Philipp Rittershaus, a life sciences specialist and investment manager at Germany-based venture capital firm High-Tech Gründerfonds (HTGF), is keen to find health and medical applications for industrial technologies.
“Innovation can be created by applying a technology from the industrial sector to the medical field and developing new tools,” noted Rittershaus, citing HTGF’s investment in orthopaedic technology developer Mecuris in November 2016.
Founded last year, Mecuris is the creator of a digital platform that allows medical technicians to use data from patients’ scans to make bespoke orthopaedic aids and artificial limbs using 3D printers. Additive manufacturing, or 3D printing, is revolutionising modern industry. The technology allows users to design tailor-made products and manufacture them quickly, removing the need for a traditional assembly line.
Mecuris’s digital platform enables physicians and orthopaedic technicians without any training in computer-aided design to produce customised aids and limbs, which can then be manufactured using 3D printers, and delivered to patients.
Aside from additive manufacturing, several other industrial technologies are finding their place in the medical field, such as ultrasound, which is often used for monitoring purposes in the oil and gas sector.
Rittershaus noted that he was examining one application that used ultrasound. “In addition to Mecuris, we have also Whitesonic in our portfolio, which [has developed] an ultrasound dental scan,” he said. The scan produces digital impressions of dental structures.
HTGF, which invested an undisclosed sum in Mecuris alongside Bavarian state-owned investment firm Bayern Kapital, was set up in 2005 to provide seed capital for pre-market startups in Germany. So far HTGF has closed two funds – the latest, launched in June last year, has a target size of €300m ($338m).
Limited partners (LPs – investors) in the firm’s funds include the German government and corporate investors, such as speciality chemicals manufacturers BASF and Evonik Industries, pharmaceuticals maker Bayer, consumer products company Braun, industrial conglomerate Siemens, telecoms company Deutsche Telekom and optical systems manufacturer Zeiss, among others.
Although HTGF has both public and private backers, Rittershaus stressed that the firm operated independently. “Investment decisions are taken on a case-by-case basis, independent of either politics or corporate interests,” he explained. “Each of our limited partners is represented in the investment committee, but if there is ever a conflict of interest, we split the information flow and they do not get to vote.”
HTGF has three investment teams, each targeting a range of sectors. Rittershaus’s team covers life sciences, materials sciences, healthcare and chemicals. Energy, automation, hardware, optical technologies and industrial software make up the second team, and software, media, internet and e-commerce the third.
“Each team acts differently and, for industrials, normally the startups are closer to the market and do not require a huge amount of capital,” Rittershaus said. “Many industrial startups are quite capital-efficient. More capital is usually required in cases where you need to finance either production facilities, such as [solar film manufacturer] Heliatek, for example, or a broad market entry as in e-commerce companies. So the key challenge is always to clearly identify options that are hockey-stick businesses.”
These are businesses whose projected financial results are initially flat or falling, but then rocket, creating a hockey-stick shape on a graph, suggesting that the startup will eventually achieve huge growth in revenue and profit.
Rittershaus also pointed out that HTGF helped its startups connect with other players in its extensive network, such as family offices, angel investors, corporate venturers and other partners. “Normally with industrial companies the risk is not as high, but it is not as easy for them to go global. Internationalisation always requires quite a lot of capital, but even for that HTGF provides a network of business partners.”
Bridging the gap between science and business
A trained scientist as well as a financial investor, Rittershaus studied technical biology at Stuttgart and earned a doctorate in biotechnology from Hohenheim university. More recently, Rittershaus – who has an MBA in engineering management from Rhine-Neckar Graduate School – has published articles in business magazines. His commentary for the Journal of Business Chemistry, on the advantages of collaborating with seed funds to foster startups in the chemical sector, appears in this month’s issue (see comment).
Asked how corporates benefit from partnerships with seed investors like HTGF, Rittershaus observed that exposure to new technologies could motivate industry professionals to consider changes they might not have thought of otherwise.
“It is not so much about getting very cheap and early entry into the seed-stage realm. It is more about getting inspiration and a vantage point into the tech dynamics in Germany. The main benefit for corporate LPs is, therefore, strategic rather than financial,” he said.
And as Rittershaus noted in his commentary, portfolio companies that had corporate LPs “enjoy a more targeted start to life” and were in a strong position to become established successfully, which meant their investors had a higher chance of securing a profitable exit.
Indeed, Rittershaus said industrial startups “are great candidates for exits”. He added: “The risk is lower and the returns come in with a very good timing,” he said. “We have had 70 exits so far and quite a fraction of them have been from enterprises in the industrial sector.”
The acquirers of startups were often their own customers or partners, Rittershaus noted, but sometimes a corporate backer saw value in buying the company it had invested in. “We see that the majority of our exits came from the day-to-day work of the startups with their own customers and partners, but there are also quite a few examples of an LP as our exit partner – which would actually represent an ideal combination.”
It is true that corporate investment in industrial enterprises did not grow as quickly as in other sectors tracked by GCV Analytics, such as IT, telecoms, media, health and financial services, partly because the dynamics brought about by digitisation are “not as advanced in the industrial sector as elsewhere”, as Rittershaus put it.
“It is not that enterprises in the industrial sector are lagging behind. It is just that some fields, like chemicals for example, are late because there has not been an urgent need for digitisation so far,” he said. “Digitisation does not come for every industry at the same time. You could say that consumer-oriented businesses were ahead and other industries are picking up digitisation speed.”
