Dusseldorf For two years, the cheap money from the central banks fueled a boom in the start-up world, and financial investors distributed the money with the watering can. But with rising interest rates, disillusionment has set in, investors are holding back and many founders are asking themselves: where is the money for expansion coming from?
Vorwerk Ventures has an answer: the financing company has set up a 150 million euro fund for investments in European start-ups. Most of the money comes from the Vorwerk family business. The aim is to build future tech unicorns, as emphasized by Vorwerk Ventures, i.e. companies with a valuation of more than one billion US dollars.
The investor sees good opportunities right now. “We have greater opportunities to make interesting investments at reasonable valuations,” says Norbert Muschong, who, as Managing Partner, heads Vorwerk Ventures together with Dirk Meurer and Norbert Witte, the Handelsblatt. “Overall, the ratings are falling,” he observes.
Vorwerk is not alone with its anti-cyclical investment strategy. Other family businesses that tend to think long-term are now also discovering good opportunities.
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“We now increasingly see family businesses as buyers in M&A transactions,” confirms Markus Eckey, who oversees corporate finance transactions for family businesses in Deutsche Bank’s wealth management department. “Precisely because there is not so much cheap money available on the market, they are becoming more important as investors.”
Family businesses see opportunities for acquisitions
For many companies, this offers opportunities for acquisitions. “As a family company that thinks long-term, we see increasing potential for restructuring the portfolio in view of the market situation,” explains Haniel CEO Thomas Schmidt, for example. But he emphasizes that Haniel continues to invest in its holdings. Haniel’s last major acquisition to date was the majority takeover of the start-up Emma Matratzen.
“As cheap money dries up, companies need to start making money again, or at least show a clear path to profitability.” Norbert Muschong, Managing Partner Vorwerk Ventures
Vorwerk ventures partner Muschong recognizes a fundamental change in the market that is playing into their hands. “As cheap money dries up, companies need to start making money again, or at least show a clear path to profitability,” he explains.
“We are seeing a complete reversal of strategy, people are looking for profitable growing companies again,” says Muschong. Vorwerk Ventures, which has already applied these criteria to the investments, benefits from this.
A brutal selection has begun among the start-ups. The US venture capitalist Sequoia is already talking about a “survival of the quickest”, in which only those survive who get their costs under control the fastest. A number of start-ups built with a lot of venture capital, which are in danger of running out of fresh capital, have already reacted with layoffs.
Muschong considers the development in the market to be healthy. “Due to the low interest rates of the central banks, a lot of cheap money has come into these industries. The result was that many companies were built that were supposed to have a chance at a monopoly position,” he observes.
“We now increasingly see family businesses as buyers in M&A transactions.” Markus Eckey, wealth manager at Deutsche Bank
Profitability played no role in this, it was only a question of gaining market share. “Now the situation is different, many are shocked and reinvent themselves,” he said.
The entire venture capital industry has cooled off, confirms Judith Dada from the early-stage investor La Famiglia, in whose fund numerous well-known family entrepreneurs have invested. But a “normalization” can be observed after the exaggerations in the level of company valuations in the past two years.
She also notes that although all investors are currently taking a more cautious approach, this is particularly the case with financing in the later phases of start-ups. On the other hand, there is still money in the early-stage investments, i.e. when the start-ups are at the very beginning.
Differences to the bursting of the dot-com bubble
Dada emphasizes that the number of exciting founders is still large and that family offices and other investors continue to invest in the early phases, which require less money. The long-term advantage: “Then larger increases in value are possible again in the future.”
>> Read here: Despite the crisis in the start-up world: venture capital funds collect large sums
The current upheaval in the market cannot be compared with the bursting of the dot-com bubble in 2000, agrees Muschong. “Back then there were many companies without any substance,” he recalls. Today the start-ups and the industry are much more mature, there is a lot more experience. “I think we don’t have a breakdown but a necessary correction.”
This is the basis of Vorwerk Ventures’ optimism that good investments can still be found. The company already has a track record of developing successful tech unicorns. It was one of the first investors in today’s Dax group Hellofresh. Vorwerk also expanded the Flaschenpost delivery service, which was later sold to Oetker for an estimated one billion euros, through an investment in the early stages.
Expert Eckey from Deutsche Bank registers some peculiarities in family businesses as investors: they elude the classic dichotomy between strategists and financial investors. Although they generally have expected returns, these are not necessarily the focus of their investment projects. Your investment horizon is usually long term.
Family offices are becoming more and more professional
In the current situation, they also benefit from their flexibility. “There are no rigid investment guidelines like there are with traditional private equity funds,” he says. They are also often willing to take significant minority shareholdings, which gives them sufficient influence and say without the need for active ownership management.
Forward
500
Million Euros
The four start-up funds from Vorwerk Ventures have a total volume.
In addition, family offices have become very professional because they have often competed with financial investors in M&A transactions in recent years. “Increasingly, former private equity managers, experienced management consultants or industrial managers are working in managerial positions at family offices in order to meet the requirements of investment management from the purchase through the holding phase to the potential sale,” reports Eckey.
Vorwerk Ventures has already set up four funds with a total volume of 500 million euros. The investor has been working independently of the Vorwerk family business since 2019 and can make his own investment decisions. The funds hold stakes in start-ups such as Thermondo, Everdrop, Planted and Avi Medical.
The investor has a clear focus on tech start-ups from the consumer sector, which requires a particularly careful selection, especially in difficult economic times.
“We only do things that we think we get right, not because they’re hip,” explains Muschong. “It’s not play money that we’re dealing with, others have sourly earned it.”
More: Family businesses – a class of companies that is often underestimated surprises on the stock exchange