German billionaire seeks Israeli high-tech investments

Thomas Vilinger photo: Eyal Izhar
Thomas Vilinger photo: Eyal Izhar

The family office fund of Dieter Schwarz, one of the wealthiest man in Germany, is looking for Israeli technologies and expects to invest millions of dollars in Israeli companies.

German investment fund Zukunftsfonds Heilbronn (ZFHN) will begin investing in Israeli technology. The man behind the fund is Dieter Schwarz, one of the wealthiest men in Germany and one of the 50 richest people in the world. Schwarz made his money by founding two large retail chains: supermarket chain Lidl and Kaufland, a Walmart-type chain of huge department stores. Schwarz, whose wealth is estimated at $20 billion, is the founder and owner of Schwarz Gruppe, the world's fourth largest retailer and the second largest in Europe.

ZFHN, founded by CEO Thomas Vilinger (52), is a fund investing in technological ventures that has been in operation since 2006. After doing business for 12 years, the fund has decided to begin investing in Israeli ventures. Vilinger has visited Israel for this purpose, where he met with local private investors such as Check Point Software Technologies Ltd. (Nasdaq: CHKP) cofounder and chairperson Marius Nacht and the Recanati family and with institutions of higher learning, such as the Weizmann Institute of Science and the Technion, Israel Institute of Technology.

The purpose of Vilinger's visit is to establish connections with more investors in order to make joint investments with them, and with institutions in which technology is likely to be developed in areas in which the fund wants to invest. Vilinger told "Globes" about his fund's investment strategy, which differs from that of an ordinary venture capital fund and explains why he wants to bring Israelis to Germany, but not to Berlin.

The fund's investment model, which it plans to apply in Israel, is an investment of between $500,000 and several million dollars in seed and pre-seed companies in tandem with other investors in exchange for 5-15% of the company. The fund is willing to provide follow-up investments later, as needed. "We are a team of 20 people. We have experts in computers, medicine, chemistry, and biology. They are businesspeople and specialists in their fields who know how to organize a business and make it profitable," Vilinger says.

The example that Vilinger gave is an investment in a company in Germany that generated an exit for the fund 18 months ago. "We invested in a medical devices company that provided a solution for pulmonary failure. We invested a total of $40 million in it. We started with it from the beginning, and we go on investing in companies until they're ready for an exit. We merged this company with a more mature company in cardiac surgery that had a system of pumps that could also be used for pulmonary treatment. After obtaining the required official authorization, we sold the company for $247 million 18 months ago."

"Globes": You call this helping, but there are entrepreneurs who steer clear of an investment involving intervention to this extent.

Vilinger: "In the past, we invested a lot in each company, and we were the controlling shareholders, but we discontinued this focused investment strategy. The road to those exits was far too long; in medical devices, it can even take 15 years. Our investor is 78 years old; I think it's unfair to him to continue investing like that."

How can an investment from Germany help Israel startups?

"There is conventional industry in Europe, especially in Germany. In Heilbronn alone there are 1,500 medium-sized industrial companies and they require a lot of innovation, while Israel has disruptive technology. We want to connect the conventional industry with the Israeli technology." Vilinger therefore says that the fund focuses on investment in Internet of Things (IoT), robotics, autonomous driving, energy systems, new materials, and biotech.

"The companies we want to invest in are those for which we can provide value. We don't want to support a company just with money, but also with access to customers in the European market, which small companies in Israel don't have. Many of them are trying to penetrate the US market, but this is a challenging and expensive process. Israelis are afraid of Europe because of all the languages and countries."

One man's wealth

In contrast to ordinary venture capital funds, ZFHN has no binding time restrictions or commitments to investors, because it is managed by a single family office that manages the wealth of one investor. The fund is on the evergreen model, which provides investors with more flexibility in the short term but is also suitable for long-term investment. The evergreen funds usually operate over two decades; investors can decide each year whether to continue the structure or to discontinue it completely.

Since it was founded in 2006, ZFHN has invested in nearly 30 companies, eight of which have been sold in an exit. The fund started with $100 million, and now has $250 million available accumulated from the profits of sales. "The meaning of a family office, however, if that if more money is needed, Mr. Schwarz is always willing to make another investment," Vilinger explains. "It's entirely flexible."

The fund made its first investment in Israeli technology last April when it invested nearly $6 million in TinyInspektor, the Israeli-German venture of Harel Boren and Yonatan Hyatt, the value of which is estimated in the tens of millions of dollars. The company is developing a product installed at industrial production equipment in factories in order to detect faults during production.

What do you think is the difference between Israeli and European entrepreneurs?

"I was born in South Africa and my parents had a lot of Jewish friends there, so I had a connection with Jews in Israel. I learned about the startup ecosystem in Israel and in Tel Aviv for digitalization and robotics, I came here for the first time three years ago, and the short flight time and atmosphere make the interactions and work here enjoyable." Vilinger has visited Israel twice a year since his first visit but is coming now for the first time as the representative of ZFHN.

"There is good business in Europe and entrepreneurs always have good opportunities other than entrepreneurship. They can always go on working in good jobs and earn a good living for their families. They like being entrepreneurs, but they don't need entrepreneurship like the Israelis do," Vilinger explains. "People here are completely different, and so they are eager to be successful entrepreneurs in a more committed way than in Germany. In Europe, they're afraid to take a chance, because they have to succeed. In Israel, they regard failure as an experience. Israeli entrepreneurs don't have the typical risk calculation structure that there is in Germany, where they first look at the risk and only then at the opportunity. As an investor in an Israeli company, we can deal with it, because we can calm them. But when we invest in a venture in Europe or Germany, it's hard to get them excited."

"We're a business builder"

This is the first family office managed by Vilinger, who formerly managed a hub and accelerator in Schwarz's home town of Heilbronn in southern Germany. Before that, Vilinger worked in the venture capital industry in Silicon Valley. He says that he met Schwarz 13 year ago and founded the fund for him a year after that: "Schwarz loves his home town where he grew up and founded the huge chains he owns. I think that many people in Israel feel that way about where they were born. Mr. Schwarz want to strengthen his city and the area through technology." This philosophy of Schwarz dictates the fund's character, whose name in German means "Future of Heilbronn."

He wants to make it clear that the entry into Israel is part of a general change in the fund's investment strategy that took place in recent years. "In Israel, we're not planning on spending large amounts of money on the same company; we'll disperse our investments. We also want to begin investing here together with other private investors and also together with corporate investors, because they have a lot of experience in the market. A joint investment makes it possible to invest a smaller amount in each investment and to disperse the risk," he says.

"We want to consolidate a company in Israel, open it to the European market, but we want the heart of the company to be here in Israel. We invest in companies that we like and we don't want to destroy them. If there's an opportunity to sell a company, we consult about with the management team and check whether it's suitable, or whether we want to wait until the company grows. We also consult with the experts. We're completely calm. We're a business builder, a company builder, not venture capital investors. We have endurance and the possibility of really putting the companies into the European market."

Published by Globes [online], Israel business news - - on May 30, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Thomas Vilinger photo: Eyal Izhar
Thomas Vilinger photo: Eyal Izhar
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018