Venture Capital in Germany and the United Kingdom: A Focus on the Life Sciences Industry

Aurelio J. F. Vincenti and Sabit Delić

Academic literature suggests that a stock market-centered financial system, such as in the United Kingdom, promotes a strong and dynamic venture capital market in a better way than a bank-centered financial system, like in Germany, permitting venture capitalists to exit more successfully from their investment through an IPO. This hypothesis is investigated by comparing private equity and venture capital funding in both countries with an emphasis on the life sciences industry. For this purpose time series data from 2002 to 2012, including the financial crisis of 2007/2008 and its aftermath, are analyzed using econometric time series models especially of the ARIMA class. The results demonstrate that the British private equity market, both in total and for life sciences companies, is significantly bigger than its German correlate during these years. However, the differences between both countries disappear when looking at venture capital for early stage financing. Furthermore, it can be shown that life sciences are a more important investment target for private equity and venture capital in Germany than in the United Kingdom. Another result and further distinction between the two countries is the vulnerability to the financial crisis of 2007/2008. While this event has a clearly negative influence on the British market, especially on early stage venture capital, in the years following the initial event, the German equivalent hardly suffers from its impact. Overall, the outcome of the study doesn’t support the view that a market-centered financial system quasi automatically ensures a bigger market for all forms of venture capital at any time.

DOI : https://doi.org/10.21102/jbpr.2017.07.121.07