"5-HT: close to founding teams, close to innovation".
Tradition, region and innovation: these three aspects are brought together by the Investitions- und Strukturbank Rheinland-Pfalz (ISB). The development institution for economic and housing promotion in the state of Rhineland-Palatinate has been headquartered in the state capital Mainz since its foundation in 1993. In addition to investments by small and medium-sized enterprises, the ISB also promotes start-ups, innovations, expansions, municipal infrastructure, the creation of living space and the modernisation of residential properties.
Mike Walber, Head of Venture Capital, explains in an interview with 5-HT how the ISB combines traditional values with innovative start-ups.
Financing from a single source
ISB was founded with this ambition in mind, because before that, the processing of funding programmes in the state of Rhineland-Palatinate was decentralised. "Thus, a central point of contact was created, which has since contributed to the promotion of the economy in our future-oriented location," says Mike Walber.
Together with the Ministry of Economics, Transport, Agriculture and Viniculture of Rhineland-Palatinate and in cooperation with the Rhineland-Palatinate Chambers of Industry and Commerce, the Chambers of Crafts as well as the regional economic development agencies and credit institutions, the ISB positions itself as a dynamic service provider for the Rhineland-Palatinate economy.
"Basically, we are looking for young, innovative, technology-oriented companies.
In doing so, we look for promising technology-oriented concepts with growth prospects and corresponding value creation potential in the company," says Mike. "Currently we have eleven active VC companies, some of which can only invest in different regions of Rhineland-Palatinate. We have launched these regional funds with local partners, usually regional credit institutions. With the Venture Capital Fonds Rhein-Neckar, which was launched in 2019, it is even possible to invest in the neighbouring region outside Rhineland-Palatinate," he explains further.
"The ISB's two largest funds, the Rhineland-Palatinate I and II Innovation Funds, are financed in equal parts by state and EU ERDF funds respectively," says Mike. "The essential requirement here is that innovative technology-oriented projects are implemented in the young companies." He also points out that detailed information around the respective innovation funds as well as their individual requirements can be found on the ISB website.
"We already invest in the seed phase",
Mike Walber explains. "But there are certain requirements attached to this. First of all, in order for the Rhineland-Palatinate Innovation Fund to participate, the start-ups must be in the form of a corporation, i.e. a GmbH or AG, with its registered office in Rhineland-Palatinate, in accordance with the currently valid EU definition for small enterprises (SMEs). In addition, the company must not be older than five years; the first entry in the commercial register applies here," he explains.
Solutions should already work in prototype status so that there are initial prospects of success.
He continues: "Last but not least, we expect the applying companies to have an innovative business model with a growth perspective. A working prototype is also expected."
So how exactly are the start-ups from your portfolio financed?
"The ISB basically participates in two ways: firstly, via an open investment, which takes place through the acquisition of shares in the company, and secondly, as a dormant investment," says Mike. "Whereas we often opt for a combination of open and typical silent financing, open participation is mandatory for us," he adds.
We are a long-term investor. Regular terms of ten years are typical for our silent participations.
The participation is provided as part of a specific project financing, for which the maximum limit in the first financing round is up to 500,000 euros. In doing so, the ISB is guided on the one hand by the degree of innovation of the company and on the other hand by the financing contributions of the shareholders as well as other investors.
"Of course, the pharmaceutical and chemical industry is extremely relevant for us in this context.
Even though investments in this sector are risky in development, on the other hand they have a high value driver character. Nevertheless, we usually cannot finance such companies on our own because the capital requirements, especially in the pharmaceutical sector, are enormous. For this reason, we also pay attention to the co-investors involved in order to know that we have reliable partners at our side," says Mike.
How can 5-HT's chemical and pharmaceutical start-ups apply to you? How does the contacting process work?
"We have the advantage that we can act relatively flexibly in our application process. We don't have the familiar hurdles that come with some other public programmes. For example, we can join projects that are already running. However, we are not allowed to retroactively fund or cover costs that have already been incurred."
In addition to this fund network, they also get many enquiries through their website. Twelve employees are listed there, ten of whom are investment managers. Start-ups can contact them directly. "In addition, we are enormously happy to attend 5-HT's pitch events," he emphasises.
"Depending on how far the start-up is in its development, we would like to see a pitch deck after the initial contact and, if already available, their business plan as well. This helps us to see what it's all about, how the team is set up, how the project is structured and what the next timelines look like. In addition, we already roughly determine the capital requirements."
After one to two weeks, we give the start-up positive or negative feedback.
"If the feedback is positive, there is a detailed pitch as well as an interview in which the team can introduce themselves to us at their leisure. At the end of this process, we decide in principle for or against an investment and, along with it, what the scale will be and how exactly the financing round could be structured. This is then followed by the usual due diligence process with a corresponding board decision by the respective funds."
"5-HT is a great help to us here in finding suitable start-ups",
says Mike Walber. "Because you are an attractive, first port of call especially for founding teams that come from the university environment, for example. It is interesting for us to see which start-ups you identify as promising and to communicate to us which start-ups could potentially receive investment from the ISB," he describes.
"Ultimately, we look forward to continuing to participate in your events in the future, to present ISB and to show what opportunities we offer.
Provided this is possible again, of course, especially the face-to-face events," he adds with a laugh.
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