Bridging Succession & Innovation: A New Path for SMEs
An interview with search fund founder Bastian Faulhaber.
In this edition of the SME Tech Leaders Newsletter, we chat with Bastian Faulhaber, founder of Faulhaber Unternehmensnachfolge and a long-time builder in both the startup and SME worlds. Bastian’s path has taken him from growing up in a small German village with deep family ties to local businesses to founding a solar energy startup, to now taking on one of Germany’s biggest challenges: SME succession.
Bastian shares how his upbringing, venture capital and startup experience, and passion for digital transformation led him to launch a modern search fund focused on acquiring and operating profitable SME businesses. We talk about the realities of succession planning, why buying a company can be smarter than starting one, and how Gen AI and proactive outreach are reshaping the way successors find and grow traditional businesses.
Dive into this conversation with Bastian for a unique look at the future of ‘German Mittelstand’ through the eyes of a digital-native successor.
Can you tell us a little bit more about yourself and your background?
Yes, happy to. I’m originally from the southwest of Germany, I grew up in a small village with only around 2,000 people. I was brought up in a family business setting. My dad is a tax advisor who has been serving a lot of SMEs for many years. Acting as a trusted, long-term partner to these ‘Mittelstand’ companies actually led him to get involved in the succession of a local brewery – not just from a tax advisory perspective, but also by becoming involved in the business itself. This early connection to the SME world definitely shaped me during my childhood and teenage years.
After high school, I moved to Munich to study mechanical engineering and business administration, which was a really interesting combination. Later on, through my Master’s degree studies at ESCP, I got the chance to immerse myself in the startup ecosystem in Berlin. That’s also where I got to meet you, Videesha [Editor’s note: The interview was conducted by Videesha Boeckle, GP at āltitude.], when we both worked at Redstone. Working at a venture capital firm was a great experience to build my network and get exposure to a wide range of digital business models.
But I was always really keen to move to the other side – to actually build ventures operationally myself. That’s why I eventually joined BCG Digital Ventures, a company builder where I spent almost 4 years building businesses for corporate partners. I always describe it as a bit of a dream world: There was funding from corporates as well as super motivated and highly qualified employees. It was great fun and I learned a lot about building teams and developing new business models. But at the end of the day, it was never my own company. We were still service providers to our clients.
That led me to the third step in my journey – founding my own startup about two and a half years ago in the solar energy space. It was a roller coaster, full of ups and downs. In the end, we merged with a competitor in the market. This allowed me to reflect and think about what I really wanted to do next, bringing me to what I’m working on today – combining digital business building with traditional SME business models under the roof of Faulhaber Unternehmensnachfolge.
You mentioned your dad’s long-standing work with SMEs, including the story about helping with the succession of a local brewery. Is that what sparked your interest in SME succession? What inspired you to launch your current company, and what gap did you see in the market?
From a personal perspective, having lived in Berlin for about ten years now, allowed me to learn a lot and grow professionally in a relatively short amount of time. It's been a great experience. But I’m 35 now, and I feel ready to really commit to something long-term for my next professional chapter. That’s one side of it.
The other side is what you mentioned earlier: growing up with that SME exposure through my dad. Seeing him go through a business succession with the local brewery, really left a mark. I’ve always been inspired by these small, very local, often niche SME companies that are doing incredibly well – businesses that have found real product-market fit and built something solid over time.
However, there is a growing problem in the market: In Germany, 1.2 million SMEs are owned by people who are 60 years old or even older. There are around 200.000 companies that are actively looking for a successor until the end of 2025. Especially with the ‘baby boomer’ generation heading into retirement, there is a massive gap. In some cases, a family member is ready to take over the business. But many of these SMEs don’t have someone lined up to take over the reins – that’s where external successors come in.
On top of that, there is another factor: Given my experience with startups and venture capital, I see that a lot of these smaller SMEs haven’t evolved much in terms of digitisation and their business models. I recently read a study, which stated that only 20% of SMEs actually have a proper digital strategy. That’s a massive opportunity in itself.
This is what we’re trying to bring together with Faulhaber Unternehmensnachfolge – stepping in as a successor for an SME, and then gradually combining that with our digital expertise. It’s not about turning a traditional company into a tech startup overnight. The first priority is always making the succession successful. But once that’s in place, there’s a lot of potential – especially with tools like Gen AI – to introduce meaningful improvements, regardless of the specific business model.
In Europe, one in three SMEs is expected to change hands in the next decade. Why do you think so many business owners struggle to find a successor? Where are they currently looking for one?
I’ve already spoken to numerous SME owners and what surprised me is that many of them don’t actually have succession planning on their radar. They get to 60 or 65 years of age and then suddenly realize: “Hey, I haven’t really thought about this!” They’re so deep into their work, and they enjoy it so much that they just assume they’ll keep going for many more years.
