Money For Nothing

It's shaping up as quite a glittering party. Hundreds of high-net-worth types will gather at Bonn's Hotel Maritim this week to slurp champagne, crowd around the buffet table and show their New Economy style. Founders of fast-growing tech companies such as Brokat, MobilCom and WaveLight will tipple and gossip with the venture capitalists who have helped them create billions of euros in shareholder wealth and thousands of badly needed jobs. At the evening's climax, they'll all raise a glass and wish a happy 10th birthday-- to a government bureaucracy.

Well, this is Germany. Ten-year-old TBG (the complete mouthful is Technologie-Beteiligungs-Gesellschaft mbH der Deutschen Ausgleichsbank) is a 100 percent state-owned agency that's become Europe's single biggest investor in high-tech start-ups. An outgrowth of the Research and Technology Ministry, TBG has funneled more than 800 million euro into 700 German companies. Fifteen of those have gone public; dozens more IPOs are now in the pipeline. "TBG was a great help for us," says Michael Janssen, CFO of Brokat, Europe's leading producer of software for Internet and cell-phone banking. Janssen has every reason to be grateful. Founded in 1996 with 500,000 of TBG's money--plus a matching amount from a private venture-capital firm--Brokat went public last year on Frankfurt's Neuer Markt. As of last week, the Stuttgart-based company had a market value of 1.5 billion euro.

The secret ingredient in this surprisingly successful government program? Humility. When policymakers set TBG up in 1989, they left out the hubris that makes bureaucrats think they can target funds to deserving technologies. After all, generations of civil servants had sunk billions of taxpayer marks into things like magnetic-levitation trains and nuclear fusion, to little avail. The TBG innovation was to let the market decide. Only when a private lead investor--usually a venture capitalist, as in Brokat's case--has decided to risk his own cash in a fledgling company does TBG jump in with cheap matching funds. (As a result, it cofinances virtually every start-up.) In effect, it's a gigantic but utterly market-driven subsidy to the venture-capital industry. "When we began there was no venture-capital market in Germany worth speaking of," says TBG chief Ernst Mayer. "We set out to change that."

Mission accomplished: in 1998, Germany soared past Britain as Europe's biggest market for high-tech investments, with venture-capital companies plowing almost half a billion euros into start-ups. "TBG has certainly attracted more private money to Germany," says Peter Cullom, head of the Frankfurt office of 3i, the British venture-capital firm that came to Germany in 1996 and has since become TBG's biggest cofinancing partner. How could a venture capitalist not love TBG's terms? Companies are obliged to repay the investments, which are essentially low-interest loans, but the agency generally doesn't participate in any IPO gains. Instead, it shows a return on its investment of about negative 10 percent, because some of its clients fail. Mayer says he gets more attention every year from the subsidy watchdogs in Brussels.

Meanwhile, though, TBG keeps sowing its seeds. Arnd Schwierholz, cofounder of Berlin-based, got 2.5 million for his Internet-shopping start-up just last week. "They're absolutely brilliant for entrepreneurs," says Schwierholz. It's true--just ask any millionaire.

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