The latest on the private equity market - Interview with Florian Schindler
Since 2016, Colin&Cie has been working in the field of "alternative investments" with Florian Schindler, founder and managing partner of global technology funds. Among the investors involved is his brother Philipp, a board member at Google in the US. In an interview with Colin&Cie, the fund manager gives a look behind the scenes and reports on current and future private equity trends.
COLIN&CIE: In addition to your brother Philipp, a board member at Google, the supporters of your funds include other leading heads from globally active companies. How did this constellation come about?
FLORIAN SCHINDLER: We started in 2012 as a kind of tech family office, initially to invest our own money in technology companies in a more structured way. My brother was Google's Head of Europe in London at the time and moved to Menlo Park (California) to become Global Chief Business Officer. Since then, he has been responsible for all of Google's big sales and partner deals. Philipp has to deal with the major trends of technological progress on a daily basis and help shape these developments from a rather exposed position of one of the leading big tech players. Those who do this naturally have the ambition - and fortunately also a lot of pleasure in doing so - to be actively involved in their own technology investments.
Before I started my first fund and got my brother involved, I was CEO of BBDO in Berlin for many years and Managing Director for Business Development at the listed holding company Omnicom. Most recently, I developed a venture division for Omnicom, so I had already been active in the portfolio business for several years before we founded the company.
We set up the first structure directly as a fund, to which we initially only invited "Family & Friends" to invest with us. With increasing success and a clearer investment philosophy, we then gradually opened to other outstanding personalities and family offices whom we value and who also complement our network in a valuable way. What unites us all is the enthusiasm for the positive social and economic power that technological progress can unleash, and the creative will of outstanding founders who can translate this power into globally relevant business models and product solutions. We are currently investing in the third generation of funds.
COLIN&CIE: Through the cooperation with Colin&Cie, you enable our clients to indirectly invest in companies from innovative growth sectors. How has the corresponding fund developed in recent years?
FLORIAN SCHINDLER: The first two funds have a high, double-digit IRR (internal rate of return) over their respective terms on the books, although one must be very careful with book values in our industry, even though we ourselves calculate and report them very conservatively. It is much more important for us as fund managers that we see substantial growth developments in the most important investment companies and that our leadership teams and co-shareholders are as aware as we are of efficient structures and profitable management. If we were not convinced of the long-term success of our own investment activities, we would not set up any further funds. However, we have just done so with our third fund, through which we are again investing our own money together with our best network contacts.
COLIN&CIE: What were the success factors for this positive development?
FLORIAN SCHINDLER: What distinguishes our work is that we work on a research basis to build a concentrated portfolio of emerging technology companies that fundamentally change the status quo and thereby open great economic potential.
In this context, we see our success as a simple function of three probabilities that we need to keep as high as possible: The probability that we select the right categories; the probability that we find the companies with the attractive risk-return potential in these categories; and finally, the probability that we have the relevance to invest in these companies.
Our network and individuals like my brother Philipp are basically a fantastic sounding board to select the right categories. Furthermore, it is our ambition to always talk to the world's leading experts in each category to develop a sound and nuanced thesis on the market.
Based on these theses, we then identify the companies that we are convinced offer the most attractive investment profiles. We do this independently of financing rounds to have the opportunity to spend time with the companies we find interesting and to conduct thorough due diligence over a longer period of time. This allows us to act quickly and authoritatively when it comes to a financing round.
For the opportunities we identify as interesting, capital is usually not the limiting factor. The best companies carefully select their investor base to cover different strategic dimensions. Our core product for companies is a combination of the commitment of a small investment team consisting only of decision-makers, a clear stance on content and a relevant network consisting of incredibly well-connected individuals like Philipp and relevant world-class category experts through whom we tap into the category.
COLIN&CIE: What impact does the interest rate turnaround have on the private equity market and how do you assess the current situation?
FLORIAN SCHINDLER: The interest rate turnaround certainly has far-reaching consequences on the private equity market. During the low-interest years, many models were financed that are no longer sustainable in the current market and probably never were. We welcome this change and the accompanying return to sound business models and the urge of companies to get "fit" again, especially in the more early-stage venture capital segment. The focus on faster profitability instead of pure unconditional growth, the associated greater independence from capital markets as well as the quality of one's own shareholder base are now moving more and more into the focus of younger companies. These are classic virtues of entrepreneurship that we have always paid attention to, but which are now becoming "Spirit of the times" again and therefore more important to us.
At the same time, more and more talent and thus capital is being attracted to business models that have a sustainable fundamental impact on society and the economy. Our focus and the first investments of the new fund are therefore currently on topics such as data-driven mineral exploration, orbital transportation, and educational gaming. This is where we see the most lucrative risk-return profiles in the coming years.
COLIN&CIE: What does the future hold? Will there be a greater shift in investment towards "climate technologies" and "artificial intelligence"?
FLORIAN SCHINDLER: Basically, both topics will have a currently unimaginable impact on the future. Every investor is recommended to cover both topics in the portfolio in order not to miss out on the associated return potential.
In the case of "Artificial Intelligence" (AI), this means that in the future you must look at every investment through the lens of a world where these very powerful AI models exist. Similarly, after the introduction of the internet, you had to look at every investment in the context of this changing environment.
As technology investors, we feel it is our great privilege to invest exclusively in technologies that increase the likelihood of a desirable future. In the case of "climate technologies" this is particularly the case, and we are convinced that technological progress will make a major contribution to dealing with the climate problem. Here we increasingly see a shift towards such technologies offering the best return profiles even without an explicit designation. This is certainly related to changes in the market and the regulatory environment. What also reinforces this is that the best talent increasingly wants to work on these problems. At the end of the day, the success of venture capital is very much driven by investing in the best teams, as they are the ones that shape the positive risk-return profile.
It should be noted, however, that we are always cautious when it comes to hype topics. The topics of "climate technologies" and "artificial intelligence" have received a lot of attention recently. In these situations, it often makes sense to remember Amara's Law: "We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run". We see an incredible amount of potential in both areas, but we believe that the market is overreacting somewhat and that the investments being made today will not necessarily be the best long-term investments in the respective category.
COLIN&CIE: Thank you for the interview and we wish you and your team of investors continued success.
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