I have been on the hustings around Frankfurt this month talking to private banks and German investors. I represent companies – especially small cap Australian businesses – looking to expand awareness amongst German and European investors.
I thought I would share 4 takeaways that maybe useful for others thinking about seeking funding on the continent.
If it’s not a German company, we don’t want to know about it
This has been the most frustrating response I have heard from investors and private banks in Germany. One of my clients is dual-listed (Australian Stock Exchange and Frankfurt Stock Exchange) and has a significant European shareholder base. I thought such a company would be on the radar of small capital researchers.
More than half of my contacts have told me that unless the business is German and domiciled here, they will not even consider looking at it – no matter if it is listed on a German or European exchange.
I think this is important for companies globally to be aware of. Often, European stockbrokers will encourage an overseas business to dual list it on a German or European exchange without fully explaining that listing alone is insufficient to attract the attention of German investors or stockbrokers.
Many companies will not even be considered if their business is not physically located in Europe. Even if a company is on a potential watch list, what is required is further grunt work on the ground over here to have it examined in detail.
Impact is great – but show me the profits, say German investors
There is trend towards impact investing. This is defined as investing decisions that will not only result in a measurable financial return but also bring about positive and measurable social benefits.
I have heard a lot about how much theoretically investors want to make a difference – but will still make resource allocation decisions primarily on the financial strength of the investment proposal. This is an approach I generally agree with; otherwise its not really investing – its giving.
There does appear to be a reluctance though to ask for as much information on the social and environmental impact as there is to ask for the financial metrics.
Regenerative farming is on the radar of some investors
I have been talking to investors about an exciting regenerative agricultural company I represent (Wide Open Agriculture Limited). Regenerative agriculture describes a group of farming practices that seeks to reverse climate change by gradually rebuilding soil matter and restoring degraded ecosystems and improving biodiversity.
The more I learn about regenerative agriculture, the more excited I am about its potential to transform degraded farmland. Especially interesting is carbon sequestration.
Soil, before clearing for farmland, is a great repository of carbon. When cleared for large-scale agriculture soil loses about 30-to-40 percent of its organic carbon – which ends up as carbon-dioxide in the atmosphere and contributes towards global warming.
With the use of regenerative farming techniques such as cover crops, compost, crop rotation and no tilling, carbon can be returned to soil (sequestration).
If regenerative agriculture can achieve global scale, it could be possible to offset as much as 20 percent of carbon dioxide emissions. Impact investors are starting to become aware of these facts and how land will be improved through regenerative farming.
I have learned that European impact investors are interested in the social and financial benefits of regenerative agriculture and are keen to look at business proposals in this space.
Brokers’ research on the company is essential – be prepared to pay
When an investor or private bank does decide to take a closer look at the company, they will only do so if provided with a stockbroker’s research or valuation on the company.
In Australia stockbrokers send their research to banks, high net-worth individuals and investors free of charge (in most cases). In the European Union, the laws were changed in 2018 so that banks and brokers must charge for their research. These costs are generally passed down to the client – especially for small capital companies.
I have talked to a handful of research firms in Germany that will prepare a report for my Frankfurt listed clients – for a fee.
In summary, for companies or businesses thinking about approaching German investors or private banks, the good news is that, generally, they are thoughtful and patient and willing to listen a considered and detailed proposal.
About the author:
Matthew Reynolds is an accountant, management consultant and Virtual CFO living in Frankfurt.
Matthew is available to work with expat companies and businesses requiring assistance in Frankfurt or global companies seeking to expand operations to Australia.