The boom in the private equity industry in recent decades has not stopped at the MitTECHstand. For many entrepreneurs, private equity (PE) has become a relevant option in the search for the right type of investment. The media is also focusing more and more on this topic, so that PE investors, who have often operated in the background up to now, are increasingly gaining visibility. Nevertheless, many companies are unclear about how PE investors position themselves and what value they can add – especially in the MitTECHstand.
By definition, private equity is a form of investment that invests in companies that are predominantly privately held. These companies are generally not accessible to the broad mass of investors on the free market because they are not listed on the stock exchange. Raising capital through an IPO, however, involves complex regulatory and disclosure requirements. This is not only costly, but also leads to competitive disadvantages, which is why an IPO is often out of the question for medium-sized companies. Raising new equity capital or selling a stake in a company is therefore much more difficult, especially for medium-sized companies, and is often only possible via a PE investor.
PE investors with entrepreneurial experience are particularly important in the MitTECHstand
For companies, however, PE investment often becomes relevant only at a late stage of the entrepreneurial life cycle, usually after venture capital and growth capital investors have exited. As a PE fund, we have targeted our investment focus on mid-sized companies that are at the end of this phase and are looking for a partner for further development. This sets us apart from so-called mega buyout funds, which invest in significantly larger and also listed companies.
Our market assessment shows that there are 11,000 medium-sized Internet and software companies in Germany alone, so-called hidden champions, which are no longer micro-enterprises but are not among the big players in the industry either. The experience we have gained as founders, managing directors and investors in Internet and software companies helps us to add value, especially in such hidden champions of the MitTECHstand:
First and foremost, our investment in a company is a partnership that we enter into with the entrepreneurs. We very often observe that fast-growing companies in particular reach turning points in their development at which they need partners who can contribute know-how and networks. Our entrepreneurial experience makes us a partner for MitTECHstand in particular, who can make investments at eye level – that means we give direct feedback and support with important decisions. In addition, we enable entrepreneurs to reduce their personal risk, which they basically have as shareholders. By taking over part of their shares, we are thus not only opening up the possibility of bringing a new partner on board, but also reducing the personal risk. This means that the entrepreneur can make private provisions and at the same time still participate in the future success of the company.
For such partnerships to work well, we emphasize alignment of interests, transparency and mutual understanding, and constant commitment.
In the mid-market corporate environment, there are often gaps in the management team. Particularly in the case of co-tech companies, it is often the case that the CTO also acts in the role of CEO or that there is no CFO, for example. It is particularly important for further growth that these areas of responsibility are clearly divided and covered so that quick and clear decisions can be made for each area of the company, even in crisis situations.
We help our portfolio companies to quickly build up and professionalize their management and team. The goal is that management can also learn from our experience and continue to grow. The companies also benefit from our own entrepreneurial and portfolio network. In addition to our network, the presence of a new, committed investor sends a strong signal to the market, attracting talent to the company and thus opening up new opportunities.
Business processes and reporting form the backbone of the company and the basis for further value creation initiatives. Many companies are usually set up in a “lean” way when they are founded, which is why the development of structures and processes is often not sufficiently focused on and not made up for later. As a result, decisions concerning the introduction of new products or the financial and earnings situation, for example, are often made ad hoc or based on empirical values. However, improving reporting structures and the flow of information as well as professionalizing personnel and capital management are essential for further development. After an investment, we therefore specifically plan the establishment of fixed business and reporting processes.
The change in the shareholder structure as a result of a PE investment also has a decisive influence on the company’s development. Since decision-making in companies often rests with individual founding teams, additional shareholders, including the establishment of a formal advisory board of independent directors, can help ensure that strategic decisions are made with more expertise and that the company becomes attractive to many larger investors in the event of a subsequent sale or IPO.