Claudine Emeott (Salesforce Ventures): We invest with the same core strategy as other Salesforce Ventures funds, meaning that we’re looking for enterprise software companies that can integrate their technologies with our platform
01 Mar, 2021
Hanns-Peter Wiese is a former General Partner at Global Life Science Ventures and Owner of VIRETUM CONSULT, a M&A, corporate finance- and investment advisory firm. He has a rare experience in both private equity and in venture capital, which he gained investing in Europe and the United States. His exposure to early stage investing reaches back to 1996 when he advised HypoVereinsbank as co-sponsor of GLSV, a venture capital fund focusing on the life sciences, appointing him Managing Director upon its inception. He entered into private equity in the late 80s, having been an Investment Controller and Manager with 3i Investors in Industry plc. in their Frankfurt office as well as Director and acting member of the executive team in the restructuring of Euro Synergies in Paris, a private equity fund then focusing on pan-European transactions, cross-border investments and Management Buy-outs.
By coincidence, I started in the late 80s with 3i, then the leading British private equity firm, and I’ve learned the private equity business from scratch there. I did a number of growth financing deals with typical German mid-size companies as well as a number of buy-outs and buy-ins. Then I was approached by the Bayerische Vereinsbank (a leading German commercial bank now part of Unicredit), one of my banks that had provided leveraged financings in form of senior bank loans whether I would be interested in helping them out and restructuring Euro Synergies SA, a private equity fund in Paris, they had co-founded with a group of other European banks. I thought that was a very challenging idea; I moved to Paris from Frankfurt, turned around the fund together with my colleagues, working as the only foreigner in a downsized and otherwise 100% French team, which was quite an interesting experience, but all of us enjoyed that. We are still in good contact. We achieved both the turnaround in the old portfolio and investing in new companies, specialising on European size businesses, cross-border financings, and Buy-outs. All the new investments which we did went public later. After the successful turnaround, I was then asked by HypoVereinsbank (resulting from a merger between Bayerische Vereinsbank and Hypobank) , if this time I would be interested in setting up a VC fund focusing on the Life Sciences. This was in 1996 and in the very early days of venture capital and Life Sciences in Europe and in Germany, in particular. I jumped into the cold water again, moving to Munich and becoming the first managing director of Global Life Science Ventures after doing all the fund structuring and setup as a Director of HypoVereinsbank’s corporate finance department together with external legal and tax advisors. We decided to focus on investing into the Life Sciences on a global scale, i.e. Western Europe, the US, and Israel. We started with €66M which we had raised from various investors. HypoVereinsbank was the second cornerstone investor, and the first one was the Engelhorn family. The idea we owed to one of their members, Stefan who had studied medicine in Boston and had realized that there was a market niche, and an opportunity for investing in the new life science industry. HypoVereinsbank liked the idea and then we were lucky in attracting additional investors, for example, ING from the Netherlands and others. Six years later we were successful in raising another fund, that time €143M. Through both funds, in combination, we invested roughly €200M in 36 companies across Europe, in the US, and in one investment in Israel. We had to write off about half of those companies, mostly in full, some in part, but the remainder we successfully sold either to Big Pharma or brought to the stock exchange. So, I do have experience from both investing in private equity and venture capital, dealing with very early-stage companies, hi-tech businesses, start-up atmosphere, and founders, but also with the established businesses run by entrepreneurs who may need my advice when it comes to financing of their growth, organising their succession, buying and selling of companies (in other words corporate finance and M&A advice).
