Networking to promote transformation financing
To finance the digital and climate-neutral transformation in NRW, not only do high investment volumes need to be financed, but the appropriate financing instruments must also be matched to the respective business models with their opportunities and risks. For example, a start-up with a new business idea needs a different type of financing than an established SME whose products are to become digital and climate neutral. The central problem is that both capital investors and capital seekers often do not find each other due to high search costs. Fin.Connect.NRW could help solve this problem, improve transformation financing and strengthen NRW as a financial centre.
Several banks, savings banks, insurance companies, private equity and development banks are often involved in the financing of large infrastructure projects. Although the capital for financing the transformation is available, it is distributed decentrally, so that cooperation partners often have to come together first. This is mainly due to search costs caused by information asymmetries. This is especially the case in start-up and scale-up financing, as young and smaller companies are often less visible than established companies.
Search costs between companies and financiers
In the financing of the digital and climate-neutral transformation, house banks play a prominent role with their proximity to corporate customers, which have lower search costs due to long business relationships with their customers. Both the companies and the banks benefit from these long business relationships. For companies that want to become more digital and climate-neutral, the classic bank loan is also a suitable form of financing in most cases.
However, there are also business models that need to transform more fundamentally and for whose higher risk profile other forms of financing are better suited than loan financing, or where loan financing needs to be supplemented by equity financing. In some cases, additional equity financing can also be provided with the help of development banks. However, due to the high financing volumes for the transformation, it is necessary to mobilise more private equity financing. This makes it necessary, on the one hand, for NRW and its companies to become more visible to corresponding investment funds and, on the other hand, for companies to have better access to information from these same investment funds.
Matching platform to reduce search costs
NRW could therefore benefit from a kind of „yellow pages“ for transformation financing. However, not as a book, but in the form of a digital matching platform. This platform could reduce the search costs between the companies and the investors and thus improve the fit of the financing. In this way, companies looking for equity capital could find out about potential investors and then get in touch with them. However, investors can also use this platform to network with other investors in order to better launch corresponding investment funds for transformation financing or to find investors. For the platform, however, it is less relevant that the investors come from NRW, but rather that added value is generated for NRW. The platform’s task could also be to draw the attention of foreign investment funds to specific projects and investment plans in NRW.
For banks, such a matching platform offers added value, e.g. if loan financing is to be supplemented by equity financing, but also for the financing of infrastructure projects by several banks. In addition, the bank and the company could more easily find a complementary equity investor.
Through such a matching platform, companies can inform themselves about the possible forms of financing and their providers. This makes it easier for them to find the right form of financing for their respective business model and, above all, to choose a combination of suitable financing instruments that will best help them to achieve their respective transformation goals. Especially for young companies without a long-standing relationship with a house bank, the financing conditions will improve. This could also strengthen NRW as a start-up and scale-up location.
Fin.Connect.NRW as a central matching platform for NRW
One recommendation of the „Transformation in NRW“ study is the further development of Fin.Connect.NRW into a central information platform for transformation financing in NRW. In doing so, the following matching functions could be aimed for:
- Investment funds could find further potential investors in NRW via Fin.Connect.NRW.
- Companies seeking capital market financing should be able to find investment funds more easily.
- Large companies could use Fin.Connect.NRW to help them find partners for syndicated financing with multiple lenders.
- Start-ups and scale-ups could gain better access to venture capital through Fin.Connect.NRW by becoming more visible to investors.
By strengthening the networking of all relevant actors in NRW, Fin.Connect.NRW could help to minimise information and financing gaps.
Strengthening NRW as a financial location
However, Fin.Connect.NRW does not have to limit itself to networking between capital providers and capital seekers. For search costs also exist in the labour market for employees in the financial sector.
By improving the networking of universities with the financial sector, Fin.Connect.NRW could also contribute to strengthening NRW as a financial location and to training and retaining human capital for financing in NRW. The potential of the transformation can thus also be used to train the next generation of bankers and investors. For universities and universities of applied sciences, interesting practical projects could emerge that enable students to enter professions in the finance industry in NRW. For companies and investors, the contacts offer the opportunity to improve the search for talent. This would contribute to strengthening NRW as a financial location.