Only Germans, perhaps, could feel they are "poor, but sexy" but when the then Berlin mayor coined the phrasea little more than a decade ago he caught the mood of the country’s capital. Although it is the largest economy in Europe, Germans were paying a heavy price for reunification after the collapse of the Soviet Union and the transfer of the capital from Bonn back to Berlin in 1999. In a bid to provide jobs and reinvent itself, the mayor’s choice of "arm, aber sexy" to describe a city trying to attractive the creative industries rather than the traditional mittelstand of medium-sized industrial companies has seemed to work. Attracted in part by low rents, entrepreneurs have flocked to Berlin rather than the established venture capital heartland in Munich or the financial capital of Frankfurt. The co-mingling of the German and English languages also nods to the creativity and artistic freedom he was seeking to encourage and Germany has been ranked first but of 139 countries for capacity for innovation in the latest World Economic Forum Global Competitiveness Report for 2010-11. But capacity is nothing without the tools to innovate, including capital to support entrepreneurs. And while the country’s independent venture capital (VC) and leveraged buyout industry struggled after the collapse of the dot.com bubble and againsttax and regulatory headwinds, the state teamed up with some of the country’s biggest corporations to set up a seed-stage investment fund. Started in 2005, High-Tech Gründerfonds is a €272m ($370m) state-backed fund supported by industrial groups BASF, Deutsche Telekom, Siemens, Robert Bosch, Daimler and Carl Zeiss. Gründerfonds is now preparing for this month’s close of its second seed fund around its target of €280m, and Alexander von Frankenberg, managing director of High-Tech Gründerfonds, said an unnamed five of the six corporate venturing backers of the first fund had recommitted to the second, while five new investors had also committed and "another two to three" were likely to join. However, while there are plenty of smaller VC funds able to provide seed finance, Germany continues to suffer from a scarcity of larger VC firms able to provide the longer-term funding necessary for these start-ups to develop. German VC firm Earlybird’s recent report, authored by Henrik Brandis and Jason Whitmire, in contrasting VC investment in Europe and the US explained the issue in more precise terms. Despite European investments yielding proportionately greater returns on average (Center of Private Equity Research recently put the figure at 11.4%…

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