larger and larger investments – up to a few million. The High-Tech Gründerfonds (High Tech Founder’s Fund) is another important cornerstone for the scene, adds Thümmler.
3. The venture capital industry in Europe is in danger of drying up
We already saw that venture capital investments in Europe tanked in the last years. In this regard, this quote from Thümmler is interesting: “The venture capitalists haven’t made money for their LP’s ore limited partners (the big players like pension funds and sovereign wealth funds who put the money into the funds).
He says: “They don’t see why they would invest in European VC anymore. A lot of them prefer to invest in the buyout scene.”
4. There’s more money than ever before for strategic buyouts
Entrepreneurs, take note. According to Thümmler, there’s more money than every before. His exact words are: “Money is being printed so fast that you wouldn’t believe.” He points out that PayPal is sitting on € 11 billion in Luxemburg alone – money that can’t return to the US for tax reasons. The same goes for the private equity players. The biggest problem for all this money is to find a decent target.
Thümmler thinks European companies should create bigger entities through mergers and acquisitions, which would then become attractive targets for those “billion heavy” players. Unfortunately, he says: “Founders and shareholders are often too focused on issues of valuation, than on the bigger picture”.[VC Magazin][photo: Alexander Ljung, by NEXT Berlin, Flickr]
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