European startups always suffer from the perennial startup problem: how to exit? However, in Europe this problem has always been particularly acute. How many European industrial giants or companies are buying or hiring? Not too much and not enough.
This is part of the reason many European startups are moving to the US. The US is one of the few markets where you can achieve decent scale, and also has the potential to either sell to or out of a global technology platform. to 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, which will be its main focus.
Private equity investor FLEX Capital (based in Berlin) says it has now closed its second €300 million fund with the aim of effectively bringing together German-speaking mid-sized technology companies and giving global scale to these merged entities. This is an unusual use of PE funds and puts FLEX in a slightly different category than the average PE outfit.
Investors include investment funds, institutional investors from Europe and the United States, and founders of some successful European companies, such as Christoph Yost, Peter Walczak, Felix Haas, Jan Becker, Andreas Etten and Dr. Robert Woetke.
It seems there is opportunity. In the DACH region (including Germany, Austria and Switzerland) there are 11,000 medium-sized Internet and software companies with sales between 5 and 30 million euros per year.
Christoph Joost, managing partner of FLEX Capital, explained his thinking in a statement: “In order to achieve the necessary strengthening of our software sector in the DACH region through innovation and growth, more capital and know-how must flow into successful software. Tech companies that are already category leaders… The new fund enables us to do it again: invest in outstanding entrepreneurs and management teams looking for the right partner to further develop their software companies.
Since its founding in 2019, FLEX Capital has acquired 13 mid-sized software companies, including Nitrado (a multiplayer game host). ComX is a B2B sales platform. EVEX Group, for hearing care professionals and optometrists; and OMS Group, a software group for output management.
One of FLEX Capital’s backers is Felix Haas, best known for founding Amiando and IDnow, as well as co-organizing and hosting Bits & Pretzels, Germany’s largest founder event.
Haas explained the FLEX strategy to me in full: “We buy 51%-100% of a company. We will focus on smaller software startups (eg €15m revenue, €3m profit), then We will combine with two or three other competitors. Then there will be a much larger leader (for example, a company with €100 million in revenue and €20 million in profit). Then the companies are big enough to either go IPO or be sold to companies. Private equity is more common.”
If Haas is right, German startups have a potential new exit opportunity. And in this bearish macro environment, that can’t be a bad thing, especially if you’re a struggling startup looking for exits.