Editorial 2015: The economic significance of growth capital and private equity

Alternative forms of financing, including private equity, i.e. equity investments in unlisted companies, are becoming increasingly relevant. Private equity is not a passing fad. The investment industry originated in the USA almost 70 years ago: in 1946, the American Research and Development Corporation, the world's first venture capital company, was founded there. The Americans already recognized the economic importance of start-up and growth financing for young companies at that time and therefore promoted the emergence of a venture capital industry by law in the 1950s and 1960s. In Germany, however, private equity is regrettably still underestimated as a source of financing.

This is despite the fact that Germany is one of the most attractive growth regions for private equity in Europe. The Federal Republic of Germany is considered by international funds to be one of the top four emerging private equity nations in Western Europe, and one in four German private equity funds sees its own country in first place in Europe. Another clear sign of the attractiveness of the German market is that international funds that already hold portfolio companies in Germany are planning to further increase their investment volume in Germany. Many are even planning to open new offices. First and foremost, it is the strongest and most stable economy within the eurozone that makes Germany so attractive for private equity. Productivity is high, unemployment is low, and export strength is high. Medium- and long-term macroeconomic earthquakes are rather unlikely in this country, and negative influences from other countries tend to have only limited consequences for Germany. In addition, from a private equity perspective, the many technologically advanced German SMEs that are export-oriented and serve niche markets are a clear locational advantage.

Nevertheless, there is a great deal of reluctance on the part of companies to invest in private equity in Germany. But it is often misguided, because for three reasons, such equity investments are not only the best alternative in certain situations, but also offer significant added value compared to other financing options and can even bring competitive advantages:

First, private equity sees itself as an active shareholder and sparring partner for the management of the companies in which they invest. The portfolio companies support the Executive Board in strategic and operational decisions - with extensive industry and financial know-how as well as with additional capital, if necessary. This can be a great advantage, especially for medium-sized businesses.