Statement on the German Federal Government’s Draft Law of 7 December 2007 on the Limitation of Risks Related to Financial Investments (Risk Limitation Law) Bundestag Publication No. 16/7438

The industry association of the German biotechnology sector, the Biotechnology Industry Organisation of Germany (BIO Deutschland) accepts that that Law on the Limitation of Risks Related to Financial Investments should make financial investments in companies in Germany more transparent and thus better protect entrepreneurs, their staff and investors from economic risks. However, BIO Deutschland is concerned that unclear wording in the law will aggravate the investment climate in Germany.

Small and medium-sized enterprises in new, innovative sectors generally do not have access to outside capital because of the inherent risk involved in their type of business. As a result, they primarily finance the necessary research, product development and company growth with equity capital, which is provided by financially strong individuals (business angels) or venture capital companies or in the case of listed companies by institutional and private investors. The money required for investments is usually procured over a period of several financial stages, with gaps of 24 to 30 months between them. Regular contact between stockholders and shareholders and changes to the stockholder structure are therefore part of the company’s day-to-day activities and are vital components in the successful development of the company. The newer the company is, the more likely it is that several stockholders will own larger equity capital shares in the company. Some venture capital companies only work with a new, innovative company when they can control an investment share of around 20 per cent. Moreover, even after a company has been listed, private venture capital (PIPE, Private Investment in Public Entities) will be needed several times in order to finance growth.

As a result of the high degree of specialisation and the limited number of investors, entrepreneurs from the biotechnology sector and their investors represent a relatively small group in Germany.

• Legal certainty for investors must be guaranteed by clear wording and increased financial risk must be avoided.
• An increase in bureaucratic procedures is justified in order to achieve greater and internationally resilient transparency.