From a ‘normal’ private investor’s and non-scientific point of view, the life sciences are an exotic industry by itself. It has found more interest and attention since the COVID pandemic, which told many people for the first time that life sciences and biotechnology are not only exotic but an industry sometimes our lives depend on. So, in a way, I’ve made 36 exotic investments! If you’re making investments in real estate, that’s bricks-and-mortar – you can touch the building, you can live in it, you can sell it, you can see it, you can smell it. You can easily assess its value. That’s not the same with a start-up, where you’ve got a product that isn’t existing yet, you’ve got a concept that has been tested in a lab or on a mouse, you’ve got a patent, but you still need to demonstrate that you cannot only save the life of a mouse but that it works in human and without side effects. It will take a lot of money and several years to demonstrate that your product candidate makes it through the clinical trials, gets approval by the authorities, and then needs to become successful on the market. That’s a very different way of investing, both from the due diligence side and then, after the investment, from the monitoring side where you need to be looking after the company, making sure that it continues to grow and receives the funding in several series required to move from one milestone to the other. This is very different from investing in private equity, where you are buying or investing in a proven business where you can perform thorough diligence of products, markets, financials, management, etc., leverage your investment and then sell it in several years.
As a former Venture Capitalist offering scarce resources in form of equity capital, I enjoyed receiving many proposals, either directly, or from placement agents, investment banks, co-investors etc. On top, I was sourcing deals on my own by attending conferences etc. This has changed with my new hat on as an adviser. Of course, I do enjoy my international network of investors and people who can either give me a reference or recommend me to some interesting deal or aspiring founders but I need to be much more proactive, in a way like Private Equity funds who cannot rely on cold proposals and referrals from co-investors and advisers but need to actively generate their deal flow.
I’ve been lucky to be able to support start-ups and established companies as an active investor and in many cases as board member. As such I’ve been able to advising them over years and helping them in refining their business plans, in updating them annually, by taking into account the latest developments and in discussing many other topics important for any company development. This gives me different pairs of glasses to put on. As an investor, I know what investors want to see and what they don’t want to see. As someone who sold companies before, I can put myself into the shoes of the vendor of a company – and I can do that both for start-ups and for established companies. And as a founder and co-founder of several companies I can also look through those glasses. That’s what makes me unique in a sense.
There is no size that fits all. Usually, I’m not expecting Las Vegas, but a sound business plan which is presented by a credible team or a credible entrepreneur. When you are a start-up, it’s difficult to show credibility: you will not have a product on the market, you will have no sales, no track record, etc. but most likely a stable negative cashflow. So you have to demonstrate your credibility otherwise than an established entrepreneur can with stable positive cashflows. You’re just starting your business, so you need to try and demonstrate your USPs and attractive upside potential. If that needs a show, fine but have boring facts ready.
Usually, it would take between 3 – 6 months, but it could also take more than a year or warming up over several years with regular exchange of update information. The DD process itself depended not only on myself, but on all parties and their experts, counsels and advisors, performing the various types of due diligence such as scientific, intellectual property, commercial, environmental, compliance, financial and legal. The types vary from company to company, e.g. if an established business you can look at the PnLs and balance sheets, which will not be there for a start-up. For these, you need to focus on other important topics, like science, technology, patents, and the like. Sometimes it also takes longer because you are entering the summer season for example, when people may be on holidays. You have to take care of that, keep all the details in mind, and organise the process in such a way that your target or portfolio company is not running out of cash before you can sign the deal – or improving your negotiating position by testing this.
The smallest cash investment which I did as an investor was €1M. The biggest check I wrote for purchasing of a company was €70M, excl. refinancing of bank debt.
That’s a very general question. It depends on the industry sector you are actively working in, on the peer groupyou’re competing with, on the stage of business development of your specific company, can you sell the hockey stick effect or do you have revenues and profits to sell with multiples and then it depends on the macroeconomic environment as well.
Again, that is difficult to say. it depends on the stage of the business, on the industry, on the chances and risks associated with it. Is there a unicorn potential? When you enter as a very first investor in the company with an idea, it’s very difficult to come up with a valuation which will be acceptable to everybody: for one it will be too low, for another will be too high. When the entry barrier for a copycat is high and you’re investing with the number one, especially when the number one takes it all or almost all, then this company may rightfully demand a higher price. Would you pay the same price for a a target that reinvents the wheel, or might that not receive any funding at all? So, what is the right value? In my view, you need to look at every specific case very carefully in order to come up with a fair valuation. The most straight forward is to try and find out about pricings of alternative investments in a similar space, if published. Often these can be found in databanks or through own estimate calculations – sometimes calculating backwards. If you want to close a deal, you need to come up with a valuation that is attractive for the investor and sounds fair to the founder. Keep in mind that, normally you want the founder to be motivated to stay with the company and work hard to achieve its goals. I.e., you need to make sure that his/her stake is attractive and allows for dilution by future staff members who also may need to be incentivised So, my answer is, it depends. Of course it also depends on the amount to be raised and the number of rounds required for the goal to be achieved until the exit.
