Venture Capital

Connecting Old and New Economies

  • Why it matters

    Why it matters

    Germany has long lacked venture capital funding for startups. La Famiglia venture capital fund wants to change that by bringing together digital pioneers with small and medium-sized businesses. The fund has already attracted investors from major European industrial families, like Miele, Siemens and Swarovski.

  • Facts

    Facts

    • Compared to Germany, the United States has about 20 times as many venture capital funds with an investment volume of at least €100 million.
    • The total volume of venture capital invested annually in Germany has only increased by 17 percent since 2011, compared to 157 percent in the United States in the same period.
    • Established companies value the early access to digital trends and young business offered by La Famiglia.
  • Audio

    Audio

  • Pdf
Berlin – das betahaus
The betahaus co-working space in Berlin's Kreuzberg district. Photo DPA

There is a new movement in Germany’s community of digital pioneers. Over the past year, venture capital fund La Famiglia, a powerful network of well-known European entrepreneurial families, has quietly joined forces with leaders of the digital economy to invest in promising young startups. Their goal is to bridge the gap between established, Mittelstand companies and digital pioneers, bringing together leaders from both worlds as investors. Based in Munich, the fund has already invested in seven startups in 2016, and it plans to add at least another 10 next year.

Although La Famiglia has been around for six months, they’ve received scant media attention. And despite the fund’s modest website, investors include several members of large European industrial dynasties, such as Germany’s Miele, Viessmann, Siemens, Fürstenberg and Conrad families, as well as the Swarovski family in Austria and the Solvay family in Belgium.

In addition to envoys from the so-called old economy, investors in La Famiglia include some of Germany’s most successful entrepreneurs and business angels. One of them is Hakan Koc, who co-founded the Auto-1 Group in 2012 and developed it into Germany’s leading online marketplace for car buyers and sellers. The company is already worth more than a billion euros. Sven Rittau, another La Famiglia investor, co-founded  Zooplus, which currently boasts sales of more than €700 million.

Other investors are Sebastian Pollok, founder of online adult toy shop Amorelie, which was sold to the television and radio conglomerate Pro Sieben Sat 1 last year, as well as Nicole Junkermann, who co-founded the marketing agency Infront Sports & Media, which was later sold to Bridgepoint for more than €500 million.

At the helm of La Famiglia are managing partners Jeannette zu Fürstenberg and Robert Lacher, both of whom come from their own business dynasties connected to industrial machinery. Ms. Fürstenberg’s family owns Krohne Messtechnik in Duisburg, an industrial instrument company with annual sales of around €600, while Mr. Lacher’s family company Singulus builds machines for economic and resource-efficient production processes. Singulus went public several years ago and Mr. Lacher, who had previously worked at Boston Consulting Group (BCG) and has also sold the fashion website he created, Amaze, to Zalando.

“The special thing about our fund is that perhaps for the first time in Germany, we have created a bridge between the world of startups and established German mid-sized companies, which are often built around outstanding engineering capabilities,” said Jeannette zu Fürstenberg. “In the field of industrial automation, in particular, European companies still have a great opportunity to drive development. We have clear locational advantages here.”

Co-CEO Robert Lacher added: “We are seeking new digital business models and technologies – ones which invert the business models of traditional industry or complement them in a significant way. We want to bring together companies which have been successful for generations with the smartest entrepreneurs and best ideas of tomorrow. We see this as a previously untapped potential.”

Today, many traditional German companies are seeking new strategies to remain competitive in the age of digitization. And yet there still seem to be too few bridges to the world of startups and connectivity. A study by the German Federal Ministry of the Economy showed that 70 percent of all German companies have been unable to develop a sustainable digital strategy. At the same time, young startups lack capital and market access. La Famiglia sees this dynamic as an opportunity to provide capital, contact and collaboration between the two worlds. It’s a matter of strategic added value and a new approach – at least in Germany.

All of this sounds like good news for Germany as a location for startups, especially considering the country’s current lack of capital. Compared to the United States, which boasts some 200 venture capital funds with an investment volume of at least €100 million ($104 million) each, there are about ten such funds in Germany. These include established names like e.ventures and Earlybird, as well as a new generation of VCs like Cherry Ventures and Blue Yard Capital.

