Seed capital for future technology companies
A lot of money is needed in the medical technology and biotechnology sectors – in particular for the development of new products. Although German universities are hotspots of excellent ideas, it still takes a long time, and a solid financial basis, to turn these ideas into new drugs or devices. Due to high safety requirements, the development of medical and pharmaceutical products takes a long time and requires a lot of money – a situation that often puts off investors. The High-Tech Gründerfonds provides a solution to this situation.
500,000 euros, the amount which the High-Tech Gründerfonds most often invests into a company in the first round of financing, might – at first sight – not seem very generous. “However, we make sure that the seed capital will be used to reach a particular milestone – with a product that has value,” said investment manager Dr. Caroline Fichtner. Such milestones are, for example, the finalisation of an important study which will then help to convince further investors. Thirteen of the life science companies financed through the High-Tech Gründerfonds have already achieved this and, based on the initial High-Tech Gründerfonds investments, have acquired follow-up financing totalling about 16.5 million euros.
This is a great success considering that the High-Tech Gründerfonds is only three years old. The fund was established in order to provide companies with promising ideas with risk capital in the early start-up phase. This risk capital comes from the German Federal Ministry of Economics and Technology, the KfW group of banks and an investment group consisting of BASF, Deutsche Telekom, Siemens, Bosch, Carl Zeiss and Daimler. The partners have given a total of 272 million euros into this public-private partnership.
Tapping the multi-million-euro-pot
The High-Tech Gründerfonds provides seed financing of 500,000 euros in the first financing round. This gives the Gründerfonds access to 15 per cent of all company shares. The fund also places a shareholder’s loan with conversion option. Some conditions have to be fulfilled as Marco Winzer, senior investment manager, explains: “In the life sciences sector, the founders should bring an ‘incubated’ technology into the company. In the medical technology sector, the founders should already have developed a laboratory prototype. In red biotechnology, it would be good to have completed the first drug screening studies, which already reduces the number of compounds that have to be tested. A high enough number of promising substances is another good starting point. The technologies are analysed and carefully evaluated by external specialists (due diligence).
Management support for start-up companies
The experts will also have a close look at the founders. Do they have business experience? Are they prepared to expand their team with the expertise they lack? “During the selection process – and in the case of success also beyond this period – the founders will receive support and advice from coaches,” said Marco Winzer. The High-Tech Gründerfonds has put together a team of accredited experts who have valuable experience in the establishment of companies and communicate this experience to the start-up teams.
An experienced board of experts will make the final decision on whether the High-Tech Gründerfonds will invest money in a start-up company. The board consists of High-Tech Gründerfonds investors who are represented by industry insiders from the investment, business and science community. Up to May 2008, the board had held 40 meetings and agreed to support 141 start-up companies. On average, one in nine applications is successful.
Biotechnology and medical technology are very popular
The High-Tech Gründerfonds attaches great importance to bio- and medical technology. “Human health is a growth market. We see a great potential in this sector,” said Caroline Fichtner. Approximately 30 per cent of the fund’s portfolio companies are active in the life sciences sector.
However, only eight per cent of all applications are from companies in Baden-Württemberg. “Baden-Württemberg lacks the institutional support in the field of seed financing; the situation is better in Bavaria and North Rhine-Westphalia,” said Marco Winzer. However, a positive example from Baden-Württemberg is Subitec GmbH, a spin-off company of the Fraunhofer IGB that received High-Tech Gründerfonds financial backing in the first financing round. “Overall, applications from the field of research are generally very promising,” said Winzer adding that “the majority of researchers think twice before establishing a company.”
ap - 24 July 2008
© BIOPRO Baden-Württemberg GmbH