Monaco resident and Venture Capital fund manager, Dr. Alexander Kern is on a mission to democratise Monaco’s traditional and often closed investment scenery. Before arriving in the Principality of Monaco, Alexander was running as a candidate for state parliament in Germany and he was the youngest ever member of the board directors of Germany’s largest bank, the Sparkasse Bank.
Dr. Alexander Kern is a venture capitalist, fund manager, professor, and biggest blockchain influencer on social media. He was born in Landau, Germany before he decided to relocate to the Principality of Monaco over thirteen years ago.
Alexander, you were just 18 years old when you were already involved in the political scenery of Germany.
“I always wanted to bring positive changes to people’s lives. Already during my high-school studies, I decided to get involved in politics and so I was running as a candidate for state parliament in my area Rheinland Pfalz. Even though I was so young, I got an overwhelming result, which opened a lot of doors for me.”
After the elections, Alexander decided to turn his focus to the banking industry. He became the youngest board of directors in the history of one of the largest bank in Germany, called Sparkasse.
Since Alexander was always fascinated to travel and go to study abroad, he decided to enroll at the International University of Monaco (IUM).
“I knew the Principality of Monaco since my childhood and I also heard that the International University of Monaco is a great establishment. Monaco offered me the full package, business, seaside, and of course sailing.”
Sailing is one of Alexander’s passions, but it represents much more in his life. For example, in the first years in the Monaco area, he lived onboard his family-owned sailing boat. Later on, he found love and married Marcela de Kern Royer, who is a preeminent person of Monaco’s superyacht industry.
After finishing at the International University of Monaco, Alexander did his master’s degree in Nice and his Ph.D. at Aix-en-Provence. For a brief period, he also lived in South-East Asia and New York to complete his studies.
“I was blessed to work on a project for the European Commission together with Professor Richard Barry Freeman at the Harvard University, who is one of the top economists in the World. He taught me a lot about the key motivations why employees hold shares in a company. It was truly an eye-opener and it also let me research Silicon Valley based startups.”
Alexander considers this a similar thinking as the methodology that says: “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”
Do you agree with the model of company share over the higher salary one?
“It depends on multiple factors I guess. The two most important ones are first, to see one’s personal situation and second, it also highly depends on the stage the company is at,” - explains Alexander. - “For instance, when you have to pay your rent or the education of your children, you need cash. When you are in a good financial situation, you can consider having corporate shares, but again it depends on the current growth stage of the company.”
In general, when we talk about business growth, we identify multiple stages in the life cycle of a business. For instance, seed stage. The first phase for every business is grow-or-fail. At this stage, the main problem is to develop a first product or service and to educate the market about it to obtain a first product-market fit. In this period, business owners have two main “enemies” called time and cash flow.
“Make no mistake, working with a startup business can also be exceptional because it is exciting whether you can prove the concept and break down the obstacles. This is a phase when you invest your time, energy, knowledge, and money into passion as well as because you believe in the person behind the company,” - says Alexander.
Businesses that have obtained enough customers to become true businesses thanks to their hard-working entrepreneurs, but are not yet profitable, are the early-and growth stage businesses. These are the ventures where we can already observe some sort of proof of concept. However, they still need to make significant efforts to stabilise their existence and scale their business models, respectively. Usually, this is the stage when pilot products and ideas have already moved (or are ready to move) into quality production. This is when Venture Capitalists usually are willing to invest the first time in a startup.
“Obviously, the risk is still there, since, after a strong start, the business may fail completely. However, with proper partnership, specifically, when the investor is not just “loaning” the funds, but mentoring and helping the business through his/her connections, the early-stage business has a higher likelihood of survival than an average startup.”
Linking it to employee share ownership, the growth stage of the startups can be very different and for the average employee, it is always less attractive when a business is in a risky stage. Owning company shares is only good when the company starts scaling. This is the moment when people are willing to take a lower salary because the value creation opportunity is higher than the financial downside risk.”
Did you always want to work in the field of finance?
“From a very young age on, I liked politics because I thought I can make a difference. Growing up, I realised that politics is very political,” - laughs Alexander. - “You have a certain limitation which was frustrating for me. On the other hand, I always thought that finance can be exciting too. In the venture capital space, you can create a real difference, at the same time you can also make a profit. I also like to invest into unique minds and revolutionising technologies, especially if I can also add value and participate in the developments.”