They should be, first of all, a team. The one-man show is not a team, so the minimum size should be 2 to 3 people or more. The team should be balanced and cover the relevant functions, required in the early stage, possibly beyond. You don’t need to have Elon Musk onboard in the beginning, but you need to have a team that can manage the company adequately for reaching its milestones. At some point, founder/s may realize that they are not the right guys to manage a grown-up full organization, let alone potentially a big public company. Sometimes you know this from the outset, sometimes people grow with their responsibility: In any case, my experience tells me that it is better to address these topics early and discuss options openly, so as to avoid bitter disappointments and costly fights later. Possibly, a solution can be found that suits everybody, e.g. allowing a founder to take on board a new role or advisory function thereby paving the way for a manager experienced in running bigger companies. As an investor you need to make sure that the company is optimally managed during the different phases of its development. Mind though, not only the investor needs to make sure of this, but equally any founder planning to create and maintain value.
Yes, I have supported a one person start-up. About 3 years ago I got acquainted with one man at a Venture Day organized by Fraunhofer (that is Germany’s biggest Applied Research Institute). I liked the guy, I liked his idea, and I liked the patented technology, and its market prospects and I liked the spin-off arrangement he had with Fraunhofer, so I joined him as shadow CFO. The two of us, basically, finalized the business plan, me looking after the financials and organizing the fundraising. After 9 months, weclosed a deal with an industrial group that invested several million euros into the company. At that time, I sold most of my shares, but I’m still a proud owner of a small stake. In the meantime, another industry group invested, and we expect to open the doors of our very first factory in Q2 this year. This has been the only exception so far.
I’m not investing in me-toos, I’m investing in or teaming up with experienced teams with proprietary technology projects that have shown proof-of-concept and international or worldwide market potential. I would never invest in a local shop with no entry hurdles that distributes products to the neighbourhood – there is no capital gain to be made there. I only invest in businesses if they have the potential to generate a meaningful return which given the likelihood of dilution by several financing rounds before exit requires an exit valuation potential of €100M+.
I haven’t thought of that. If I don’t invest, there is a specific reason and that either I don’t trust the team or I don’t trust the business plan or I see flaws in the technology or the market, or I don’t believe that it has a chance of becoming successful – those are very realistic reasons.
It depends on the industry you are in. If you are in digital learning or take the Life Sciences, you can be happy to receive a lot of attention and funding now, with the increased awareness by a wider . If you are an investor in Travel and Leisure, you will most likely be strongly hit by the pandemic and you can only hope that you will survive, come out of the pandemic and will still be able to walk. There are winners and losers of the pandemic.
Probably the best known these days will be Google, Apple, Facebook and Amazon. Most of us use them every day. But don’t forget others like Microsoft or unicorns in other industries like Amgen or Biogen, pioneers in biotechnology. In the meantime, the number of unicorns with valuations above $1 billion has exceeded 500.
You need to be quick. You need to understand different sectors and the chances and risks that go with it. You need to be talkative and to be able to get into contact with people of various backgrounds and be able to close a deal with them. You need to be tough at times when it is needed in order to protect your investment. You need to have business and management experience and the right network to help the company you invested in.
The games which involve more than just two parties, probably, may be the closest, because chess, checkers, backgammon and go are more digital in a sense, they are more black or white with only two people playing the game. But if you invest in a company, there are many different players, and you don’t know when or how they may act as you cannot look into their eyes like in poker. Venture capital investing, in the end, is no game but it is much more exciting and rewarding than any of them.