Private equity, venture capital and public funding during the post-crisis phase : an exploratory stocktaking for Germany during 2010 to 2012
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During the initial phase of the financial crisis of 2008 and 2009, which spread globally (Bauer 2012; Kamin and DeMarco 2012; Prorokowski 2013) and hence affected the world’s economy (Döhrn et al. 2009), Germany’s gross domestic product decreased significantly by 5.1% in 2009 (Destatis 2013). Beside the GDP’s decrease, this global recession was associated with a significant decline of Germany’s private equity and venture capital market (EVCA 2013), and a declining innovation activity in Germany’s economy during 2008 and 2009 (Rammer et al. 2014). The aim of the present study was to examine Germany’s economic, innovation and public funding policy, and Germany’s private equity and venture capital market during the so-called post-crisis phase of 2010, 2011 and 2012. This topic was chosen due to the importance of innovation for economic growth (Schumpeter 1985; Schumpeter 1987), to examine the linkage between economic, innovation and public funding policy, and to supplement the earlier work of Zimmermann and Fischer (2003), Achleitner et al. (2006) and Achleitner et al. (2010). In accordance with Laughlin’s approach of middle-range thinking (Laughlin 1995), the present examination based on a skeletal theory and a set of five presumptions regarding the developments during the post-crisis phase. These presumptions were developed in order to examine the German economic, innovation and public funding policy, and, furthermore, Germany’s private equity and venture capital market. The first presumption argued that the government improved the most important research subsidies and the public funding programmes on the federal level for the support of small and medium-sized enterprises, innovation projects, enterprise founding and for private equity and venture capital investments. The second presumption argued that private equity and venture capital investors changed their investment strategy and investment behaviour during the post-crisis phase. The third presumption argued that the financial crisis affected the investment process of equity investors on the level of the deal flow, the deal screening, the negotiation and contracting, the monitoring and mentoring of portfolio companies and also on the level of investor’s exit. The final presumptions argued that the so-called Alternative Fund Manager Directive affected the processes of deal-selection, deal screening and monitoring and that the implementation of the so-called Basel III accord affected the selection of industry branches during the process of deal-selection. Qualitative and quantitative data were collected from a purposive selection of publications and a purposive selection of early-stage, public and semi-public investors in Germany. A focus of this research examination was on the so-called Mittelständische Beteiligungsgesellschaften, which operate in each federal state of Germany as a kind of self-helping institution for small and medium-sized enterprises. The analyses were carried out by means of qualitative content analyses and descriptive statistics. This procedure not only ensured research variety and flexibility but, moreover, allowed for comparison analyses. Two validation studies were carried out, one on the level of the entire sample and one on the level of the so-called Mittelständische Beteiligungsgesellschaften, to invite participants to comment on the most important survey results. This examination contributes to the knowledge base as the study showed that the financial crisis caused a significantly increasing number of public funding political instruments. The examination also showed that the financial crisis did not lead to overall changes in investors' investment behaviour and investment strategy during the post-crisis phase. Moreover, the results showed that neither the transformation of the Alternative Investment Fund Manager directive nor the implementation of Basel III caused the expected effects. In addition, the results underlined that the management team is still held to be the most important aspect during the decision making process, with a stronger emphasis in that respect, and that the additional components of the investment process did not show untypical changes due to financial crisis related impacts. Moreover, the results underlined the differences between public and semi-public investors in comparison with the remaining market members in Germany’s private equity and venture capital market. The results also underlined the exceptional role of the so-called Mittelständische Beteiligungsgesellschaften in Germany’s private equity and venture capital market. Finally, the results showed that the so-called Kreditanstalt für Wiederaufbau, Germany’s most important public funding provider, still took an important role in the financing of small and medium-sized enterprises on the one hand and the financing of equity investments on the other hand.