After gaining vast amount of knowledge and experience, Alexander returned to the Principality to start his own startup. He started to focus on scaling startup businesses and became a founder and shareholder of a number of local and international companies.
“By helping business owners, we brought the investment side into startups. That was the period when I had to realise that risk capital is riskier than I thought it was. However, it opened my eyes to why high-net-worth individuals do not like to invest in single ideas.”
Have you ever considered moving to a major capital city such as London, New York or, Zurich?
“At the beginning, I was considering such a change. You know, many people have this misconception that bigger cities equal more opportunities. However, for some professions, this is not necessarily true. I quickly realised that some of these financial hubs are extremely overcrowded. For me, Monaco was the perfect choice because of its added values such as safety for the family, the very central Nice Airport offering perfect travel connection, etc. Nowadays, you have all the technologies to run a business even from a remote point of the world, so I decided to run my business operation headquartered in Monaco.”
Talking about your profession, what are the key factors to be good in it?
“My task is to consult and manage Venture Capital funds, typically from the innovative angles. What differentiates me from a typical fund manager is that I am not necessarily giving investment advice. My goal is to help and guide the Venture Capital fund to build up a strategy for the fund which can be consistent and more importantly aligned with the goal of its investors. So, the key factor is to have extensive knowledge of both sides of the table.”
Typically, in the venture capital field, we distinguish between various actors and entities:
- Venture Capital (VC) fund, is the investment fund and
- Limited Partners (LP) are the investors.
Venture Capitalists (VCs) or General Partners (GPs) are those who manage money on behalf of family offices, pension funds, and various institutional investors.
Placement agents and Brokers are those who try to attract more investors for the Venture Capital funds and to bring them in as Limited Partners. They only work on raising money.
Startups are the businesses that the Venture Capital fund funnels with investments.
“When a Venture Capital fund has an overall consistency, then it can be highly attractive to the investors. Part of my job is to reach that point from a strategic angle and to make sure that all the startups in the funds are the right ones, fulfilling the right criteria. This is especially true for Venture Capital Funds dedicated to impacting investments. However, the key differentiating in my job is that I am not selling the fund, I am the one who acts as an independent manager to make sure that it lives up for its original purpose.”
The Principality of Monaco is famous for the incredible amount of banks, wealth managers, and family offices that can be found in its small territory. Why do they need independent, third-party advice?
“Based on my experience, the typical risk comes from how these wealth managers and family offices select the startups. Family offices are typically open to investing, but since they are secretive by their nature, they are most likely not publicly known. This is the reason why often they end up in a way too small deal flows. I have seen so many incredible ideas as well as VC funds that could be more interesting for family offices and HNWIs, that could protect them from financial risks.”
But don’t they have the same opportunities?
“Not necessarily. When a startup is raising capital they will go to the well-known and established angel associations and Venture Capital funds. In many cases, they get rejected. In their desperation, they usually start to search for contacts to HNWIs or family offices. In other words, VCs pick the cherries and family offices remain with the unwanted leftovers. However, when the CIOs or principles of a family office decide that a pitch is worth discovering, they make the typical mistake. The family office usually asks their tech-savy trainee to check it out, which ends in a false investment decision, hence the family office gets burned. From this moment onwards they start to dislike the startups’ universe. However, in most cases the problem is not the startup opportunities, it is the method how they vet them.”
What do you think, what is the solution?
“If a family office has no competent resources to allocate, then delegation can be a good solution. However, the key is to have someone who has an overview of the entire market, potentially with real-life experiences. This is such an essential step. In many cases, the cost of an external advisor or investing in a VC fund is smaller than hiring someone, while the potential is immense. Typically, I work on a one-year basis which is enough to build up proper strategy and structure.”
Obviously, you believe in Venture Capital funds because of your profession.
“No, not because of that. It is a logical decision. When a family office invests privately, they invest in a small number of deals. I would say like 2-5 deals annually. On the other hand, a Venture Capital fund usually contains a minimum of 10-50 deals and a VC fund of funds even up to 500 deals. Purely by mathematical logic, your chances are much higher that one of your investments will actually over perform the expectations. You know, people often complain and the media is full of facts stating that 9 in 10 startups are failing. A smart fund manager should not ignore this. This is why the real goal is to diversify your investment as much as possible and for HNWIs and family officies, it is much more efficient and better to invest in Venture Capital funds. This is why it is bad when small investment clubs promote themselves as venture capital clubs, while in reality, they only do syndicate types of investments into a small number of deals. It is really fundamently not the same and very risky.”
