In an extraordinary and little-noticed announcement on May 11, 2007, the BVK, the German Private Equity and Venture Capital Association, released the results of a poll of its members showing that fully 50% of the membership are considering moving their funds out of Germany.
The cause of this discontent is of course the unsatisfactory and unworkable legal and tax framework within which German funds are forced to operate -- what we refer to in this blog as the Toxic German Legal Landscape for venture capital and private equity.
These views of the BVK membership are not merely theoretical. Some major German funds have already left Germany; for example, the current Chairman of the Board of the BVK, Rolf Dienst of Wellington Partners has recently moved his own fund out of Germany.
One should bear in mind that the BVK only has 185 members, a tiny number of venture capital and private equity funds in a country which has the world's fourth largest economy (after the U.S., Japan and China). That is to say, an already weak domestic German venture capital/private equity industry is about to become weaker.
The poll taken by the BVK was taken in part to demonstrate to the Bundesministerium der Finanzen (BMF) the seriousness of the German legal and tax situation for the industry. The poll was released on May 11.
On May 31, 2007, the BMF announced its decision to apply the VAT to the management fees of German venture capital and private equity funds. Clearly the BVK's poll did not have the intended effect. The BMF is either not listening or is unmoved.
It is difficult to escape the conclusion that, taken in the broader European context wherein other countries are moving positively to create favorable legal and tax regimes for investment funds, the BMF has take a policy decision that the venture capital/private equity industry is not an appropriate industry for Germany.