frequently assume an investment role in early-stage
based young firms in a pre-commercial stage of de-
deals. In contrast, Germany has a less developed
velopment. As the firm continues to grow, informal
VC market and its public supported activities at fed-
investors (business angles) and professional VC
eral level are strongly focused on early stage High-
firms can provide more substantial investments in
tech (e.g. Gründerfonds). However, Germany also
equity for new product development, internationali-
has a regional and national banking system that ac-
sation, etc. There may be several rounds of such
tively funds the long-term growth of SME clients.
funding, and VCs will often bring in syndicated partners from their networks as deal sizes grow. The firm may now be able to operate using, at least in
Average size of total investment in portfolio compa-
part, cash generated from trading. This revenue
nies, three-year average, 2010–2012
may allow the firm to take out and cover the interest
Million EUR
FIGURE 5.26
3.0
charges on new bank loans. An illustration of the financial escalator can be seen in Figure 5.27.
2.5 2.0 1.5 1.0 0.5 0.0
Seed
Start-up
Later stage VC
Source: EVCA Yearbook 2013 Note: This includes Syndicated loans.
DGF’s position in the ‘Financial Escalator’ (DGF in relation to early (seed) and later stage (private equity) investors) The term ‘financial escalator’ is widely used to illustrate the desired policy outcome of ‘joined up’ markets for capital for new firms and SMEs. In an ideal world, ‘family and friends’ finance would, where necessary, be complemented by growth funds provided by banks (debt) or business angels (equity). Increasingly family and friends in certain areas of enterprise may well be followed by “Crowd-funding” sources (Mollick, 2013). Grants for R&D or commercialisation may also form part of an integrated package especially for technology and ‘new knowledge’
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