From Foundations to Innovation: How Entrepreneurial Families can Drive Economic Growth in Northern Bavaria
In a nutshell:
- Wealthy entrepreneurs like Susanne Klatten or Dieter Schwarz and their families created a blueprint for utilizing charitable foundations as key contributors to regional economic transformation in Germany.
- Initiatives such as UnternehmerTUM and the Federal Government’s Startup Factory are instrumental in fostering innovation and economic growth, offering vast opportunities for entrepreneurial involvement in Northern Bavaria.
- We shine a light on the importance of maintaining trust in philanthropic efforts and on the challenges philanthropists need to navigate.
Family foundations and wealthy entrepreneurial families can play a decisive role in the economic transformation of whole regions. Does this also hold true for Northern Bavaria? We sat down to discuss this with our in-house expert Dr. Judit Klein. She’s not only the Head of Startups at ZOLLHOF, but also wrote her PhD about the link between family foundations and corporate social responsibility (CSR) of business owning families in the US.
ZOLLHOF: Judit, can you tell us a bit about the importance of family foundations in general and especially for the entrepreneurial ecosystem here in Germany?
Judit: Wealthy entrepreneurial families oftentimes use foundations to actively engage with and support their communities. Foundation giving has witnessed remarkable growth, now contributing significantly to charitable causes. For example, in the United States in the 80s, foundations contributed just 5 percent of the total donations. Fast forward to our times, and that figure has surged to 21 percent which means that $1 out of every $5 given to charitable causes comes from foundations. What’s noteworthy is that roughly half of all foundation donations come from family foundations, which is a significant contribution, given that in 2022 total foundation giving reached an astonishing $105.21 billion.
American family foundations make up 60% of all foundation types, making them the most common, publicly visible and institutionalized form of charitable giving. Family foundations do not have universal legal definitions and their setup depends strongly on national legal environments. One significant distinction between family foundations in the U.S. and Germany lies in their relationship to the family business. In the U.S., strict rules and regulations have been in place since the 1970s to legally separate family foundations from the family business. In contrast, German family foundations primarily serve as an antitakeover vehicle, allowing families to maintain control of their family firms across generations in a tax-relieving manner.
Nevertheless, successful German entrepreneurial families also utilize (non-family) foundations for their charitable giving. Unlike in the U.S., German foundations do not have a legal obligation to publish their numbers, therefore it is difficult to have exact numbers on the German foundation landscape. According to available official statistics from 2022, there are around 25 thousand foundations in Germany, two-thirds of which are privately-owned .
Oftentimes there is a strong connection between entrepreneurial families and their local communities. Many of the family businesses are based right where the owners live, and they get actively involved in community issues through their companies and foundations. What’s interesting is that many of them also attribute part of their financial success to their communities. The close ties between entrepreneurial families and their communities drive them to support local initiatives financially and with social capital, often transforming their regions into economic powerhouses.
The impact they can have on the entrepreneurial ecosystem here in Germany is probably best shown through the example of entrepreneur and BMW heiress, Susanne Klatten and UnternehmerTUM. Over 20 years ago, Mrs. Klatten through her foundation initiated her continuous investment in the entrepreneurial ecosystem by establishing Germany’s largest innovation center at Technical University of Munich, — UnternehmerTUM. It’s no surprise that this serves as a blueprint for many others, for example Dieter Schwarz, Lidl founder, who is also using his foundation to make his region more innovative by creating an AI center and startup valley in Heilbronn.
ZOLLHOF: Do you think initiatives like UnternehmerTUM or those by Dieter Schwarz can be repeated?
Judit: Yes, absolutely. Replication is not just possible; it’s essential for maintaining Germany’s competitiveness and innovativeness among other leading startup nations. Especially in probing times like these, when we witness record numbers of startup insolvencies (65% more compared to 2022) and a difficult financing climate (almost 40% less investments). Munich and Berlin are currently home to the strongest startup ecosystems of the country and other regions need to follow suit to create more entrepreneurial power in Germany.
The German Federal Government’s Startup Factory competition, aiming to establish up to 10 startup hotspots, aligns perfectly with this goal. It’s an excellent opportunity for entrepreneurial families to get involved and invest in their regional startup ecosystems. ZOLLHOF aims to be the Startup Factory for Northern Bavaria, and we are currently preparing our application. We already have great support from some of the well-known local entrepreneurs such as Peter Kurz, Ingrid Hofmann and Gerd Schmelzer who time and again significantly contribute to local initiatives advancing the region.
ZOLLHOF: It’s safe to say that the whole team is already wholeheartedly working on ZOHO Factory! How is ZOLLHOF already a great place for entrepreneurial families wanting to support the local startup ecosystem?
