Having worked most of my life in the German Mittelstand, unless the term has a drastically different meaning in the US a 'Mittelstand accelerator' is a complete oxymoron. The entire point is to not accelerate.
The idea of Mittelstand business is to be conservative, low in debt, turn a profit, keep a company private, usually under multi-generational family control and from the very beginning make decisions for the long term, and keep employees around for life.
Software companies that come to mind that are like this are say, IntelliJ or Valve maybe, not startups. There's nothing to IPO, there's usually not that much interest in outside money, so how does this square with the VC industry?
Mittelstands (defined as $10M-$1B in annual revenue) are very stable, profitable companies once they get to that stage. But there are very few funding options for pre-Mittelstand businesses.
I would like to create a small fund to invest in these pre-Mittelstands at the earliest stages and help them go from $0 to $10M faster.
These businesses need much less funding (usually <$1M) to get to this stage, so it's a different model than VC. But if you invest early enough at the right valuation, the returns could be VC-style with a much lower risk profile.
But then you are VC-funded. As Barrin92 hinted at, VCs tend to want to see returns and consequentially optimize for growth. Or is the idea for VC to pull out and realize profits once the company got to Mittelstand?
I mentioned this in another comment - pre-Mittelstand investing is also driven by power-law 100x+ returns.
If you invest $100K at <$1M valuation pre-revenue in 100 pre-Mittelstands, 1-5% of those companies are going to get to $100M+, 10-30% will get to $10M+, and 50%+ will get a positive exit.
There is a robust buyout market between PEs and corporates for these companies.
Yes, this is a form of venture capital. But most VCs today would not consider pre-Mittelstands VC-backable startups.
It's very well possible that I either did not understand how your answer relates to my question, or that my definition of "exit" (namely, that a company gets sold, usually to a larger entity, and is not held by founders anymore) is incorrect or too narrow, but, again, how is an exit compatible with a company being part of the Mittelstand?
You say "pre-Mittelstand", so I guess it's not about investing in companies that are aready Mittelstand (and effectively lifting them out of that) either.
But by definition if a company grows for decades it doesn't 'exit' (=it isn't sold or renamed or repurposed). So I think that the Mittelstand definition should prohibit an exit, maybe not for the individual (=founder/owner) but for the company as a whole. In my opinion this is why in german you don't really use the term for companies anyway except when econonomists look back and analyze your company history.
I begin to think that OP just took the word "Mittelstand" to mean "$10M-$1B", which at least to several other people in the thread is rather confusing.
Generally another Mittelstand family can provide funding, that's how it goes in Chile. It's not like they've never met in eg Swiss ski slopes, parties, that sort of thing. And they have capital, not only are they high net worth individuals, they are also high absolute worth individuals, because they don't really get into debt. The German economy is a macrocosm (you can think of it as a constellation if you don't like "macrocosm") of the Mittelstand, there's actual profits and defensible business, and the money piles up year after year, spending less, saving more, investing the savings, export the savings, repeat.
In fact generally Germany was the largest net exporter, up until not long ago, despite China being better known for its trade balance. Losing WW2 was in the purely economic aspect the best thing that ever happened to them, although it's seasonal because sometimes foreigners tell them they should be more into finance and insurance instead of manufacturing.
That makes Germans feel bad, they're really good at feeling bad, ie guilty, it's cultural, but they don't really do things differently. They just stick to analog tech and work like fuck, that's it. Just work, that's how they have fun. Socially? More awkward, much happier working. That's why they drink like they do.
Don't get bored that badly. And that's where the analog magic begins, in the subtle subtle subtleties, which are huge and obvious if you put in the time without getting bored, there's a whole world down there. The digital equivalent is this: What if I just leave this comment written without hitting reply? What if I bookmark it, will the text get saved? Is there a time limit to how soon I can reply, or how late? What if I do it right on a time limit? Where does one thing end and the other begin? In the analog realm: What if superstition is good? What is superstition, what is science? Science means cutting, where to draw the line? At what point do I call out a man in a lab coat as a bullshit artist, or do I let him tell me black is white, 7 equals 12, 60 equals 100? Do I draw a line, or do I use my spine to make decisions better, let my hands do the typing like right now, eye-hand spinal coordination, the spine as the second skull talking without the skull's thoughts?
The analog world is infinite. And there might be a Mittelstand for you too somewhere in that little world of subtleties.
I don't think it squares with the VC industry - but the VC industry is just one way of moving money from those that have money but cannot build new wealth, to those that have talent but no money.
The initial move from talent to profitable business is what we need - not because we can see a runway to 18 months IPO but because what the duck else do you do with money other than create new better wealth for the world.
Previously this has been solved by government taxing rich and giving it to innovators through schools, universities and arms spending (simplifying slightly).
But apparently tax is bad now, and governments don't know how to pick winners to VCs are going to take over. If this is not a great idea we should try some other options - the OP has an idea. It's not bad. Others exist (including that tax one which apparently no one with money likes)
But VCs aren’t a charity issuing the equivalent of bank loans. They hope for substantial ROI (enough to offset all the failing investments), which isn’t very compatible with the non-accelerated-growth non-IPO Mittelstand model.
Yeah - which is why I don't think the VC industry as it is currently formulated is the right vehicle to do the next leg of the journey.
