Investor behavior is changing — sustainability funds still on the rise
In recent years, Hesse has seen increasing momentum in the startup ecosystem. In addition to the already established start-up and scale-up hotspots in Germany, which now include not only Berlin and Bavaria, the state of Hesse also has an active start-up ecosystem: 6.5 percent of all German start-ups have their headquarters in Hesse. The Rhine-Main region in particular plays a central role in the development of the Hessian start-up ecosystem with its strong educational landscape and especially its nearly 25,000 computer science students, thanks to whom the start-up scene has access to a highly qualified pool of specialists.
In addition to the growing number of private investors, the state of Hesse itself has also been available as a financing partner for many years with the innovation funds managed by BMH Beteiligungs-Managementgesellschaft Hessen. In recent years, Hessen has brought more and more cutting-edge technologies to the forefront and offers numerous attractive prospects for interested venture capital investors in the seed and early-stage sectors as well as in the growth segment. BMH can drive company development with its network and equity, in the form of various funds it manages, from the very early seed phase, through the start-up to the growth phase.
Currently, the willingness to invest in new commitments is somewhat subdued. Investors hold back the funds available to them in order to use them to support their existing portfolio, if necessary, and to avoid defaults. There is also currently a certain reluctance on the part of LPs, the major institutional financiers for the investment funds. This is due, among other things, to the defined allocation of their available funds to the various asset classes. Valuations of other asset classes, such as equities, real estate and crypto, have suffered in some cases in recent months. To ensure that the private equity/venture capital area is not now overweighted, fewer funds are being allocated to this capital investment.
In addition, the investment focus has changed for many players in the investment industry, especially venture capital funds. The reason for this is the numerous challenges that have arisen as a result of the Ukraine war. The sharp rise in energy prices is providing new incentives for innovations in the field of energy generation and energy efficiency. Start-ups in the greentech/climatech sectors are once again much more interesting for investment than was the case a few months ago. The majority of investors expect these areas to play a dominant role in the future. Among other things, the escalation of the Ukraine war once again underscored the relevance of cybersecurity, as Russia also carried out high-consequence cyberattacks against Western Europe.
With the aforementioned fund, we will invest in promising, high-growth and innovative start-ups or technology companies with a sustainable business model. For us, it is particularly important that investments and cash investments focus increasingly on social aspects and sustainability requirements in addition to returns. The EU plans to extend the obligation to publish a corporate social responsibility report to more companies in the future. Market participants will therefore have to take new regulatory requirements into account in the future (e.g. EU taxonomy, disclosure agreement).
Irrespective of relevant regulations, the consideration of ESG criteria and the avoidance of ESG risks is a central part of the investment process and portfolio management of the new fund. Our main focus is on the 17 Sustainable Development Goals published by the United Nations, the Social Development Goals. With 169 sub-goals, the 17 goals cover a wide range of environmental and social criteria for good corporate governance.
About Dr. Steffen Huth
Dr. Steffen Huth has been Managing Director of BMH Beteiligungs-Managementgesellschaft Hessen mbH since 2021. Before joining BMH Hessen, he worked for the investment company abacus alpha GmbH as an investment manager. Dr. Huth holds a degree in business administration, completed additional studies at Dongbei University of Finance & Economics, PR China, and completed his doctorate at the Institute for SME Research (ifm) at the University of Mannheim.
As a wholly owned subsidiary of Landesbank Hessen-Thüringen Girozentrale (Helaba), BMH is actively involved in the economic development activities of the State of Hesse. The medium-sized investment and venture capital company bundles public investment interests and financing instruments for early-stage, growth and medium-sized companies in Hesse. BMH supports small and medium-sized enterprises (SMEs) and start-ups in the financing of innovation, research and growth projects, in the acquisition and sale of companies and in the implementation of succession plans.