Dr. Gerd-Rüdiger Steffen: Investing in the future – High-tech start-ups in Schleswig-Holstein

Schleswig-Holstein is still usually associated with shipbuilding, agriculture and tourism. And a good thing, too, for those economic sectors have characterized the “state between the seas” for many decades and continue to hold promising development and growth potentials – just think of the booming wellness tourism.

However: Here too, the economic struc­­tural change has left its mark and, for example, caused the part of agriculture in the gross value added to shrink to 1.4 per cent and that of shipbuilding in terms of job generation to 0.6 per cent. But structural change is not a one-way street, for in al­­most the same breath, Schleswig-Holstein has turned into a modern serv­­ice and technology location, which is home to numerous top names in business, science, sport and culture, and which can keep up with the rest of them.

This holds true as well in the field of high-tech start-ups, whose potential as “com­­panies, employers and taxpayers of the future” has the ability to contrib­­ute sig­­nificantly towards regions emerg­­ing as winners from the structural change. Ac­­cording to a ZEW (Zen­­trum für Euro­­päische Wirtschafts­forschung – Centre for European Economic Re­­search) study on the trends and development perspec­­tives of high-tech start-ups in Ger­­many (Mannheim 2006), Schleswig-Holstein is among five of thirteen area states with a start-up intensity above the national average. Particularly notable is the state’s excellent position in terms of company foundations in the field of cutting-edge technologies.

Technology-oriented business formations are highly significant for economy and society. They transform newly acquired knowledge into innovative products and production processes, increase the in­­novation pressure of existing companies and, thus, accelerate technological progress. Young technology companies typically grow above average and, thus, often significantly drive the creation of new, competitive jobs.

However, high-tech start-ups do not come out of nowhere. They require an institutional and spiritual environment that helps potential founders come up with a positive conclusion weighing the odds and assessing the risks.
Financing facilities play a key role in that regard. According to the ZEW study, 64 per cent of start-ups polled considered financing problems a hurdle of high to medium importance. Besides the risks in­­­herent to the people involved, high-tech start-ups often hold all technological and market risks imagin­­able and typically offer no rateable securities against that. That practically excludes classic bank financing. The alternative is, for example, equity fi­­nance through venture capital companies. However, after the internet bubble burst in 2001/2002, such financiers have also backed out of early-stage fi­­nancing. Schleswig-Holstein was hit hard by that development, since the state had already not been the focus of such investors even before the internet crisis.

 

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Laser in a case.

Against that background, the ministry of economics, the investment company MBG, the investment bank and the guar­­antee bank together with the Tech­­nol­­ogy and Inno­vation Fund (TIF) of Schleswig-Holstein set up an investment programme in 2002 that tar­­gets and ad­­dress­­es the re­­quirements of technology com­­pa­­nies in the foun­­dation and growth phase. In 2006, the TIF was converted into the SSF (Seed and Start-Up Fund) Schleswig-Holstein with a total volume of 20 million euros. MBG’s par­tic­­ipa­­tion in technology companies through the SSF is typically inactive or open.

In 2006, the SSF was the first publicly funded programme in the nation that would finance high-tech start-ups out of colleges, research institutes and companies with a science and research-based background as early as in the seed phase in order to allow the top-class technological know-how of their founders to develop into marketable products and sustainable business models. Seeking, screening and counselling the potential company founders are tasks performed by the economic promotion and technol­ogy transfer company WTSH (Wirtschafts­­förderung und Technologietransfer Schleswig-Holstein GmbH).

 

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Lasertechnology by Taufenbach.

TIF and SSF already approved upwards of 100 capital investments, of which fif­­teen are spin-offs (as of June 2009). In addition, numerous companies obtained further rounds of financing through MBG, venture capital companies, business an­­gels, strategic investors, the High-Tech Start-up Fund, the ERP start-up fund (Eu­­ro­pean Recovery Program – ERP) or banks.

Success story Taufenbach GmbH
Between 2005 and 2009, Taufenbach GmbH, which was founded by graduate engineer Norbert Taufenbach in Kiel in 2005, obtained two MBG investments through the TIF and SSF. In combination with equity from its members, capital from the ERP start-up fund of the KfW bank as well as WTSH grants, those funds helped the company develop and produce worldwide unique industry-grade CO2 laser beam sources in the ten to 100 Watt power range.
The Taufenbach lasers are used, amongst others, in marking, inscribing, engraving and in medical applications.

The units are extremely compact (five times smaller than US-made competitive products), enabling revolutionary device designs. Moreover, they are highly economical and durable. In order to pro­­tect its revolutionary technology effectively, Taufenbach GmbH has filed a number of national and international patents and designs. Four patents have already been registered.

Success story mr. net group GmbH & Co. KG
When graduate mathematician Michael Rohbeck founded mr. net group GmbH & Co. KG in Flensburg in 2004, he had extensive experience in the telecommunication market. For example, he had already set up the telecommunication firm Komtel in Flensburg, then successfully converted it into the Versatel group.

 

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Success story in the field of telecommunication: mr. net group.

Since 2004, MBG has supported the extremely dynamic growth of mr. net group with a total of four MBG investments as well as a contribution from the MBG-managed SME fund Mittelstands­fonds Schleswig-Holstein (MSH). With a staff of 150 and a turnover of over 30 million euros, mr. net group now counts among the leading outsourcing service providers on the German telecommunication market. The company has utilized the business development power gained by its economic success to acquire the accounting and IT specialist NEXNET GmbH of Berlin. By founding mr. communication GmbH, a company delivering professional voice-over-IP solutions, mr. net group now offers all communication-related services. In that way, the company enables, for example, cable network operators or municipal utility companies to become their own telecommunication providers.

Steffen-KopieThe author was born in 1953 and studied economics in USA and Kiel. After ob­­tain­­ing a doctorate in 1981, he was active in the chancellery and in ministries of the federal state of Schleswig-Holstein for 20 years. In 2001, he became manager of Mittel­­stän­dische Beteiligungs­­gesellschaft Schleswig-Holstein GmbH (MBG), an invest­­ment company for SMEs. Dr. Steffen further is chief representative of the Bürg­­schafts­­bank Schleswig-Holstein GmbH – guarantee bank.