But at some point, the reality sets in – they have to think about the future of the company and how that transition at the management level is going to happen. In my experience, these founders are incredibly passionate about their businesses. Sometimes one of their children is at least somewhat interested in succeeding them, but that doesn’t always mean they’re qualified for it or even really want to take over the company. So as you said, there is a huge number of SMEs struggling with succession. I am potentially the successor of one business – but ideally, there should be many more people like me stepping up to take on this generational challenge.
As for where owners are looking: For example, we’re working with brokers, and there are platforms that help match business owners with potential successors. I think that’s a great starting point – it creates a space where people who are actively searching on both sides can actually find each other.
Can you share some examples of such platforms?
One example is DealCircle, another one would be DUB Deutsche Unternehmerbörse. There are probably 10-15 of these platforms out there. Some are more locally focused, others target specific industries. They’re usually supported by M&A brokers, which makes sense.
With our succession business, we go one step further: We research industries and business models we like, and then proactively reach out to SMEs. We're trying to bring technology into the process as much as possible. For example, we use an AI agent to help us identify potential companies, personalize our outreach, and even analyze certain businesses. That’s a big part of how we work and how we want to continue working going forward.
So it’s really a combination for us – we’re using existing platforms, brokers, and M&A advisors, but we’re also doing our own outreach. Given his role as a tax advisor, my dad is also a great sourcing partner in this regard as he is in touch with a lot of SME owners and has those long-term relationships as mentioned before. We’re tapping into that network while at the same time building our own pipeline of relevant companies we want to approach.
A lot of people gravitate toward starting VC-backed companies, even though buying an SME could be a smarter way to become an entrepreneur. Why don’t more of the potential founders out there consider the succession path?
My perception is that buying SMEs has become a lot more interesting these days. As mentioned, I’ve been part of the venture-backed startup ecosystem for about ten years. It was a great experience, but it also came with the constant pressure of chasing the next funding round as you’re always dependent on external capital. Sometimes, the thinking within the tech space is a bit short-term and the startup scene in Berlin tends to be a bubble that doesn’t reflect the rest of Germany.
Whenever I’m back home in the south of Germany and talk to people, they’ve never even heard of the startup world. That’s something to keep in mind when you’re thinking about buying an SME. These businesses aren’t normally based in Berlin-Mitte. They’re often in small towns, in quieter regions, far away from the tech hustle. You’re not working with 25-year-old business school graduates who are pulling all-nighters or BCG consultants grinding past midnight. Your office won’t be in a hip coworking space in the city center. Instead, you’ll be surrounded by experienced employees, working in a less digital, more traditional environment – maybe in a town of 10,000 people.
That’s what the job looks like, and you have to be okay with that. You have to want that, because it’s a long-term commitment. To really be a successor, you need to be present, on-site, with the people. At first, it might sound charming, but you need to truly understand what that means for you and for the business. After all, that’s what I’m personally looking for now – this type of long-term business engagement with an established foundation, where the product-market fit is already there, but there’s still plenty of room to grow.
Based on your research and the tools you use, what industries or business models are most interesting to you right now in terms of acquisition opportunities? What exciting trends do you see?
We’re trying to approach this in a thesis-based way – a bit like VC firms do it. In general, we’re only looking at profitable companies. Ideally, we want to acquire a business with somewhere between €1 to €8 million in EBITDA. We really like companies that have a diversified customer base, long-term customer relationships, are B2B-focused, and are relatively low in capital expenditure. That means we’re leaning more towards service-based businesses rather than capital-heavy operations like manufacturing or production facilities. We are looking for business models where we can really apply our expertise of building digital products and services.
To give you a specific example: Right now, we’re looking at a company that conducts energy audits for real estate companies. They literally write 30-page audit reports in Microsoft Word, and they’re achieving a 50% EBITDA margin – in a completely non-digital setup. That’s the kind of business we find super interesting, because there is a lot of room to make things more efficient using Gen AI and other digital tools. It’s these kinds of less digital businesses that we want to help evolve over time.
Industry-wise, we really like the TIC space – testing, inspection, and certification – which is where this energy audit company also falls into. It’s a very knowledge-driven segment, and we see a lot of potential for technology to play a big role in modernizing how it operates. It’s also a fairly regulated space, which means you don’t get tons of new competition popping up overnight. Since we’re planning to buy an existing business, we get a head start with a strong foundation that we can build on for future growth.
Digital technology can be a huge unlock for SMEs, but it can also threaten existing business models. How do you think about defensibility in this context? What makes an SME resilient to new competition?
I think a lot of small SMEs will disappear if they don’t take the next step in terms of digital evolution. That’s where I see companies like ours come in – it’s our task to help develop these existing business models further using technology so they can succeed in the long term. Tools like Gen AI can play a huge part in that. If a company is maybe only 5% digital today, we believe we can help get it to 60 or 70% – especially within their niche, where they already perform well.
Take something like B2B sales, for example. In many of these companies, it’s still a completely manual process. But if you think about outreach, targeting, all of that – Gen AI can significantly streamline and digitalize it. So I really see this transformation as a big opportunity.