Judit: The region has a rich tradition and legacy of entrepreneurship and innovation with many successful multigenerational family businesses. Among them, Faber-Castell, the well-known pen and office supply manufacturer founded in 1761 in Stein, near Nürnberg, a family-owned business currently led by 9th generation family members. Two of our corporate partners, Siemens and Schaeffler also have familial backgrounds with differing levels of family ownership and involvement.
ZOLLHOF, housed in the renovated ZOLLHOF building with a history dating back to Johannes Zeltner’s groundbreaking technological invention of red ultramarine marking the very first patent in Germany, stands as a testament to the region’s innovative spirit.
Many entrepreneurial families in the area actively support startups with innovative ideas. For instance, the Oschmann family, owners of Müller Medien GmbH, and the fashion retailer Wöhrl family, Dagmar Wöhrl is one of the investors in the startup show Höhle der Löwen, both actively invest in startups, among others the ZOHO alumni Vitas. Dieter Schwarz has also already contributed to the ZOHO ecosystem by investing in Traplinked through his international seed-fund BORN2GROW. Partnering with established companies and visionary families like the Oschmanns and Wöhrls further enhances our ecosystem’s vibrancy and potential.
Navigating philanthropic endeavors can be daunting amidst public scrutiny. What advice do you have for entrepreneurial families?
Local entrepreneurial families have a unique connection with the region they live and operate in — it’s a two-way street. They contribute to their communities, and in return, their communities know them well. This closeness, however, makes them more vulnerable to the opinions of community stakeholders, especially if the line between family and business actions is rather blurred.
The public often questions whether wealthy entrepreneurial families genuinely care about the causes they support through their foundations. Therefore foundations connected to entrepreneurial families operate in a highly skeptical context, especially when it comes to their public perception. This skepticism is fueled by media speculations about how their giving relates to their businesses. Take, for example, recent articles on “charitable billionaires” that propose these families donate part of their fortunes to address problems caused by their companies. In a similar vein, when Jeff Bezos, founder of Amazon and one of the world’s wealthiest individuals, declared a $10 billion donation to combat climate change, opinions varied. Some admired his efforts, while others highlighted the inconsistency, noting that Bezos’s personal generosity doesn’t match Amazon’s environmentally harmful practices.
When inconsistent information surfaces, the media and the public often accuse seemingly generous entrepreneurial families of hypocrisy. To counter this skepticism in times when wealthy entrepreneurial families face increasing scrutiny for their social engagement efforts, our study* shows that entrepreneurial families opt for aligning their community social engagement, whether through their foundation or their business. Thus, maintaining consistency between business practices and philanthropic endeavors is paramount. Aligning community engagement efforts fosters trust and authenticity, mitigating skepticism and enhancing impact.
ZOLLHOF: Thank you so much for your input, Judit. Lastly, what would you say to those entrepreneurial families eager to contribute to the local startup scene here in Northern Bavaria? How can they get involved in ZOHO Factory and what might they miss out on if they don’t seize this opportunity to shape the future together with us?
Judit: As mentioned before, our region has a long-standing entrepreneurial spirit and today it is home to many leading tech companies as well as top-notch talent thanks to excellent universities and research institutions. Take, for instance, the inspiring journey of Alex Blania — a former FAU student, now CEO of Worldcoin, a groundbreaking blockchain venture backed by Sam Altman, co-founder of ChatGPT, boasting a staggering valuation of 3 billion US dollars.
Since 2017, we’ve been on a mission to make entrepreneurship happen. We have worked with hundreds of startups, many of them are now top of their league, drawing in global talent and investment. In addition, with more than 100 innovation projects we helped established companies to develop new digital business models. Yet, there is so much untapped potential! Our vision is more innovative deep-tech startups, top-tier talent, and a thriving region. To achieve this, we’ve identified three key pillars: creating more financing opportunities, offering founder scholarships, and investing in hardware innovation. The ZOHO Factory is the key to this vision. Join us on this exciting journey and reach out to our CEO, Benjamin Bauer, for more details. Let’s shape the future of our region together! 🚀
An Interview with ZOLLHOF Head of Startups Dr. Judit Klein by Ronja Pachl and Anne Christin Braun.
Sources:
*The research paper entitled It’s a Family Affair: A Case for Consistency in Family Foundation Giving and Family Firm Community CSR Activity co-authored by Prof. Hana Milanov, PhD (TUM) and Prof. Cristina Cruz, PhD (IE Business School, Madrid) can be openly accessed here
https://www.unimagazin.ovgu.de/Beitr%C3%A4ge/2023/Dezember/Von+Bertelsmann+bis+Warentest.html
