2022 forecast

“Who takes more risk and has more returns?”

Laurent Hengesch, co-founder of the investment firm Ilavska Vuillermoz Capital, reckons fintech is the future of banking and financial services. He told Delano in an interview that Ilavska Vuillermoz Capital will open an office in Berlin in 2022. Photo: Guy Wolff/Maison Moderne

Laurent Hengesch, co-founder of the investment firm Ilavska Vuillermoz Capital, reckons fintech is the future of banking and financial services. He told Delano in an interview that Ilavska Vuillermoz Capital will open an office in Berlin in 2022. Photo: Guy Wolff/Maison Moderne

Laurent Hengesch, founding partner at Ilavska Vuillermoz Capital, spoke with Delano about why European investors like to stick together, his firm’s 2022 expansion plans, why he’s so keen on fintech, and why he’s sure that venture capital and private equity will have another booming year.

Hengesch is a native Luxembourger, who told Delano that he did not excel in school. He worked in a hotel and as a wine salesman in Berlin, before returning to Luxembourg for stints at Carey Group, a corporate and fund services provider, and MM Warburg & Co, a private bank. In 2019, Hengesch and Alain Wildanger co-founded Ilavska Vuillermoz Capital, which is named after their grandmothers. It started as a private investment vehicle in 2019, then opened up to institutional investors.

Georges BockGeorges Bock is partner in its flagship fund, which is focused on the fintech sector. Hengesch said that so far it has invested “between €10m and €99m” (he did not want to reveal the precise amount) and the “target is €100m”. The fund has invested in N26, Investify, Penta Bank, Solarisbank, and One Group Solutions, among others.

The interview took place in November 2021.

Aaron Grunwald: There’s a lot of money flowing into European private equity and venture capital funds right now.

Laurent HengeschLaurent Hengesch: Ten years ago, most European fund managers had the urge to go to the US, like San Francisco or New York, to invest into startups. Now it’s the other way round. The Americans are coming here. The average European fund is around maybe €100m-€200m, the total fund. But now we have hybrid venture capital-hedge funds coming from the US to Europe and they sign tickets of €200m. So they come with like €10bn-€20bn in assets under management....

There’s a positive and a negative thing, of course. [The] negative [thing] about the Americans coming to the European venture market is, there’s a lot of money. So the valuations go up like crazy. If you have already done your participations like we’ve done, it’s great. But people are going crazy. That’s a bit of a problem. The positive thing is, there is a lot of money. So if you have a strong company and you need more capital, it’s very easy to raise [capital].

Do you think that smaller firms like yours might get priced out?

No. So the important thing is to know that we European venture capital funds are working together.... we get a lot of deals from German and Austrian and Swiss venture capital firms. We give them deals, they give us deals, and then we participate together. We are very well connected on the European market. And then we don’t need the Americans. The Americans, they have more equity, that’s for sure. But they don’t necessarily have the access that we have. And we, Europeans, like to work together. Then, on top of that, we invest in tech companies. Tech means we have [intellectual property], we have knowledge, things that are being developed. Often the founders and European companies don’t want that knowledge to go to the US to be copied. Same with Chinese investors. You don’t want to necessarily have a large Chinese company invested in your company, so they take out the tech to China and then copy it cheaper and then become your main competitor. So there’s another aspect to this. So we Europeans rather stick together, especially in the growth phase.

We [Ilavska Vuillermoz Capital] invest between €1m and €10m per company.... American investors invested [during] the first three quarters this year €50bn into European venture capital. Can you imagine? It’s crazy.

Do you think it will be the same next year?

I think it will be more, because the Chinese venture capital market is declining. It has been declining, which is crazy. And so this money will then go into European venture capital companies because the pricing is still lower still than the rather overcrowded US market.... Furthermore, we have changing demographics. People are getting older, meaning pension funds need higher returns. The new generation doesn’t make as much money as the older generation anymore. So [pension funds] have a huge problem. They need to change their asset allocation and take more risk to have more returns. So that’s interesting, because who takes more risk and has more returns? Venture capital. So those pension funds now need, they are forced, to invest into venture capital, otherwise, they will not get the returns.

Then I also wanted to say why fintech is growing so fast. You can see $39bn has been invested this year alone into financial technology companies. So why is that market growing? If the new generation--millennials, Gen Y and Gen Z--want to open a bank account, for example, they don’t go necessarily to a bank, to the guichet [teller window], to fill out the paperwork and then wait three months to get the bank account. The new generation wants to download an app, go through the online compliance and KYC process, and they want to have their bank account within 48 hours. That’s exactly where we are targeting. So N26, for example. When we invested, they had 3m clients. Now, a year after, they have 8m. It is a huge market.... Deutsche Bank is losing 550,000 clients a year.... now N26 is the second highest valued bank in Germany.... and it’s an app. That’s the future. Same for insurance.

What is stopping Deutsche Bank or Allianz or someone else from developing their own app or white labelling? I mean, things for fintechs are going great now, but...

Exactly. We are invested now in four banks and the most prominent bank, N26, is only focusing on B2C. They have 1,500 employees, but they have no bank [branches], they have no guichets, so the cost is so much lower to maintain the bank. Then the app is really sexy. They target a very specific group, young people that want to bank differently. And then the process of opening a bank account is quite easy, the app is really interesting, you get cool, different cards, you get very attractive exchange rates that are even cheaper [than competitors]. And then also in the future, you might be able, via N26, to trade crypto and stocks. It’s an attractive product with attractive benefits. I can send you money immediately, those kinds of things and a lot of different future features that are suiting the young client. And that in the meanwhile, obviously, already has been copied by the large banks, but it’s too late already.

Do you plan to expand your team next year?

Yes. So next year, we are going to expand our team, we are going to open a Berlin office. [You are the] first media I disclosed that information [to]. We will also expand our advisory board.... now 80% of our deals are in Germany, but we’re going to expand more to other European jurisdictions.

What other plans do you have for next year?

Our outlook is to become more like a hybrid venture capital-private equity fund. So we do really like venture capital and we want to develop that, [however] we’re not a traditional venture capital company. We are more like a private equity firm, providing great deals to our investors. So we want to expand our LP [investor] base.

We want to start some more funds next year, [in the fields of] climate tech and deep tech slash artificial intelligence, which then is very complementary to the current business that we do. So we have organisations like the International Monetary Fund and the World Bank say every investment must play a critical role in climate technology. So businesses developing green hydrogen, green agriculture, green steel and green cement. Every single business, every single thing that we have on this planet needs to become greener. And those are very interesting business opportunities that come with climate change.

That field is very different from the financial sector. Do you guys have the expertise?

So that’s a very good question. Not yet. And to be honest, two years ago, we didn’t have the expertise in fintech. And now we are very specialised and we have a lot of expertise. So it comes a bit learning by doing, obviously, and we are expanding our team. We want to employ more investment analysts, investment managers, in our core company. But then, for example, in financial technology, Alain and I, we said okay, we need a third person in our partnership for financial technology that has a lot of expertise [editor’s note: which led to the recruitment of former KPMG CEO Georges Bock]. And we could do the same with climate tech. We’ll see who could be a good partner for us in that.

A version of this interview appeared in Delano’s 2022 forecast edition. Be among the first to read interviews and features in the magazine by subscribing today.