 

16-p6-venture-capital-01

 

It goes without saying that venture capital is an important financing tool for many startups, with banks often refusing to provide young companies with credit needed for research and development. Startups, of course, often lack a market-ready product and therefore reliable revenues. The banks, worried about repayment of their loans, choose not to lend in the first place.

Venture capital funds tend to be more flexible about the timeline of repayment, though they ultimately seek a decent return when young companies manage to become floated on the stock market or acquired by competitors.

In 2015, 725 companies in Germany received about €840 million in venture capital. These figures have hardly changed since 2011, when the total volume of venture capital was already €717 million, as determined by the German Private Equity and Venture Capital Association (BVK). The increase of about 17 percent in no way reflects the opportunities of digitization, which has triggered a new, massive burst of startup activity since then, especially in the United States. In comparison, the total volume of venture capital in the U.S. has grown by 157 percent since 2011 and, according to the National Venture Capital Association (NVCA) in Washington, amounted to the equivalent of €53 billion in 2015.

But entrepreneurial dynasties like the Swarovski, Solvay, Fürstenberg and Viessmann families don’t intend on using La Famiglia as an investment vehicle. Instead, their focus is on strategic added value, especially direct access to the most important digital trends and best young startup teams. For them, La Famiglia functions as a sort of radar, detecting relevant digital trends early on so that they can implement them in their own family businesses.

La Famiglia investor Max Viessmann, a partner and chief digital officer of the eponymous Mittelstand company located in the state of Hesse, is in charge of the digital transformation in the family business. Mr. Viessmann is already firmly established in Berlin’s digital community, where he has set up his own lab to develop new business models and technologies related to the Internet of Things.

It is precisely this early access to digital trends and young companies that remains a major challenge for most classic companies. La Famiglia investor Christian Miele, who works for venture capital provider e.ventures and whose uncle Markus is managing director of high end domestic appliance company Miele, said: “The European investor community needs innovative fund concepts like La Famiglia, whose offerings provide true added value for startups and also include small and medium-sized businesses. When a company is too early in investing directly in a startup, it limits its strategic scope.”

This is why the fund has taken a relatively restrained approach. La Famiglia seeks neither majority holdings nor seats on supervisory or advisory boards. The fund also does not specify any exit plans, nor does it require purchase options.

“Our goal is to help companies achieve lasting success. They gain access to the know-how in our network, and in the process, we are also happy to serve as classic business angels. We want to avoid anything that could obstruct or limit the creativity of young founders,” said Ms. Fürstenberg.

Experienced managers from classic industrial companies agree. Franz Fehrenbach, chairman of the supervisory board at Bosch, the world’s largest auto supplier, recently told Handelsblatt: “People who first have to write applications for approvals wouldn’t make any headway. They have to be able to simply get going and even make mistakes here and there.”

Bosch, which invests in more than 30 young companies through its own venture capital subsidiary, tries to offer startups the freedoms Mr. Fehrenbach described. “The not-invented-here syndrome often takes hold,” said Mr. Fehrenbach, referring to the fear prevalent in traditional companies of ideas coming from outsiders. “We need to prevent that from happening. Otherwise young entrepreneurs will be hitting a wall in corporate structures.”

La Famiglia operates under the same assumption, viewing startups as not only as disrupters but also helpers of traditional businesses. Berlin startup Freight Hub is a good example. The business, founded by Fabian and Ferry Heilemann, is a full-service shipping company that specializes in electronically processing international container shipments through a digital platform. Customers select a departure location and destination, and then receive an overview of all bookable shipping companies, including information about costs, shipment duration, customs restrictions and the exact delivery date.

La Famiglia also recently invested in a software startup that enables its customers to encrypt and manage the quality of technical design files for components that are manufactured on 3D printers and CNC machines. This protects them against product piracy. The software makes it possible to track which parts are being manufactured in which form and on which machines, anywhere in the world.

“The software addresses the core problems of German companies in the context of Industry 4.0: security, stability and consistent quality of digital supply chains,” said Jeannette zu Fürstenberg. “We are excited about this direct relationship to traditional industry, because we can examine business models before making an investment. Our investors, for their part, receive early access to new issues.”

 

Peter Brors rejoined Handelsblatt’s editorial team as deputy editor-in-chief in March 2016. Contact him at: brors@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!