Ex-Rocket internet investor
“We need local venture capital for tech companies in the DAX”
07/21/2023, 6:47 p.m
Startups in Germany are currently finding it difficult to raise money. According to estimates by industry insiders, the market for venture capital, i.e. for financial resources made available to young growth companies, has shrunk by 40 percent compared to the previous year. One company that is fighting against this is the Berlin investor 468 Capital, which is backed by the experienced investors Ludwig Ensthaler, Alexander Kudlich and Florian Leibert. Both are ex-Rocket internet executives. Kudlich was CFO of the now mothballed venture capitalist.
The portfolio of 468 Capital includes the company Aleph Alpha, which specializes in artificial intelligence, and the battery manufacturer Customcells. The company also took Tonies, the supplier of audio boxes for children, public. “In any case, we don’t have the problem that we don’t have enough good founders or good topics,” says Kudlich in the podcast “The hour zero”. “Foundations are becoming more demanding in terms of technology and content, and their quality is increasing from year to year.”
The venture capital market in Germany is considered problematic, also because the rise in interest rates has changed the situation on the markets. Is it getting tighter for startups now?
Ludwig Ensthaler: We’re in a market phase in which little is going on, that’s quite clear. But one thing is also clear: the right topics will continue to be heavily funded. Two stand out, namely artificial intelligence and everything to do with the energy transition, i.e. the electrification of the economy. These are two big mega-topics that are going very well. Also, there is a lot of focus on the companies that really have quality. The holiday experience platform Getyourguide is a good example, but there are others too.
Alexander Kudlich: It is striking that the very early financing rounds are actually still going very well. The sooner, the easier, you could say. That also makes sense: If you invest today in an early phase, i.e. in a pre-seed or seed round, then you have an investment horizon of six to ten years anyway. And most good early-stage investors keep investing. However, the later, the more volatile it becomes. Where there was the greatest exaggeration in the ratings, there is now the greatest understatement.
It is said that the right ideas still come with money. Do these ideas exist in Germany?
Kudlich: We definitely don’t have the problem that we don’t have enough good founders or good topics. The foundations are becoming more demanding in terms of technology and content, and their quality is increasing from year to year. We even see that start-up activity is actually increasing.
Ensthaler: A lot is actually happening. A good example is the AI startup Aleph Alpha, which is also part of our portfolio. They are currently getting a large round of financing. And rightly so, because they build great things. In the battery segment, one could mention custom cells from Itzehoe. A great deal emerges from research-intensive institutes such as the Fraunhofer Institutes. We certainly don’t lack companies in the right areas.
Do these companies get money in Germany – or will they inevitably look to the USA at some point?
Kudlich: Ten years ago we always talked about a funding gap in the early stages. There has been good progress there. But if a company needs 40 or 60 million euros from an investor, then things will still be pretty thin in Germany. The supply of capital from abroad is greater there, although not necessarily reliable. International capital is more volatile.
In the end, is it even decisive whether a company is financed in Germany or the money comes from somewhere else? Isn’t the most important thing the good idea?
Enthaler: In a perfect world, that’s true. But the reality is very different. Even the venture capitalists from San Francisco used to not even make it to Los Angeles. That’s an hour by plane. We’re at least nine hours from California, and that creates a lot of breaking points.
How is that expressed?
Ensthaler: An excellent example is Biontech, probably the last really big deep-tech success story from Germany. They couldn’t find an institutional venture capitalist and were financed by family offices. It would certainly have been easier for them to get capital if they had just sat somewhere else. There are many examples of this. It will therefore be very crucial to have local growth capital in Germany if we want to have new DAX companies in the technology sector.
Kudlich: It’s also like this: If the more mature companies, which are actually already less risky, are always financed internationally, then at some point the great successes for German investors will be missing. And we simply need a few significant returns to German investors so that venture capital can gain a reputation as an asset class.
Biontech, the example given here, actually shows that it can be worth taking a risk, even through a family office. And it seems that there is definitely money for such projects. So why isn’t this money flowing into new technologies?
Enthaler: A lot of development work has already been done, by us, but also by others. Now it’s the next level, and that’s the growth area. It’s on a scale that can no longer be easily covered by family offices. We need funds with a volume of one billion euros. But that’s where institutional investors come into play.
And do we have them?
Ensthaler: We don’t yet have the environment that diverts capital into these funds. This is the next big building block, which is now up. If we don’t do that, something crucial will be missing. Then you can initiate many great topics, but we will not be able to finance them to maturity.
Listen in the new episode of “The Zero Hour“
- What is the point of listing companies with so-called spacs
- Why the Dax no longer reflects the German economy
- What the “next big thing” will be
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