Capital market: Germany as a developing country

 "So far, successful growth stocks like BioNTech have been going public in America. Germany has a long way to go to change that. One idea would be to reintroduce tax exemption on price gains of shares. 

The corona pandemic has brought biotech companies and especially their vaccine research into focus from one moment to the next and aroused great interest. Before that, many of these companies had a rather shadowy existence in the public eye and among German investors. But no later than when CureVac chose the American technology exchange Nasdaq for its IPO in August 2020 and BioNTech succeeded barely a year later, the sensation was great and criticism was heard that a company supported with German government funds had not gone public in Germany. 

 But going public is not a question of national pride. Rather, it is about mobilizing capital in order to create the next growth step and to take advantage of the best framework and financing conditions. This is what the German Stock Institute (DAI) says. The decision by German biotechnology companies to opt for American stock exchanges is ultimately an indictment of Germany as a financing location. Dependent on foreign investors "Germany is a developing country when it comes to financing young growth companies," said Christine Bortenlänger, director of the Deutsches Aktieninstitut in Frankfurt. Above all, companies with a specialized business model and high financing requirements are dependent on foreign investors. 

If innovative growth stocks are to be maintained in Germany, politicians must now take energetic countermeasures, because an efficient capital market ecosystem does not emerge overnight. Christof Hettich, partner at the Ritterhaus commercial law firm, calls for better legal framework conditions so that innovative companies can obtain growth capital by going public on the German stock market. For example, stock corporation law should be opened so that companies could deviate from the restricted exclusion of subscription rights or the prohibition of multiple voting rights. 

Together with the Ritterhaus law firm, the Aktieninstitut investigated the question of why so many German biotechnology and other growth companies decide to go public in America and why they do not get the money they need to research and develop their products in Germany. In doing so, they were also looking for reasons why Germany has so few IPOs of growth companies compared to other industrialized nations, and what this means for the German economy. 

For this purpose, discussions were held with representatives of young growth companies with a stock exchange listing abroad and capital market experts. BioNTech, Biofrontera, CureVac, Delivery Hero, Software AG and Trivago were surveyed. According to this analysis, there are too few financially strong investors in Germany who can assess the growth potential of stock market candidates, for example from the biotechnology sector. In addition, issuing banks and analysts largely concentrated on larger companies, since the effort is not worthwhile with smaller IPOs. There must also be more awareness of a culture of opportunity here. Because not every good idea is a success. 

 According to the results of the study, a whole package of measures would make sense to facilitate access to sufficient capital for growth companies from capital-intensive future industries and to strengthen the German capital market. One recommendation is aimed at old-age provision and a savings process with shares in Germany as well. Other countries, such as Sweden or America, showed that people in old age benefited from it, and financially strong pension funds in these countries also ensured that the development of growth companies and IPOs received a sustainable boost, it is said. In order to make stocks even more attractive for old-age provision and asset accumulation, the tax framework would also have to be improved. It is important, for example, to reintroduce the tax exemption on capital gains on shares after one year, as applies to bitcoins and gold. This would be the state before Introduction of the final withholding tax in 2009. Capital gains were back then tax-free for a period of one year.

Accordingly, there is also an urgent need for reform in German stock corporation law, which is not tailored to the needs of growth stocks. For example, many German companies are taking refuge in Dutch law, which offers more flexibility for the exclusion of subscription rights and the amount of authorized capital. In addition, in view of the many capital market obligations that go public with it, it is appropriate to allow young growth companies like in America a period of several years to get used to them, in which they only have to fulfill part of these obligations. In any case, investors can look forward to the stock market success of BioNTech & Co. so far. After an issue price of $ 14.95, BioNTech shares currently cost around $ 208. And even the stocks of CureVac are at around $ 55, well above the issue price of $ 16 per share, although the studies on the success of the vaccine have recently disappointed."