European startups have always suffered from the eternal startup problem: how to get out? In Europe, however, the problem has always been particularly acute. How many major European industrial or corporate giants are they buying or leasing? Not that much, and not nearly enough.
It’s part of the reason why so many European startups end up moving to the US. The US is one of the few markets where you can achieve decent scale, and also has the potential to exit via a sale to one of the global technology platforms or to the public markets.
Now, a new, but slightly different, German private equity fund hopes to solve at least part of the problem, and at least in Germany, where it will primarily focus.
Private equity investor FLEX Capital (based in Berlin) says it has now closed its second €300 million fund with the aim of effectively winding up medium-sized German-speaking tech companies and giving these merged entities greater global scale. This is an unusual use of PE funds and puts FLEX in a slightly different category than the average PE outfit.
Investors include funds of funds, institutional investors from Europe and the US and the founders of some successful European companies, such as Christoph Jost, Peter Waleczek, Felix Haas, Jan Becker, Andreas Etten and Dr. Robert Wuttke.
The opportunity seems to be there. In the DACH region (consisting of Germany, Austria and Switzerland) there are an estimated 11,000 medium-sized internet and software companies generating between 5 and 30 million Euros in turnover per year.
Christoph Jost, managing partner of FLEX Capital, outlines their line of thinking in a statement: “In order to realize the necessary strengthening of our own software sector in the DACH region through innovation and growth, more capital and know-how must flow into successful software and tech companies. who are already category leaders… The new fund allows us to do that again: investing in excellent entrepreneurs and management teams who are looking for a competent partner to further develop their software companies.”
Since its founding in 2019, FLEX Capital has acquired 13 mid-sized software companies, including Nitrado (multiplayer game hosting); ComX, a B2B sales platform; EVEX group, for hearing care professionals and opticians; and OMS group, an output management software group.
One of FLEX Capital’s backers is Felix Haas, best known as co-founder of Amiando and IDnow, and co-organizer and host of Bits & Pretzels, Germany’s largest founder event.
Haas explained the FLEX strategy to me in more detail: “We buy 51%-100% of a company. We will focus on the smaller software startups (e.g. $15M revenue, $3M profit) and then combine them with two or three other competitors. Then you have a much bigger leader (for example, a company with $100 million in revenue and $20 million in profit). Then the companies are big enough for an IPO or to be sold to the more ‘normal’ private equity firms.”
If Haas is right, German startups just got a potential new exit opportunity. And in this downward-leaning macro environment, that can’t be a bad thing, especially if you’re a startup struggling to raise and looking for the exit doors.