Germany-based Bertelsmann is one of the world’s oldest and largest media, services and education groups with more than 117,000 employees and €17.1bn ($19.1bn) in revenue last year.
In the past year, Bertelsmann, which traces its book publishing back more than 180 years, laid out how it would navigate the upheaval and continue its growth with a focus on education as its third main business line alongside media and services, and making corporate venturing through Bertelsmann Investments one of its eight divisions.
Thomas Rabe, CEO of Bertelsmann, said: “The work done by Bertelsmann Investments not only facilitates knowledge transfer and innovation scouting across all our lines of business, but is also financially successful.”
Shobhna Mohn, executive vice-president for growth regions at Bertelsmann, for a profile on the company published last September, said: “Corporate venture activities are of significant strategic relevance for Bertelsmann. All our key investment platforms have therefore been grouped in a separate division, Bertelsmann Investments.
“In particular, our venture fund activities make an important contribution to the development and expansion of our businesses in Brazil, China, India and the US.
“Through our investments, we gain insights into the trends in a given market, identify strategically relevant businesses at an early stage, build partnerships with local investors and entrepreneurs and benefit financially from the successful development of young startups. In return, we bring valuable business building experience and our existing network to our portfolio companies.
“Moreover, the insights gained through our investments are one of the key drivers of the group’s digital transformation.”
With a focus on growth regions, Pankaj Makkar, managing director of Bertelsmann India Investments (BII) since its foundation in 2013, and Marc Puskaric, managing director of Bertelsmann Brazil Investments (BBI), which was founded in 2012, two of Bertelsmann Investments’ four “investment platforms”, report to Mohn.
Growth regions include China, but Annabelle Yu Long, managing partner of Bertelsmann Asia Investments (BAI) is also CEO of the Bertelsmann China corporate centre and on the company’s group management committee (GMC), which advises the executive board on corporate strategy and development.
Long reports directly to Rabe, chairman and CEO of the executive board, which effectively runs the company through the GMC.
The fourth investment platform, Bertelsmann Digital Media Investments (BDMI), covers the US and Europe. Urs Cete, managing partner of BDMI, is not on the GMC but reports directly to Rabe, who is also CEO of Bertelsmann Investments.
These four platforms have been increasing their activity, with 34 investments and follow-on deals, including five exits, by the end of July last year, compared with 39 in all of 2015, according to an internal list seen by GCV. BAI, with 15 exits and investments by the end of July, made nearly half these deals, with five in India and the remainder primarily focused on the US and Europe through BDMI.
At the end of August, in its interim results for the first six months of the year, Rabe said: “BAI once again generated considerable earnings from sales of holdings – €55m to be precise. Total gains from disposals at BAI since the inception of the fund now amount to nearly $200m [actually $194m] – so we are earning real money in China. The work done by Bertelsmann Investments not only facilitates knowledge transfer and innovation scouting across all our lines of business, but is also financially successful.”
Bertelsmann Investments’ results are determined mainly on the basis of earnings before interest and taxation (ebit), which increased to €42m compared with an ebit loss of €7m in the first six months of last year. With Bertelsmann’s overall profit of €482m, the company said: “Capital gains from exits of Bertelsmann Investments shareholdings – primarily at BAI – thus contributed significantly to the group’s earnings.”
Excluding the five investments struck in July – Treebo in India, FloSports in the US, and including Zaihui and DS Movie in China, plus a third by BAI which is confidential – Bertelsmann Investments’ 24 deals in the first half of last year would put it in touching distance of the most active venture investors, such as New Enterprise Associates (56), Sequoia (50), Accel (47), Kleiner Perkins Caufield & Byers (37) and Intel Capital (33), according to data provider PitchBook.
Since then, its most recent deals include Sliver.tv, a US-based virtual reality platform aimed at eSports backed by a range of corporates, which raised $16m, and UCloud Information Technology, a China-based cloud computing company backed by media group Bertelsmann and conglomerate Legend Holdings, which raised RMB960m ($139m) in series D funding. Its next set of exits could include China-based e-commerce platform Fenqile in an initial public offering in the US expected to raise $600m.
The increased focus by Bertelsmann Investments’ four regional platforms also ignores increased corporate venturing activity by the media group’s other business units, such as Gruner & Jahr and Arvato Financial Solutions, a financial services subsidiary of media group Bertelsmann, which in March co-led a €26.3m ($28m) series A round for Germany-based financial services marketplace SolarisBank..
Collectively, therefore, Bertelsmann has been increasing its focus on taking minority and majority stakes in entrepreneurs over the past few years under the direction of its senior officers.
Rabe moved from chief financial officer to chairman and CEO of Bertelsmann at the start of 2012 and instigated a strategy based on growth regions and built around supporting its existing business lines, including through digitisation, and finding new “growth platforms”, such as education, services, content for television and “other sales channels”.
The company said: “These examples show why a significant portion of Bertelsmann’s investment funds will be channelled into such new businesses from now on. Activities in these lines of business will help Bertelsmann to become a faster-growing company in the next five to 10 years.”
Bertelsmann also puts its focus on transformation, down to its private family-owned structure giving it focus and flexibility to make changes, with its top two core values being partnership and entrepreneurship, taken as the principle of decentralisation.
Bertelsmann is controlled by the Mohn family and the Bertelsmann Foundation after it spent €4.5bn in 2006 on buying back shares traded to Groupe Brussels Lambert for control of entertainment company RTL Group.
But while Rabe was hired from outside the family, the ties between owners and managers is close.
Mohn is married to Christoph Mohn, chairman of Bertelsmann’s supervisory board since 2012 – which oversees the executive board – Christoph’s sister, Brigitte Mohn, is chairman of the board of trustees at the German Stroke Foundation, and their mother, Liz Mohn, is vice-chairman of the executive board of Bertelsmann Stiftung/Foundation (not the company). Both are part of Bertelsmann’s supervisory board.
Liz was the second wife of Reinhard Mohn, the fifth generation of the family to run the business, who built the company into a media conglomerate through the second half of the 20th century. He died in 2009.
