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 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.