Probably it is easier for them as well since there are already professionals in place to analyse the deal, right?
“Yes, but we should not overlook the fact that the top tier Venture Capital funds are often oversubscribed. This means it is very hard to get in top tier funds. One of the solutions is to bundle many family offices and to get access jointly to top tier funds. Alternatively, what I am also working on is to develop a “fund of funds” model to diversify in various funds.”
Do you think the Principality has the structure for these types of funds?
“Truth to be told, there are much better legal structures for funds such as Luxembourg for instance, while the Venture Capital team can be based in Monaco. Another challenge with Monaco is that the Principality is not an internationally recognised location for funds. I would even say that the negative PRs, such as the Panama cases have already created a challenging reputation. This is also why one of my main mission is to help local actors to get access to the best investment classes. I believe that in the long-run we will be able to recreate the positive reputation of the Principality of Monaco and there will be many funds operating in Monaco. That’s what I really want to support.”
How do you find the investment appetite of the high-net-worth individuals?
“Many high-net-worth residents of Monaco are coming from entrepreneur backgrounds. Some of them are very active and they want innovation and access to new technologies. This is a global trend, even top companies are creating “accelerator” programs to get to the technology first. Investors often invest in innovative startups because this way they can integrate first new technology into their underlying businesses.”
Do you think Monaco’s investment market is old-fashioned?
“I would say Monaco has a very traditional investment market with established private banking, focusing on structured products. Because of this, the high-net-worth individuals in Monaco do not see a lot of quality investment opportunities which are outside the private banking space. This leads to the fact that the only opportunities they see are the ones by individuals coming to Monaco to pitch with the misconception that everything is made of gold here. Obviously, most of these pitches are a mismatch to the quality criteria, and they are not suitable. This is also the reason why seemingly very few residents invest because the presented opportunities are disappointing. In the past years for me and my team, one of the key challenges was to develop, present and bring high-quality opportunities to Monaco.”
What are the greatest misconceptions in the Venture Capital field?
“I would highlight four of them.
The first one is coming from the side of the investors. They tend to believe that their money is locked up for a very long time. In reality, Venture Capital funds never take the investment money in full. The Investor is requested a commitment of ten years. There are several small capital calls in the first three to five years, but if the structure of the Venture Capital fund is right, the fund starts to return the investments already after five years. Therefore the entire commitment is never invested and liquidity flows are given all the time. It should not take longer than five years to be profitable.
The second is that many people think that Venture Capital is a risky market. This is a great misconception because if you have the right portfolio, it is not riskier than the SP 500 market. Ideally, you have around 500 startups in your portfolio, a scale which is not possible for family offices if they invest directly but which is not a problem through VC fund investments. In this moment investors are outperforming the SP 500 and all other benchmark indices.
Also, I have to mention that many startups do not know what Venture Capital is. They think they are just wealthy old guys playing golf. Actually, the Venture Capital fund managers are the ones who work with high due-diligence representing their investors’ interests. Venture Capital is just the facilitator for innovation and profitability.
Finally, I would also highlight that early-stage Venture Capital fund managers might also struggle to raise their fund. Hence it is also a core business to manage the investor relations and not just the startups.”
Alexander is also a professor at the International University of Monaco and the EDHEC Business School in Nice, teaching entrepreneurship, management, startups, and all the topics related to them. One of these is naturally the structure and benefit of a Venture Capital fund. From your own experience, what was your biggest lesson that you have learned in business?
“For me, the biggest lesson was the realisation that many people do not understand our industry. Investment needs innovation and for this, it is important to clarify for every involved party the overall way of how it actually works. Especially from an investor’s point of view. When the parties do not understand each other it is very hard to move from A to B.”
Helping such a wide range of people from students, young entrepreneurs, family offices, and professional fund managers, Alexander decided to share his knowledge on a broader scale. His new book, “The Future of Kinetic Shared Innovation. How to Manage Your Venture Capital Fund” is scheduled to be released this summer.
“I realised that I am helping so many people, and often the questions and problems are very similar. I wanted to create a holistic view to let the readers understand how everyone operates. I firmly believe that together we can optimise the process to set up a Venture Capital Fund for the greater good of society. Understanding the industry, the task, and the responsibilities of its actors is beneficial for everyone.”
