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The Birth of German Biotechnology Industry – Did Venture Capital run the show?

  • Dirk Engel


  • Claire Champenois
  • Oliver Heneric

We answer the questions, how many firms acting in the modern German biotechnology industry are funded by venture capital companies (VCC) as well as equity funded by corporate investors. The theory suggests a high relevance of VCC as venturing partner of high-tech projects. In addition we argue that corporate investors are a venturing partner of firms with high-risk projects to a lower extent.Incumbents,however, are confronted with some opportunities in the low-risk area of the biotechnology industry to secure an optimal supply for the current product pipeline.Our empirical results emphasize a crucial importance of venture capital as financial resource for high-risk projects: whereas 42 percent of all healthcare developer in the early stage are venture-backed firms, only a small share of low-risk projects received venture capital. The results for corporate investors are reversible.Fewer high-tech projects and more low-risk projects compared to VCC are equity financed by corporate investors. The econometric analysis suggests that the observed pattern is mainly driven by the level of project risk and hence, supports all our hypotheses.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung in its series RWI Discussion Papers with number 0016.

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Length: 26 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:rwi:dpaper:0016
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  1. Engel, Dirk & Keilbach, Max, 2007. "Firm-level implications of early stage venture capital investment -- An empirical investigation," Journal of Empirical Finance, Elsevier, vol. 14(2), pages 150-167, March.
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  7. James A. Brander & Raphael Amit & Werner Antweiler, 2002. "Venture-Capital Syndication: Improved Venture Selection vs. The Value-Added Hypothesis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(3), pages 423-452, 09.
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  16. Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
  17. Almus, Matthias & Engel, Dirk & Prantl, Susanne, 2000. "The Mannheim Foundation Panels of the Centre for European Economic Research (ZEW)," ZEW Dokumentationen 00-02, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  18. Amit, Raphael & Brander, James & Zott, Christoph, 1998. "Why do venture capital firms exist? theory and canadian evidence," Journal of Business Venturing, Elsevier, vol. 13(6), pages 441-466, November.
  19. Pinar Karaca-Mandic & Kenneth Train, 2003. "Standard error correction in two-stage estimation with nested�samples," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 401-407, December.
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