Munich Startup: Please introduce yourselves.
Michael Hochholzer: G+D Ventures is the corporate venture capital arm of the Giesecke+Devrient Group. We started in 2018 with two experienced venture capital investors. My partner Assaf Shamia is originally from Israel and learned his trade at Carmel Venture, which is now Viola Group. We met in 2015 at Siemens Venture Capital.
I’ve been in the venture capital business since 2001 with different positions at corporate and financial VC firms – as a partner at Infineon Ventures, then at Baytech Venture Capital and, before G+D, as Managing Partner of the industry fund at Siemens Venture Capital (which is now called Next47).
Since of last year May, we’ve been a trio – with Andreas Barthelmes. After his two Master’s programs at TU Munich, he worked in the chief technology office and strategy division at G+D.
Munich Startup: What do you offer startups?
Michael Hochholzer: As investors, we provide funds for further development of our shareholdings and offer many years of expertise in venture capital to that end. But we’re also more than that. We see ourselves as a sparring partner for our portfolio companies and accompany them as they continue to grow. In that context, our connection to the G+D Group gives us access to a unique network as well as technical and market expertise in the field of security technology. Our focus is on the core business areas of G+D, which involve payment, connectivity, identities and safeguarding digital infrastructures. Our objective when establishing collaboration is to give both the startup and G+D Group strategic added value. G+D Ventures basically acts as a business developer in both directions.
That’s the path we’re currently on with five companies – IDnow and Build38 in Munich, Brighter AI and Verimi in Berlin and, our most recent investment, Metaco in Lausanne.
“G+D Ventures is Giesecke+Devrient’s connection to the startup world”
Munich Startup: What role does G+D Ventures play within Giesecke+Devrient?
Michael Hochholzer: A large amount of innovative work no longer happens exclusively in companies. Many innovative technologies, products and business models come from the startup world. Moreover, the solutions that customers are offered are becoming more complex – this makes networks and partnerships necessary.
G+D Ventures is Giesecke+Devrient’s connection to the startup world: We follow the trends in the four core areas of activity that G+D focusses on and develop so-called “landscapes” around the new topics. A landscape is an overview of the startups we find in a market segment – such as crypto custodians – and how they are positioned relative to one another and to established players. We identify the startups that we think are most promising. Then we contact them and get them in touch with company departments so both sides can see if it makes sense to work on a potential partnership.
If young companies are looking for capital and we see a strategic benefit not only for the startup but also for a department at G+D, and we see a good investment case, then we pursue participation in these startups. As a strategic investor, just like every finance VC we naturally also want for our participation to bear fruit and a suitable return relative to the level of risk.
After all, we bring a whole different mindset and approach to the G+D Group in terms of innovation, business models and technology trends. And with that, I think we also make an important contribution to corporate culture while initiating change.
Munich Startup: What are your preferred areas of investment for startups?
Michael Hochholzer: We deliver the greatest benefits as an investor when we participate in startups in the four core areas of activity of G+D and can additionally introduce the “strong arm” of the G+D Group. We call these the “trust technologies.” Some examples of these segments are trusted payments, secure identities, cloud security, IoT security, blockchain/distributed ledger technologies or those in the broad spectrum of artificial intelligence and deep learning.
We look exclusively for highly scalable business models (such as Software-as-a-Service), primarily in the B2B realm with a focus on startups in Europe and Israel. We also selectively look at other regions. The focus is on financing in earlier stages, such as seed, pre-series A or series A. A typical investment is in the range from 250,000 to 2 million euros. But we’ve also invested a great deal more in a round.
Munich Startup: What company would you never invest in?
Michael Hochholzer: As mentioned, we clearly focus on technologies and market segments that are related to the core areas of activity of G+D and that we know well – the trust technologies that I mentioned. We don’t put any money in companies that are active in areas that we have no access to and no expertise in. That includes fields such as biotech, pharmaceuticals or consumer marketing.
Munich Startup: How do potential investments come to your attention?
Michael Hochholzer: We prioritize topics and create the landscapes that I mentioned earlier around these topics. We then systematically contact the startups and create an investment hypothesis.
We’re also obviously in active contact with our network of founders, companies and investors, which is how we meet other interesting new startups or we look at new investment opportunities together.
