We asked experts from our LP panel about their main focus for capital allocation, smart decisions, how they manage longer-term and higher-risk investments and more. Here are insights from Thomas Schneider (Isomer Capital) and Oliver Hollender (Flossbach von Storch AG).
What are your main areas of focus for your capital allocation process?
Thomas: We focus exclusively on European early stage VC. Key considerations when making allocation decisions to VC funds include returns potential, our portfolio construction and the possibility of working with a manager in a collaborative manner.
Oliver: Geographically we focus on North America and Europe. We favour the small to mid-size market segment and seeking out funds with significant operational value creation capabilities to help their portfolio companies grow and succeed. Our Private Equity investment universe comprises of MBO, Growth Capital, Turnaround / Special Situations and Venture.
Building a private equity allocation: what resources do you need to invest in private equity and venture capital?
Thomas: We often say that venture capital is an insiders’ marker, where networks and up to date information are crucial to making good investment decisions. Backing the best managers is especially important given the broad dispersion of returns in venture. First we need the skill to identify the best opportunities, then we also need to be in a position to access them. Reputation and experience can help ensure that the top firms want to partner with a particular investor. We believe that a knowledgeable and focused team is essential, along with a broad network of ecosystem partners who can not only serve as references in the due diligence process, but also support portfolio funds and companies.
Oliver: The two key requirements are having a team of highly experienced individuals with complementary networks and access to the best funds and investing at least a high seven-digit amount per fund to actually get an allocation in those funds. If you don´t have this inhouse we are here to help you.
How smart decisions about allocating capital can drive returns in venture capital?
Thomas: An allocation to private markets should be considered in any investment portfolio as a driver of performance. Particularly, European VC has not only outperformed public markets in recent years, but also delivered better returns than US VC. But investors need to pick well as there are many poor performing managers in the market. In turn, having smart investors with a long-term horizon like endowments and pension funds provide VC firms and the entrepreneurs they back with a stable capital base.
Oliver: Since the best Venture Capital funds deliver returns which are higher by several turns compared to the rest of the industry you better make smart decisions to generate the best returns for your capital. Furthermore, only a very limited number of funds are able to deliver those returns so you not only need to know how to identify them but also need to know how to get a seat at the table.
How do you manage longer-term and higher-risk investments, such as emerging technologies or startups?
Thomas: We don’t shy away from emerging teams as we believe that they often hold tremendous potential, and we can build a privileged relationship by offering early support. Data has shown that first-time VC funds often outperform their peers. Having invested in funds for the past 15 years, we’re able to assess the strengths and weaknesses of emerging managers and support them in building out their fund. We conduct extensive due diligence on teams, as well as track record and strategy. As early stage investment is inherently risky, we build a diverse portfolio of companies spanning many countries, industry sectors, technologies, etc.
Oliver: We know that diversification truly pays off. Even more so in the longer-term. So, one of our first topics when talking to new clients is to discuss the allocation within Private Equity which fits the needs of the client best. At least in our view, finding a suitable allocation to the riskier segments of the market is key in dealing with the challenges of and benefitting from exposure to those segments.
About authors:
Thomas Schneider, Partner at Isomer Capital
Thomas is a Partner at Isomer Capital, a leading investment company in the European VC sector. Being an LP in over 40 VC funds and invested directly in some of the fastest growing companies in Europe, Isomer has developed through the years a successful approach delivering returns and strategic value to investors. Thomas has over 17 years of experience in the asset management industry. He was previously responsible for Russell Investments Southern Europe operations. Fluent in French, Italian and English, Thomas likes to travel and climbing in the Alps.
Oliver Hollender, Co-Head of Private Equity at Flossbach von Storch AG
Mr. Hollender is Co-Head of Private Equity at Flossbach von Storch AG and Managing Director at FvS Alternative Solutions GmbH. He serves on the FvS Private Equity Investment Committee and oversees the Venture Capital and Growth Equity investment activities. He has 20 years of investment experience and sits on several Limited Partners Advisory Committees. Mr. Hollender holds a joint Master´s degree in Business Administration and Electrical Engineering from Darmstadt University of Technology.
Interested to gain more detailed know-how from our experts?
Join our upcoming PE & VC conference 0100 Virtual Europe scheduled on 02-04 November 2021. Thomas, Oliver, Mark and William will discuss how Limited Partners are allocating resources and capital on the 2nd day of the conference (3rd of November) at 3 pm CET.
Limited Partners and General Partners can claim their complimentary tickets on the following link. If you are not LP/GP, feel free to buy your ticket.
