The question of "how to exit" has plagued businesses across the globe. The issue, though, has always been more pressing in Europe. How often do Europe's largest corporations and industries merge or make massive acquisitions? Certainly not enough times.
It contributes to the departure of European startups to the United States. The United States is one of the few areas where you can grow to a decent size and sell to a global tech platform or go public.
A new, somewhat distinct German private equity fund has launched intending to resolve this issue domestically and primarily in Germany.
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Who Is Flex Capital?
Berlin-based private equity firm FLEX Capital has reportedly launched a €300 million second fund to facilitate the consolidation of medium-sized German-speaking technology businesses. This novel use of private equity capital differentiates FLEX from the norm for PE firms.
Christoph Jost, Peter Waleczek, Felix Haas, Jan Becker, Andreas Etten, and Dr Robert Wuttke are just a few of the prominent European businessmen who have invested in the company together with fund of funds and institutional investors from Europe and the United States.
There is a window of opportunity available. One estimate puts the number of internet and software firms in the DACH area (Germany, Austria, and Switzerland) at 11,000. These businesses typically have between €5 million and €30 million annual revenues.
According to a statement released by FLEX Capital's managing partner Christoph Jost, "more capital and know-how must flow into a successful software and tech companies that are already category leaders to accomplish the necessary strengthening of our software sector in the DACH region through innovation and growth." As a result of the new fund, we will be able to continue making investments in "exceptional entrepreneurs and management teams seeking a competent partner for the expansion of their software businesses."
Nitrado (multiplayer game hosting), ComX (business-to-business sales enablement platform), the EVEX group (software for ophthalmologists and audiologists), and the OMS group (software for output management) are just a few of the 13 medium-sized software companies that FLEX Capital has acquired since its founding in 2019.
Flex Capital’s Vision
Felix Haas, who co-founded Amiando and IDnow and hosted Bits & Pretzels, Germany's biggest entrepreneurs' event, is one of the investors in FLEX Capital.
Haas gave me a more in-depth breakdown of the FLEX strategy: "We purchase 51%-100% of a firm. We will concentrate on the less successful software firms (those with revenues of €15 million and profits of €3 million), and then we will pool them with two or three other companies. "When these companies reach a particular size, they are prepared for an IPO or to be sold to "normal" private equity firms."
A far larger market leader (say, one with €100 million in sales and €20 million in profit) will emerge at that point.
If Haas is correct, this may be a great new exit option for German entrepreneurs. And considering the current macro environment's tendency to the negative, that's sometimes good, particularly if you're a young company having trouble raising capital and searching for the exits.
Featured image: FlexCapital
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