Bavaria is more or less considered the "richest German state." GfK estimates the country's general purchasing power at around EUR 24,000 per capita in 2016. Eight DAX-listed companies alone are located here. Nearly 7,000 industrial companies with approximately 1.2 million employees were counted in 2015. So much for private wealth and the established economy—but what about the capital flowing into startups? A guest article by Dr. Carsten Rudolph and Barbara Dombay.
The capital market for early-stage ventures clearly reflects Bavaria's typical strengths. Young companies find not only customers for B2B innovations in Bavaria's industrial and SME sectors, but also suitable investors. And the activity of business angels, who invest their private capital, is particularly increasing.
Big tickets from diverse investors
Large financing rounds are striking in Bavaria. Seven-figure sums are almost the norm for financing from the seed phase to Series A, and even in the first financing round, significant six-figure investments are often made.
In the BayStartUpIn 2015, a total of approximately EUR 38 million in seed and growth capital was invested in the financing network, ranging from EUR 50,000 to EUR 2.5 million per financing round. Startups between one and three years old received almost 60,000,000 of the financing.
Investors in Bavaria are characterized by their great entrepreneurial diversity. Some active business angels, especially those from regions outside of Munich, embody the traditional, personally highly involved SME entrepreneur. A quick exit is not their primary focus, and even if they invest their personal assets, they have a strategic interest in their own company. To achieve this, they are willing to invest large sums and actively contribute both their personal expertise and the company's resources.
Family offices are also very active in startup financing in Bavaria. Some have a well-known brand name for the family business behind them. Sometimes the assets are so high that they shy away from any publicity. Then there are business angels who, after a successful corporate career, have gained enough experience and wealth to now invest. Another type are the relatively young serial entrepreneurs who have successfully sold their first company.
Active business angels make the difference
Of the approximately EUR 38 million in investments in the BayStartUp financing network, around one-third came from business angels. Compared to the previous year, angel investments brokered directly through BayStartUp almost doubled. Last year, business angels invested amounts ranging from EUR 45,000 to EUR 800,000, averaging a whopping EUR 140,000. Up to seven business angels joined forces in the consortium, although in 60% of these cases, there were two or three angels.
It turns out that business angels often make it possible to close a larger financing round: by taking on greater risks as lead investors or because their active support prepares the founding team for institutional investors – who join as co-investors or in subsequent rounds.
Lively venture capital scene
All major venture capital funds and strategic investors also have a presence in Bavaria. Public funding is also noteworthy. Bavaria Capital has invested EUR 220 million in venture capital over 20 years. The Bavarian Growth Fund was launched last year with EUR 100 million. Bayern Kapital consciously positions itself as a partner for private investors, especially business angels.
High-Tech Gründerfonds and KfW are also heavily involved in co-investments with private investors. 17 public co-investments with private investments and participation from Bayern Kapital or High-Tech Gründerfonds were completed last year. One successful example that demonstrates the full diversity of the Bavarian investor scene is the tech fitness company eGym: Following former Microsoft Germany CEO Jürgen Gallmann's investment as a business angel, Bayern Kapital, High-Tech Gründerfonds, and private venture capital funds joined the investment. In the last two rounds, international growth investors joined with a total of approximately USD 60 million, making the young Munich-based growth company ready for the global market.
About the authors:
Dr. Carsten Rudolph is Managing Director of BayStartUp, a contact point for startups and investors, funded by the Bavarian Ministry of Economic Affairs and supported by companies. Barbara Dombay heads the financing network, which includes 230 active business angels and around 100 institutional investors, and is the contact person in Munich. Alexander Becker also heads the financing network and is the contact person in Nuremberg.