At the same time, I sometimes wonder whether it might make more sense to just build a new company from scratch. Because if you’re aiming to create something digital-first, it’s not easy to get there overnight with an existing structure. But in the TIC space, which is very regulated, I think there’s a real advantage in buying an existing company. You get access to valuable assets and can use digital tools to build on top of that. That’s also one of the key reasons we’re focused on this particular market.
How do SMEs adopt new tools and workflows? Which challenges do you see in this regard?
It's quite an interesting question… I have three business partners who have worked as service providers for SMEs, building Gen AI solutions. They’ve been doing that quite successfully. But one of the biggest challenges they’ve shared with me is often the lack of a decision-maker within these SMEs – someone who truly understands what their business is doing and is committed to supporting that necessary technological evolution over the long term.
It’s tough to drive real change when you’re just a service provider. It probably makes a big difference if you’re also a shareholder or if there’s at least someone in charge who is digitally inclined and invested in making the transformation a long-term success. That’s why I think it’s so important to have the right stakeholders involved and that there’s alignment at the shareholder level if you want to evolve an SME over the mid to long term. It’s not about turning a company into a fully digital business overnight, but without that alignment, meaningful transformation is really difficult.
A lot of tech founders struggle with selling their software products to SMEs. Given your experience of having been on both sides of the table, do you have any tips for them?
I’m a big fan of really becoming an expert in the industry and the specific topic you’re targeting before approaching a company. With my recent experience speaking to a lot of SMEs, I’ve found it makes a huge difference to truly put yourself in their shoes – not just knowing the industry from a high level, but understanding what they’re actually struggling with right now.
The second thing I’d say is: speak their language. In my case, I’m mostly talking to men in their 60s or 70s – it’s very much my dad’s generation. So I need to show up as this young, motivated businessman, but also someone who gets their world and respects their perspective. That part’s really important. And interestingly, what helps us a lot is actually showing our digital expertise. At first, that might seem counterintuitive, especially with an older generation that’s less digitally inclined. But many of them are actively looking for a trusted, experienced partner – someone who can help them move forward. The key is to explain what you’re offering in their language, while still coming across as a real expert. That’s when they start to see the value.
You mentioned that you’ve looked closely at the B2B landscape and decided to focus on SMEs going forward. In your view, are there meaningful differences between SMEs, mid-cap companies, and enterprises – or do you feel they face similar challenges and operate in roughly the same way?
There is this stat that always gets thrown around, stating that 99% of all companies in Germany are SMEs. While that’s true, it includes everything from tiny businesses to quite large ones. So yeah, there are definitely big differences within that group.
We’re specifically targeting the smaller end of the spectrum – companies with around 5 to 100 employees. These tend to be very much founder-led, often less professionalised in terms of structure, and the CEO is still heavily involved in the day-to-day operations.
When you look at larger organisations, the owner or CEO steps back more, even though a lot still is run by them. What I’ve noticed, especially with the smaller SMEs, is that their leaders are operationally so involved that sometimes they haven’t thought much about their long-term strategy or vision. At some point, they started the business, it’s been running well, they’re happy with it – but they haven’t necessarily sat down and mapped out where it’s going next. As mentioned, that’s also reflected in the fact that many haven’t seriously considered succession planning.
So my impression is that smaller SMEs are often more short-term oriented, even if their businesses are doing really well. In contrast, larger organizations tend to be more strategic and future-focused, and that really comes through when you start working with them.
What was the biggest challenge in launching your SME-focused succession business and how did you overcome it?
Our company’s setup is officially what you would call a ‘search fund’. That means you raise the fund first, then go into a search phase to find a business to acquire, and then the real magic happens in the operations phase after the acquisition.
We’ve just entered the search phase now, having closed the fundraise at the beginning of the year. Since this is such a long-term commitment, I knew early on that the number one priority and biggest challenge for me was finding the right team. I didn’t want to do this alone as I’m very much a team player. With nexa partners, our search fund operating partner, I’ve found the perfect setup. It’s four of us, and everyone brings something unique to the table: my partners come from SME backgrounds, there’s strong tech expertise – including a CTO – and real experience in acquiring and leading companies in the SME space.
That mix of skills is super important. I actually took quite a bit of time to find these people and build this team, because while the model itself is interesting to a lot of people, I’ve noticed that in many cases it’s just business profiles coming together. For us, tech is a big part of the value we want to bring, so it was essential to find people who not only had the right competencies, but who also work well together as a team.
Final question. Is there a book, a podcast or a person who’s really inspired you in your professional journey?
I have to admit, I rarely read books. So it’s hard for me to recommend one. I actually get most of my inspiration from the people I’ve worked with. One person who really stands out is Michael Brehm who is a tech entrepreneur and venture capital investor at Redstone. What I really admire about him is that even though he’s already been successful with his prior businesses, he still shows up every day, working hard, supporting other entrepreneurs. That consistent drive to help others, even when he doesn’t have to, really stuck with me. It’s just part of who he is – this inner willingness to stay engaged and give back. That’s something I find incredibly inspiring and something I’d love to do myself one day.
Thank you for the interview, Bastian!