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.

steffen.huth@bmh-hessen.de