UVC seeks opportunities in Germany’s industrial-tech economy

By Alex Derber, VCJ Correspondent

German industry is sufficiently large and advanced for the country’s annual goods exports to rival those of the U.S.

This provides a lucrative market for industrial technology, and although the U.K. still leads Europe in areas like enterprise software, one firm should help Germany catch up.

Unternehmertum Venture Capital of Munich has wrapped up its second fund for B2B tech startups, hitting a final close at €82 million ($96.5 million) after raising €25 million for its debut in 2011.

The new fund shares its predecessor’s focus on industrial technology, SaaS and mobility, although it has dropped cleantech and medical engineering from its remit.

“We heard that institutional investors prefer a more focused investment approach,” comments Ingo Potthof, a managing partner of UVC.

That theory was proved correct when UVC more than tripled the size of its second fund, landing the public institutions European Investment Fund and Germany’s KfW as its largest LPs.

The rest of its LP base is split fairly evenly among corporates, family offices and individuals, with all investors bar the EIF hailing from Germany.

Up to 80% of the fund will be deployed in Germany, although UVC is active in other German-speaking countries and can invest selectively elsewhere in Europe and in the U.S.

Initial tickets range €500,000 to €3 million at seed and Series A stages, although the firm aims to sign more pre-Series-A deals for the new fund because valuations at the Series A stage are rising.

“I’m quite valuation-sensitive,” Potthof says, adding that in the past five years Series A valuations climbed ahead of the exit multiples that European companies can reliably achieve.

“Many Series A valuations are in a range that I need to sell them at a €200-million-plus exit value to have a certain impact on our fund. And there are not so many exits in that range.”

Potthof says seed and pre-Series-A pricing has risen more gradually, “so we feel it makes sense to look at the earlier stage than before.”

He expects the new fund to make about 20 investments over its life. Contractually, he said, the fund runs five years after final closing, January 2023. It will make new investments until 2020, and the fund lifetime is until 2028 plus an extension, he said.

UVC’s first fund has done two divestitures and has one underway. Trade sales to U.S. corporate buyers are still the preferred exit route, Potthof says, but he adds that Germany provides an ideal nursery for many B2B startups.

“Germany is very strong in industrial technologies and IoT for industry,” he said. “Plus there are many car manufacturers and suppliers where startups can win their first pilot customers.”

One company with the potential to do just that is UVCFund II’s October 2017 investment Blickfeld, which produces LiDAR range-finding technology usable by autonomous vehicles.

Also in the portfolio: Konux, which makes smart sensors to predict maintenance of infrastructure (trains are the first application); and Fos4x, which makes rotor-blade sensors for wind turbines.

Another leg up for UVC’s portfolio companies is the firm’s affiliation to Unternehmertum (“entrepreneurship”), a privately held innovation consultancy, incubator and accelerator.  

UVC has access to Unternehmertum’s deal flow and to its 100 or so industry partners, some of which invested in Fund II.

“We use this for due diligence, but we also make introductions from our portfolio companies into these corporates,” Potthof says.

UVC is independent of Unternehmertum but has shared ties since the firm was launched. The relationship was reinforced by a commitment from Helmut Shoenenberger, Unternehmertum’s CEO, in Fund II.

Shoenenberger is a managing partner of UVC alongside Potthof and Johannes von Borries.

Action Item: Reach Ingo Potthof at potthof@uvcpartners.com.

Alex Derber is a U.K.-based contributor. He can be reached at alex@derbereditorial.com.