If fields full of high-tech start-up companies begin to sprout, can a blossoming of venture capital firms be far behind? Or is it the other way around -- the venture capitalists presaging a flourishing of entrepreneurialism?
Whichever, there is clearly a strong uptrend in venture capital activity in Europe. And this development is closely intertwined with a noticeable increase in business start-ups in Europe within the last couple of years. Many observers feel this entrepreneurial wave is the Continent's best hope for a real economic rejuvenation.
``The biologists tell us that our bodies are completely renewed every seven years,'' says Dietmar Gr"uner, manager of the oldest (about a year and a half old) of West Berlin's dozen-odd venture capital firms.
Comparing this renewal to that of the economy, as brought about by new firms, he notes, ``Our role is to be a catalyst in this new development. We help take care of the tender little plants. . . .''
Mr. Gr"uner, whose firm is called simply ``VC Gesellschaft f"ur Innovation mbH,'' or VC Company for Innovation Ltd., contends that the idea of venture capital has been around Europe for a long time. ``You could say that the money the king of Spain provided Christopher Columbus with was venture capital.''
But still, most European observers see American-style venture capital firms as a new development -- and in fact many use the English term, ``venture capital.'' Mr. Gr"uner says that for his firm to get started he needed no changes in the law, only changes in mind-set. Legal encouragement
But in some countries new laws have been needed to get the venture capital industry off the ground.
France, for example, passed a law in January 1983 providing for the establishment of venture capital funds, more or less on the American model, in which institutional investors such as insurance companies, pension funds, and industrial corporations could participate.
``We have set up a piggybank of 100 million francs [$13.22 million],'' says Patrick de Giovanni, a director at Alan Patricof Associ'es, the Paris affiliate of a New York venture capital firm.
``That's not much for the US or the U.K., but it's a lot for us.'' He estimates that his fund is one of about 30 in France. ``At the end of 10 years, we'll break the piggybank and divide up the proceeds among the participants in the fund, and ourselves as managers. We are aiming for a return of 20 percent annually, compounded.''
Mr. de Giovanni notes that in writing the legislation covering the venture capital funds, the government allowed the fund managers to keep a generous chunk of the earnings, up to 20 percent off the top. It may sound self-serving, but the managers of these funds need an incentive to motivate them to top performance, de Giovanni says.
He notes a number of other things that have been done right as France, under the surprisingly market-oriented Socialist government of Franois Mitterrand, has modified its laws to encourage new enterprises:
The law on stock options has been made less restrictive. In the United States and elsewhere, stock options -- rights granted to employees to buy shares in their companies at reduced prices -- are an important tool for rewarding and motivating employees, especially in the early days when a company has little cash.
Leveraged buyouts, whereby the management team buys out the investors of a company and takes it private, using the firm's own assets as collateral, have been made easier.
A secondary (over-the-counter) stock market has been created. More-active partners
With the new laws, says de Giovanni, ``People will invest in these things because they know they can get out of them. That animates the Bourse and creates a dynamism within the entire financial system.
``If you have a pile of money, you can think about investing in a company, because you can get out of it now -- which you couldn't before.''
Typically, French entrepreneurs often went into business just to avoid their previous bosses, rather than launch a great company per se, and the growth of the enterprises has been limited by their reluctance to accept venture capital. They preferred owning all of a smaller company to owning part of a bigger one.
``That's diminishing, but still rather widespread,'' Mr. de Giovanni says.
And European investors generally, such as there were, have tended to be ``silent partners,'' without an active role in the running of the firm they invested in.
Not so the new breed of venture capitalists. One of Patricof's three-member management team in Paris sits on the board of each of the companies Patricof invests in.
Mr. Gr"uner reports taking a similarly active role here in Berlin. His venture capital firm has concentrated its investments in a few specific areas: Two such focus areas are control, measurement, and testing technologies personal computer technologies -- so that the firms it has invested in can enjoy ``an exchange of ideas, a certain synergy,'' as he puts it. Team playing
Like venture capitalists everywhere, Mr. Gr"uner finds that he has to persuade entrepreneurs who are used to being ``solo warriors'' that they ``have to put together a team,'' he says, including, of course, the venture capitalist.
Are there too many entrepreneurs chasing too little venture capital -- or is it the other way around?
Patricof's de Giovanni says, ``I would say there aren't enough entrepreneurs. And from that side, it's rather satisfying . . . it's a necessity in this field that there's always more capital available than there is demand for it, because it's this available capital that makes the demand grow.
``That bothers venture capitalists, because they would like to be all alone, surrounded by lots of worthy entrepreneurs banging on their doors; but it's the law by which this business operates.''