Finally, some startups also contact the G+D departments directly. Our operational colleagues from the group then get us involved in the discussion, because most young companies are obviously also interested in financing.
Winners and losers in the crisis
Munich Startup: How has the corona crisis impacted your work?
Michael Hochholzer: As we know from conversations, it has affected us like most of our venture capital colleagues: First, we worked together with our portfolio companies to scrutinize the plans and budgets for the 2020 year of crisis and adjust them where necessary, and to provide the longest possible cash coverage.
There are those in our portfolio who come out of the crisis as winners, which means their business either didn’t suffer at all, or the demand for their solutions even increased. And, unfortunately, we also have portfolio companies that are feeling the effects of the significantly slower cycles and buying restraint among corporate customers.
And when it comes to closing deals, it’s very difficult for us when we can’t meet a team in person. We just recently closed a new investment in Switzerland. We had already met the team several times before the Covid lockdown. That was helpful. Now the situation is returning to normal in Germany, at least, and the neighboring countries are getting there, so we can meet startups in person again – provided that appropriate precautions are taken.
Munich Startup: Do startups need to worry about you getting too involved?
Michael Hochholzer: I think that’s an “old fear” of corporate investors. In the early days of venture capital, some of them tried to negotiate some catches into investments – which always ended badly.
The two of us “seniors” in the G+D Ventures team have worked in firms that are exclusively VC. We strictly separate the investment from the cooperation side of things to avoid conflicts of interest. After all, we’re strong believers in the investor syndicate: A good syndicate that is harmonious as possible helps promote portfolio companies with its complementary networks.
“There isn’t one secret to success”
Munich Startup: After initial contact, how long does it take to conclude a contract?
Michael Hochholzer: We’re within the “industry standard”: Our investment committee is very small and can be reached very quickly – so there’s no “excuse” for us to be slower than other VCs.
Due diligence and forming syndicates are what we have found to take the most time. In a series A deal with two or three investors, I would realistically factor in three months. If we start fundraising with our portfolio companies, then we typically count on the process taking six months. We’ve of course also had some positive surprises where fundraising was completed much faster, but there are times when it does take six months.
Munich Startup: To be successful, a startup needs to…
Michael Hochholzer: Well, startups come in many forms and manifestations. There isn’t one secret to success. But we have noticed over time that successful new startups tend to fulfill these criteria in their early stages:
They orient themselves towards markets that are forecasted to show strong future growth driven by a trend, such as a new regulation or a new technology. Their product or service can be clearly and easily explained. In their early stages, they concentrate on finding out who their customer really is and what specific business problem they solve. Usually the answer turns out to be much different than had been anticipated with the initial idea. They also understand that they need to raise enough money to do away with the biggest risks for the beginning of their founding. And it shouldn’t be too much capital, otherwise they’ll grow too quickly, and if there’s too little, they might get stuck halfway there.
Munich Startup: The trend of the year is…
Michael Hochholzer: Our guiding principle is topic-related investment. We spend a substantial portion of our time identifying and researching investment topics to get a deeper understanding of underlying forces and effects. That improves our ability to pick out the winner in every one of the segments.
These topics take time to find the right fit for the market and usually develop over a period of several years. We would rather concentrate on them than on the “flavor of the month” that is hot today, but might be irrelevant tomorrow.
Examples of topics that we’ve looked into recently are the tokenization of assets, decentralized identity and advanced data protection technologies for cloud environments.
“What’s still missing are investors with very large funds”
Munich Startup: What do you think the Munich startup scene does well? What could be done better?
Michael Hochholzer: For a prominent startup scene to develop, Munich needs to have the corresponding “critical mass.” It’s already on the right path with top universities as talent pools, large companies that can serve as first customers or market channels and an angel and investor network that is constantly growing. The number of “repeat entrepreneurs,” who are very dear to us investors and are individuals who have already built one, two or more startups, is increasing. We have impressive and respected events, such as Bits & Pretzels, which managed to get President Obama to come to Munich as a keynote speaker in 2019.
What’s still missing are investors with very large funds – for major growth financing, we still need funds from the UK and the US. And as an investor, you wish there was a more active M&A scene. It’s painful for us as investors to see that top German startups are mostly bought by more risk-loving American giants and that the technology then migrates to the US.
Munich Startup: Many thanks for the interview!