When we laun­ched Alpha­ville Capi­tal in 2016, there were hardly any direct invest­ment offers for family offices and private inves­tors. These were also often charac­te­ri­zed by non-trans­pa­rent and, in our view, exces­sive fee struc­tures for funders. Accor­din­gly, many family offices in our network were dissa­tis­fied with the quality and struc­ture of the offe­ring as well as with invest­ment control­ling and report­ing. We have ther­e­fore analy­zed the current concepts in detail and conside­red how we can design an inno­va­tive direct invest­ment model in such a way that inte­rests are actually aligned between entre­pre­neurs selling shares, us as initia­tors and private co-inves­tors. The decisive factor here is that all parties have equal “skin in the game” and do not profit in every case, but only if an invest­ment firstly actually mate­ria­li­zes and secondly is successfully deve­lo­ped and sold, for example.

To ensure this, we always look for and examine exci­ting invest­ment oppor­tu­ni­ties first at our own risk and make advance payments. Without pres­sure to invest funds raised in advance as quickly as possi­ble, we select our invest­ments very carefully and work toge­ther with the selling entre­pre­neurs to deve­lop a resi­li­ent stra­te­gic plan for sustainable value enhance­ment. A suita­ble struc­ture is also crea­ted which, for exam­ple, can provide for a capi­tal increase compo­nent in addi­tion to a share purchase compo­nent — or, with an appro­priate rights cata­log, can also include mino­ri­ties, for exam­ple. Toge­ther with the former share­hol­ders of the target company, a contract for the entry is nego­tia­ted on this basis. With a view to this custo­mi­zed, deal-adequate over­all package, we then make the invest­ment decis­ion for oursel­ves perso­nally. With the invest­ment offer ready to sign and all details in hand, we then approach our co-inves­tors and invite them to put the speci­fic oppor­tu­nity, the team, the stra­te­gic plan, the value levers, the struc­tu­ring, the asset protec­tion rights, etc. through their paces and, in the event of a posi­tive vote, to invest toge­ther with us.

We initi­ally bear the risks for all steps up to signing, i.e. deal sourcing, due dili­gence, struc­tu­ring, contract nego­tia­tion and inves­tor search unila­te­rally oursel­ves. Only in the event of a successful closing will these be distri­bu­ted among all co-inves­tors. This is much more favorable for inves­tors than if all acqui­si­tion and audi­ting costs — also for all broken or lost deals — are passed on to the fund and thus indi­rectly to the inves­tors. The manage­ment fee is not char­ged ex ante for the entire fund volume, irre­spec­tive of the invest­ment progress or the call for funds, but only for a deal that has actually taken place. The bottom line is that we can offer hand-picked invest­ments, aligned inte­rests and high flexi­bi­lity at signi­fi­cantly lower cost.

In fact, our direct invest­ments are deli­bera­tely struc­tu­red differ­ently from the clas­sic “blind pool” model of large PE funds. These raise funds in advance prima­rily from insti­tu­tio­nal inves­tors on the basis of track records and trust in the invest­ment team, without being able to say beyond the respec­tive fund stra­tegy when and for what speci­fic funds are used. The indi­vi­dual inves­tor usually has no say in this; he cannot reject an indi­vi­dual invest­ment or find it too expen­sive, too risky, etc. This is diffe­rent with us: Each inves­tor can decide on an indi­vi­dual basis whether and how much to invest.

Which forms are suita­ble for this depends enti­rely on the respec­tive invest­ment option and the desi­red objec­tive: If a divi­dend model is to be pursued and the invest­ment is to be stra­te­gi­cally deve­lo­ped and held in the long term, an opera­ting holding company or a stock corpo­ra­tion (AG) may be conside­red. If a resale or total exit is on the cards in the medium term, the estab­lish­ment of a so-called Special Alter­na­tive Invest­ment Fund (AIF) is an option. For this purpose, we have a capi­tal manage­ment company (KVG) regis­tered with BaFin, which is autho­ri­zed to launch deal-speci­fic funds in accordance with certain regu­la­tory rules. The inves­tors provide the fund vehicle with the appro­priate funds exactly for the previously desi­gna­ted invest­ment purpose as well as the chosen struc­ture. In the process, all inves­tors incl. oursel­ves to the same, uniform set of contracts, which also puts the entire group of inves­tors on an equal econo­mic footing. Every euro inves­ted, regard­less of the inves­tor, earns the same inte­rest rate rela­tive to the matu­rity. The funds then flow into the invest­ment via an acqui­rer vehicle. Also, for the speci­fic invest­ment, it is known in advance how the funds are expec­ted to be drawn down over time.