What would your personal advice be to people who are looking to structure their investment portfolio?
“When you invest, the personal fit is highly important. The investment story has to be aligned long-term with the principles of the high-net-worth family. It is truly in the interest of the investors, and they need a deep underlying belief, otherwise, their capital will be at risk.”
Would you invest in impact investment or rather a technology one?
“Let me clarify a misconception according to which investing is always for financial returns. Even if impact investing is more like a trend, it is not a charity or a donation. In business, there are multiple ways to make an impact. For instance, if technology is used wisely it makes an impact for many stakeholders of the underlying business. Therefore, a single investment can support a big community of people. But in every case, it needs to be individually understood.”
Do you think that at some point Artificial Intelligence will overtake the Venture Capital industry?
“Yes, Artificial Intelligence is already there in many of our activities. Artificial Intelligence can help to remove the public hate related to capital misconception. However, I believe that we are in a very early stage. We still need people who understand and operate with ethical manners.”
Are you working on your own Venture Capital Fund?
“Yes, together with my team we are working hard to set up a fund that can be also suitable for the Monaco market. Our aim is to eradicate all the misconceptions of this industry that will allow innovation to flourish for a greater good.”
Tell us more about your related goals and how your Venture Capital Fund looks like.
“My idea is unlike others’. It comes from the point of solving the investor issues when Venture Capital is not interesting for them. The key for me is to try to solve and focus on the worries by offering the investors and family offices a clear understanding of the industry. Saying this, the goal is to allow investors to participate in the VC market having a lower-risk through portfolio and a firm diversification, while generating top tier VC returns outperforming other asset classes. This can be an essential step to democratising the Venture Capital space,” - says Alexander. - “The key is to remove the feeling of risk and to offer something that actually feels like an investment and not a lottery. This is why I often prefer to invest in a large number of startups because from a pool of 500 startups there is a high probability that some of them will be a unicorn than from a smaller basket of startup investments. That fact alone outperforms the entire industry.”
Do you have any role models?
“I give credit to one of my mentors, the German fund manager, Wolfgang Wetzel. I look upon him for many reasons, including loyalty, trust, and forward-thinking. Currently, I am also highly motivated by my wife who is disrupting the yachting industry and encourages me to think that nothing is impossible.”
Alexander is hugely successful on TikTok as well. He also likes technology and some of his investment-related posts are viewed by over 6 million people worldwide making him the most-watched digital innovation influencer in the world.
“I am interested in innovation and technologies and I like to play around. I realized it is really hard to change the obsolete mentality of the senior generation but I am focused on the future generation, and hence social media is a tool to communicate with them, to inspire and educate them on investments.
Regarding TikTok, I am excited about the algorithm and technology behind it because its algorithm is focused on the value of the content and not on the celebrity factor. The benefit of TikTok is that if you have interesting and valuable content, then it will bring the content higher, while on Instagram a celebrity post is always more valuable, no matter if it has credibility or not.”
TikTok is the natural evolution of all the other social media channels.
When Twitter was launched, nobody thought that we will once read news in 160 characters. In contrast to this, Instagram is purely visual, and not about the message. So the natural evolution was to revolutionise these platforms.
“I find TikTok being the mix of YouTube, Instagram, and Twitter. It is the combination of entertainment and education in a visually appealing way.”
Besides business, Alexander met with his future wife, Marcela de Kern Royer in Monaco.
They are also the perfect fit for each other because of their professional mentalities. Marcela is aiming to improve the yachting industry from an ethically responsible approach to a more sustainable industry, while Alexander is on a similar mission for the investment scenery.
Alexander also published a children’s book titled The Unicorn Ring Book in six languages, explaining the relationship between creatives and their mentors.
What was your motivation behind this book?
“My daughter, Gracia Sophia just turned two and I was reading several children’s books. I felt that the books we had are far away from what papa does, and I wanted to create a book for her where she can easily understand my profession. I wanted to develop a story that is about creativity and the facilitators of capital. In my story, the wise unicorn is a mentor who helps the innovative ideas of land and sea animals. In the book, all the animals have an idea, represented by a ring. The ring that fits the horn of the unicorn is the one that will be mentored. It is similar to my field because we see thousands of ideas and pitches over a year, but we only select the ones that fit our profile.”