But that's ok. We don't have to stick with the current formula - other options exist in the phase space. We don't want to throw out the fanta aston growth of the past 200 years, but we do want to ... fine tune it to provide similar benefits, at different social costs/benefits.
From a longer term perspective, the VC money is not "theirs" - this is an investment in the future of the species.
I think there are three questions
1. How do we discover fundamental breakthroughs (steam turbines, E=mc2, new drugs). Tax funded edication and universities is mostly the answer (R&D labs at companies so big they look like government departments also help). I think we could double the science budget in every western country every five years for decades before hitting some negative feedbacks
2. How to build out the skeletons of these breakthroughs (ie when we got electricity in the 1900s the question was how to build wires to every house. Yes the initial rush was privately funded but that was about two blocks of NYC. The continent wide rollout was ... tax funded. How will we move from oil and gas to (Inpresume) solar. It will need more wires, different home and industry power plants (gas boilers etc).
3. finally the foam on top - the tech startups etc. How to encourage these - speed them up, have them deliver different social and industry outcomes. my take is to stop doing what we currently do, which give us the current outcomes (oh look another MIT graduate being asked to scale for growth) and find different founders in different places.
I think YC itself is trying to answer many of these questions - they have pushed out to fund startups outside USA, they are choosing outside the SaaS window and are looking at fundamental ideas (fusion startups!). But honestly compared to (effective) government funding they are a drop in the ocean. but it seems they point in the direction Inwoukd too.
> The idea of Mittelstand business is to be conservative, low in debt, turn a profit, keep a company private, usually under multi-generational family control and from the very beginning make decisions for the long term, and keep employees around for life.
TIL that my current and previous employer are both (more or less) Mittlestand businesses.
I must say, I really do prefer working for these kinds of companies. The lack of outside influence, the robustness in the face of economic uncertainty, the long-term focus, etc. all I think contribute to a more responsible leadership than I've come to expect from any other type of enterprise.
I wish there was an easier way to find them. In my experience, it was former colleagues who recruited me. At the time I didn't have any sense of how business model might affect the work environment, all I knew was that my colleagues really liked their new jobs, but in retrospect it clearly makes a difference.
That doesn't mean it's all roses. My last company brought in a terrible middle-manager who was at least part of the reason I left.
If I were searching in the market right now, I'd probably apply to a bunch of different companies and ask some variation of the following questions:
1. Are you privately-owned (and plan to stay that way)?
2. Are you profitable?
There's obviously a bunch of other questions that are important to job satisfaction (is the work relevant to the companies revenue goals, work/life balance, etc.) but those two questions determine whether the company has at least the economic independence to make the right decisions over the long-term.
> The idea of Mittelstand business is to be conservative, low in debt, turn a profit, keep a company private, usually under multi-generational family control and from the very beginning make decisions for the long term, and keep employees around for life.
Aren't there a fair number of startups that could achieve that, but get blown up because the VC model only allows for abject failures or unicorns.
Also seems like an opportunity for a couple of perceptive and honest VCs to invest in companies before they get blown up by less discerning folks who get cold feet in the Series B round.
Walking away with $50 mil is a lot better than with liquidation value.
I'm not sure if you're working from the right definition. At least by revenue and number of employees, SpaceX would still be Mittelstand, I believe. If you're thinking smaller, the term "lifestyle business" was once coined for such endeavors by, I believe, 37signals.
As for the larger scale: every startup is expected to settle into some size with little further growth at some point. The "unicorn" is a rather new trend, and it's only a small fraction of even VC-funded startups (although it's a larger fraction by funding or attention).
According to German Wikipedia, SpaceX absolutely does not correspond to the definition (suggested, because there is no official one) of what "Mittelstand" is. That means less than 500 employees and less than 50 Mio. € revenue, family business or at least involvement of one founder, and most importantly (called out as such) economical independence of the owners.
Or is this a case where the German word has been co-opted for a different meaning in English? (Though other words like Kindergarten or Zeitgeist are very close to their original meaning, now that I look them up.)
> I find the English usage of “Angst” really confusing, as it really just means anxiety or anxious.
USA: While angst and anxiety come from similar roots, angst is not just anxiety but a dread or anguish. Often angst is focused in a certain way, such as towards a particular condition one person has or a group of people have. Anxiety is more general.
There may also be differences between the two words in certain fields, such as with professional definitions.
There are also other derivative uses, such as teenage angst, that are more akin to feeling overwhelmed but not necessarily anxious.
But why could someone trying to start a company like that not get some funding from a company like YC? The expectations would of course be different but it could still end up profitable for everyone.
If I were starting a Mittelstand today, yes one great option would be to take YC's funding, take little to no additional capital, and exit as a Mittelstand with most of your equity.
But having gone through YC in W15, they're definitely not built for Mittelstands. YC pushes you to keep iterating and changing your pitch and product until you're targeting a multi-billion dollar market.
I do believe there's room for a YC for Mittelstands:
Be like Paul Graham circa 2005 – find people who others didn’t think could be founders and coach them from the very beginning to control their companies.
The idea of Mittelstand business is to be conservative, low in debt, turn a profit, keep a company private, usually under multi-generational family control and from the very beginning make decisions for the long term, and keep employees around for life.
Software companies that come to mind that are like this are say, IntelliJ or Valve maybe, not startups. There's nothing to IPO, there's usually not that much interest in outside money, so how does this square with the VC industry?