In the case of a tradi­tio­nal invest­ment, for exam­ple, the struc­ture of the capi­tal calls may be quite diffe­rent from that when, for exam­ple, an indus­try conso­li­da­tion concept with a buy and build charac­ter is pursued, i.e. multi­ple acqui­si­ti­ons over time. In this way, inves­tors can budget the magni­tude of the funds requi­red on an annual basis and do not have to keep full liqui­dity available for call-up at short notice over the entire term. This signi­fi­cantly redu­ces the oppor­tu­nity costs of the money not (yet) inves­ted, which are often not even included in the over­all conside­ra­tion of fund returns. In our model, inves­tors also have a much broa­der say and are “closer to the action” than in tradi­tio­nal funds. Depen­ding on resour­ces, time and desire, indi­vi­dual inves­tors can, for exam­ple, contri­bute their network, discuss ideas or ques­ti­ons directly with us and, if desi­red, take on a more formal role on the advi­sory board of the acqui­rer vehicle. Or, alter­na­tively, dele­gate the control­ling of the invest­ment to a large extent to us initia­tors and “only” obtain infor­ma­tion at regu­lar inter­vals via the reports and in share­hol­ders’ meetings. Here we expe­ri­ence the whole range, depen­ding on how much effort an inves­tor can and wants to put into accom­pany­ing his investment.

We are funda­men­tally sector-agno­stic and select our invest­ments based on whether the theme, team and constel­la­tion ensure a solid, sustainable increase in value with suffi­ci­ent “down­side protec­tion”. Our invest­ments are based on funda­men­tal trends such as health, the envi­ron­ment, digi­ta­liza­tion, secu­rity and demo­gra­phics. In addi­tion to attrac­tive returns, we also attach great importance to respon­si­bi­lity and sustaina­bi­lity. Proprie­tary invest­ments, a deep under­stan­ding of markets and busi­ness models, our focus on profi­ta­ble growing busi­nesses with struc­tu­ral tail­winds and a digi­tal edge, and flexi­bi­lity in execu­tion create the basis for above-average value creation.

We do not pursue topics for which we do not have exten­sive expe­ri­ence and very good judgment. Due to our struc­ture, we have no pres­sure to invest funds quickly, to go along with exces­sive prices, or to make struc­tu­rally or contrac­tually unfa­vorable compro­mi­ses. The inde­pen­dence from any pre-promi­ses allows a truly free, objec­tive and risk-mini­mi­zing selec­tion. It is crucial that our co-inves­tors see direct invest­ments as part of their tradi­tio­nal asset manage­ment. We cannot afford defaults in a deal-by-deal struc­ture, nor can we absorb non-perfor­mers through the port­fo­lio as in a broad fund.

So far, we have ther­e­fore only ente­red into a handful of invest­ments of which we were 100% convin­ced and which have since also deve­lo­ped very well in the areas of bicy­cles, health or digi­tal health, among others. Further­more, it is important for our inves­tors to invest in the right topics that are desi­ra­ble and worthy of support from a social point of view. Many have earned their money them­sel­ves in an entre­pre­neu­rial way and want to give back some of their success, create promi­sing jobs, promote growth and change things for the better. To this end, we are looking for a homo­ge­neous group of inves­tors who share this basic under­stan­ding — prima­rily around like-minded family offices, private indi­vi­du­als and private foun­da­ti­ons from the DACH region. We always meet new inves­tors perso­nally and estab­lish a trus­ting rela­ti­onship in which we know and appre­ciate each other. In this way, we can cons­truc­tively exch­ange ideas — from entre­pre­neur to entre­pre­neur — even about poten­ti­ally criti­cal deve­lo­p­ments and excep­tio­nal situa­tions such as Corona or the supply chain crisis, seize unplan­nable oppor­tu­ni­ties and imple­ment viable growth perspec­ti­ves beyond a focus on quar­terly figu­res. Our contrac­tual struc­tures — in coor­di­na­tion with the co-inves­tors — allow a high degree of flexi­bi­lity and ensure that we do not have to sell at an inop­por­tune time — for exam­ple, because a fund term is coming to an end or an invest­ment is the last one whose reten­tion stands in the way of the distri­bu­tion of the fund return. In our model, decis­i­ons on indi­vi­dual invest­ments are made exclu­si­vely from the perspec­tive of maxi­mi­zing the value of the respec­tive company, and returns gene­ra­ted flow back to inves­tors imme­dia­tely — and not at the end of the fund term.

About Dr. Tobias Sitte

Since 2016 Co-Foun­der & Mana­ging Part­ner of Alpha­ville Capi­tal GmbH & Co KG.  From 2003–2016 at Oliver Wyman GmbH, Part­ner (Auto­mo­tive & Manu­fac­tu­ring, Digi­tal Indus­try, Opera­ti­ons & Supply Chain divi­si­ons). 2000–2003 Chair of Stra­te­gic Corpo­rate Manage­ment, LMU Munich (Prof. Dr. Dres. h.c. Werner Kirsch), wiss. Staff: PhD/ M.B.R.; Studies in Busi­ness Admi­nis­tra­tion & Poli­ti­cal Science, Alber­tus Magnus Univer­sity Regens­burg, ESC Rouen/ France, LMU Munich.

[email protected]