Old-School Incubation Startups Sought by Old Family Money

Germany's startup scene is badly hampered by lack of finance. But old industrial family fortunes are increasingly looking to invest in dynamic young companies.

Michael Riemenschneider’s office seems a long way from the hip startup incubators of Berlin. Reimann Investors, of which he is managing director, is based in the wealthy Munich district of Grünwald, home to old families and old money.

The office is discreet and understated, but everything is of the highest quality. Hardly surprising: the Reimann family, whose money Mr. Riemenschneider manages, is one of the richest families in Germany.

The Reimann money originally came from the chemical industry, and one part of the family has holdings in health and hygiene manufacturer Reckitt Benckiser and personal products group Coty, as well as a growing global coffee and tea empire. That branch is estimated to be worth some €33 billion ($41 billion).

In comparison with other countries, Germany's startup scene is painfully under-financed.

But the other branch is not short of cash either: these Reimanns sold their inheritance in the 1990s. Their money, like that of many German dynasties, is managed by a private family investment fund, headed by Mr. Riemenschneider and employing 20 people.

It’s about more than just maintaining the value of the family fortune. Especially younger family members want to see their money invested productively. “It’s about profitable investments, but also about developing good businesses,” says the managing director.

For the Reimanns – and other German business dynasties – this increasingly means investing in startups. Arno Fuchs, head of Munich-based FCF Fox Corporate Finance, says this is partly due to low returns elsewhere, but also to the emergence of a new, “more risk-ready and digitally-savvy” generation.

For startup founders, the interest of family offices is a godsend. In comparison with other countries, Germany’s startup scene is painfully under-financed. So-called “growth financing” deals, from €3 million to around €10 million, have particular difficulty, says Florian Nöll, head of the German Startup Association: “There are hardly any German venture capital funds in that range,” he says.

The size of the Reimann fortune is a closely-guarded secret. But Mr. Riemenschneider says the firm makes between 10 and 12 investments per portfolio, with each investment worth between €5 million and €10 million. Most of the family money is invested in the capital markets, which spreads risk and maintains liquidity.

Family offices can be more flexible than classic venture capital funds, which are tied to specific terms and liable to institutional investors, says Mr. Fuchs. Greater agility and a lack of bureaucracy mean they can be good partners when things go off course and funds are needed quickly. “A founder wants partners who can give a startup the time it needs. And nothing forces us to sell,” says Mr. Riemenschneider.

Family offices can also bring more than money to the table: in a best-case scenario, they can also supply contacts, experience and knowhow. The Strüngmann brothers, founders of the pharmaceutical firm Hexal, bring real expertise to the biotech startups they invest in. Likewise the Fuchs family, majority owners of OHB, a leading space exploration company, puts its money in nimble new aerospace startups.

Mr. Riemenschneider says the strength of Reimann Investors is in helping startups grow into complex organizations. That kind of expertise could help almost any startup, but Reimann does have particular strategic priorities. One is high-end e-commerce: partner firms including Keller Sports and petfood retailer Alphapet.

Fintechs are another focus. Reimann owns the private bank Deutsche Kontor Privatbank, which provides products and financing to tech companies under the brand Deutsche Handelsbank. One of Reimann’s earliest investments was Sofort, a fintech specializing in instant bank transfers. Taken over in 2014 by Swedish company Klarna, the firm is now worth over $2 billion. Reimann retains a small but highly valuable stake.

A good dealflow is crucial for venture capital funds: it means you can say no. Arno Fuchs, CEO, FCF Fox Corporate Finance

Not all investments pay off. Another early venture backed by Reimann ended in complete failure. “Before you have real experience, you can end up learning things the hard way,” says Mr. Riemenschneider.

Many family offices have learned similar lessons. Without good contacts and solid experience, it is difficult to access the best investment offers.  “A good dealflow is crucial: it means you can say no” says Mr. Fuchs. As a result, many families prefer indirect investments, putting their money in large funds or joint ventures. The risk capital fund La Famiglia, for example, has attracted investment from well-known business dynasties including Siemens, Miele and Swarovski.

Reimann Investors has opened its own fund to outsider investment. This is not from a need for more money, says Mr. Riemenschneider – it’s about finding partners with the right experience and networks. It also means the family fund has to be competitive, something which family members approve of: after all, they have business in their blood.

Miriam Schröder is a based in Berlin, where she covers the city's start-up scene for Handelsblatt. To contact the author: [email protected]