State-backed German startup investment vehicle plans new ˆ300M fund

Print 14 June 2016
Nick Paul Taylor / Fierce Biotech

High-Tech Gründerfonds (HTGF), a seed investor backed by the German government, has revealed plans to raise €300 million ($341 million) for its third fund. The money is intended to enable HTGF to continue the startup-backing remit that has already seen it help 440 companies get off the ground.

Life sciences is one of several fields targeted by HTGF, which has backed biotechs including hepatitis B player MYR, RNA specialist Rigontec and atrial fibrillation upstart Omeicos Therapeutics over the past two years. The amounts provided by HTGF are small--it typically invests €600,000 in the seed stage and up to €2 million in follow-on financing--but it is prolific. This scattergun model, which HTGF says makes its Europe’s most active early-stage fund, is indicative of its government-driven mission to support the startup ecosystem in Germany.

HTGF was set up by the German government in 2005 to support young startups. And the government will once again provide the bulk of the funding for HTGF III. As it stands, the plan is to look to industry for 30% of the €300 million fund, a proportion that is more than was achieved when HTGF last raised money in 2011. The private sector provided €44 million of the €304 million raised for HTGF II. KfW, a bank owned by the German government, chipped in €40 million, leaving the Federal Ministry for Economic Affairs and Energy to provide the remaining €220 million.

German chemical companies BASF, Evonik and Lanxess are among the businesses to invest in earlier HTGF funds. Molecular diagnostics player Qiagen ($QGEN) has also chipped in cash. Whether backing the fund is worthwhile, in terms of direct return on investment, is a topic of debate. Last year, German business publication Manager Magazin illustrated a report into HTGF with a burning pot of money. The publication identified 100 HTGF portfolio companies that were facing liquidations or distressed sales, compared to 53 that had achieved exits. HTGF reportedly makes losses consistently.

The flip side to the argument is that HTGF has given a start to companies that have gone on to pull in significant sums of private finance and land trade sales, even if, for a variety of reasons, the fund has failed to profit significantly from their success. Ultimately, the German government’s perception of the value of HTGF is what matters most--and it has just committed to pumping another €210 million into the project.

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