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Capital for the future

ETF Partners is a venture capital fund that supports young technology start-ups in Germany and Europe. These companies have something in common: their innovations are designed to achieve sustainable prosperity for the world.

Tomer Strikovsky and Patrick Sheehan had actually planned on attending a business meeting in Hamburg today to discuss strategy with Tomorrow GmbH – a green bank that fits in a smartphone. However, coronavirus changed those plans. Instead of sitting on a plane, both of them are now in their office at ETF Partners in London, gushing about the fintech start-up from northern Germany that recently became part of the venture capital fund's portfolio. As the first sustainable mobile bank, Tomorrow is an ideal investment for the British firm: smart, green, forward-thinking – and with great opportunities for growth. “We're looking for innovative companies that we think can really change the world”, says Tomer Strikovsky, Investment Manager at ETF Partners.

And that is exactly what the smartphone bank Tomorrow wants. Founded in the beginning of 2018 by Inas Nureldin, Michael Schweikart and Jakob Berndt, it enables its customers to do ‘green banking’, and so consistently act to help tackle the climate crisis. For example, customer deposits flow into climate change projects – as do the transaction fees that vendors pay when a customer pays using a credit card. A premium current account even enables customers to offset their annual carbon footprint. It hardly gets greener than this – but it can get bigger! Plans are to use Tomorrow to create a digital platform for all areas of the financial system and to establish it as a leading sustainability bank – in Germany and in other European countries. This requires investments, risk tolerance and above all, entrepreneurial expertise. Indeed, this is smart money – and that is precisely what ETF Partners contributes.

ETF experts are consulting entrepreneurs

Tomer Strikovsky

„Wir konzentrieren uns seit über einem Jahrzehnt auf nachhaltige Technologiefirmen, lange bevor es in Mode kam.“, Tomer Strikovsky, Investment Manager at ETF Partners

“We work together with entrepreneurs to develop companies in the best possible direction”, says Tomer Strikovsky. And Patrick Sheehan, founder and VC fund partner, adds: “We do not interfere in management of the start-ups. Instead, we work together with the teams to help them achieve their ambitious plans.” This is because rapidly expanding companies face a numerous challenges, and while each company’s journey is unique there are pretty common patterns to the problems and opportunities they will face. The experts have seen them all before.

“Our experience covers many areas, from finance, to strategy, through to networking”, says Strikovsky. Can this experience be used across various industries? After all, Tomorrow is the first ‘smart bank’ in the portfolio. “That is true, the spectrum of industries we work with is broad”, confirms Patrick Sheehan. “However, we always work at the interface between technology and the real world. The issue is the same every time: how do innovative technologies make a real impact to everyday life, with sustained effect? The banking sector is changing extremely quickly right now. In the past, I might have said that the industry was too complicated for startups to address. But nowadays we see that more and more tech companies are pushing into the banking sector. Tomorrow is at heart a software company, and we are well-used to high-growth software companies.” In fact, Tomorrow is not technically a bank but rather uses the banking infrastructure and the universal banking licence of Berlin-based solarisBank. Cooperation with this financial service provider enables fintechs like Tomorrow to offer their customers current accounts and all other banking services, while also allowing them to develop their own financial products, without having to apply for a banking licence from the German federal financial supervisory authority BaFin.

Portfolio of start-ups with climate relevance

Patrick Sheehan

Smart banking, smart energy, smart industry: ETF Partners is currently investing in 21 companies across industry and national borders. In addition to Tomorrow, this includes the French start-up Phenix, which developed an app to prevent food waste. And the Swiss company Flyability, which creates collision-tolerant drones for indoor inspection and confined spaces. And the Berlin-based moving platform Movinga, which uses an algorithm to make delivery runs more efficient. And the British start-up Perpetuum, which has technology that converts the mechanical energy produced by vibration in trains into electrical energy. They all have one thing in common: climate change mitigation is part of their DNA.

How does an investor begin working with companies like these? “For over a decade we have been concentrating on sustainable technology companies, long before it was popular. So we were able to develop a well-coordinated network of contacts that helps us find companies and vice versa”, says Tomer Strikovsky. “We talk to many great entrepreneurs every day – even if they are not yet in fundraising mode. Because experience has taught us that if we are already acquainted with each other, it is much easier to have open conversations later on and we can react faster when fundraising begins.”

When ETF Partners was founded in 2006, the industry considered sustainable investment exotic – quite nice but not urgent. In 2019 sustainability has become mainstream in society in general, as well as for investors. Environmental, social and governance, or ESG for short, are three central investment criteria currently holding everyone's fascination. “This is currently a significant subject for investors”, confirms Tomer Strikovsky. “Naturally we are quite happy about that. However, the primary focus of ESG is to measure and improve the existing carbon footprint of established traditional businesses. We focus beyond this compliance with good practice, on innovation that really changes things. We support new approaches that we think can make a big difference, and not just profiting from positive changes that are happening anyway. That is why we are so excited about Tomorrow.” And this commitment has been acknowledged: in 2019 the VC fund won the British BVCA Responsible Investment Award for the second time in three years.

Venture capital

The term venture capital is used when investors invest in young companies that have not yet established themselves in the market but still show promise. The investor supports the entrepreneurs with equity capital in the hope of a high return. Since it is anything but certain that a young company will develop positively, a total loss must always be expected. It is therefore with good reason that the term venture capital financing is used. Investing in a venture capital fund that invests not only in one, but in several young companies, thereby at least helps spreading the risk.

Of course, the objective is also entrepreneurial success. And as such, ETF Partners is concerned with continually increasing the value of the company over the course of time. Ideally it will be acquired by interested parties at some point. Another typical scenario is that the company goes public after it is able to develop itself into a strong brand. Then the long-term commitment pays off financially as well – for ETF Partners and for investors like KfW Capital, which provides capital for the VC fund to work with. Dr Jörg Goschin, Senior Managing Director at KfW Capital, says: “ETF is an extremely exciting VC fund because its focus is on participating in innovative companies following sustainable business models. It is particularly active in Germany, is managed in a highly professional manner, and the team has an attractive track record. All this led to our positive investment decision.”

Michael Schweikart, member of the Management Board at Tomorrow GmbH, is delighted with the British VC fund's investment. “ETF is helping us achieve our goal of bringing sustainable banking to the masses”, he says. “Through investments on the one hand, but also through interesting contacts and all the knowledge they have collected working with the companies in their portfolio and over the course of their history. We exchange information about all strategic issues.”

ETF Partners has so far invested nearly four million euros in the Hamburg-based mobile bank Tomorrow. As business grows, this amount will increase. “The company has enormous potential”, explains Patrick Sheehan. “Tomorrow is growing rapidly because it is offering what many people in Germany, and elsewhere around Europe, really want; banking services that are right for a green and sustainably lifestyle.” The cancelled meeting has been replaced with a video conference to develop a strategy together for further growth.

Published on KfW Stories: 23 September 2020.