It all sounds great: The investments in German start-ups tripled, 62 percent more financing rounds – the first half of 2021 looks a lot better for founders than the epidemic year 2020. But also for the consultants from EY, who determined this data, One thing is clear: Compared to the start-up scene in the USA or China, there is still a lot of catching up to do in this country. “The increasing number of mega-transactions (…) must not hide the fact that the majority of the financial injections still go to very small deals”, writes Thomas Prüver, partner at EY.
After all, deals with a scope like 2021 have not yet existed in Germany. The Munich software company Celonis, a specialist in so-called process mining, i.e. the screening of company data from various systems, takes the top position. It received one billion US dollars from investors, the equivalent of around 830 million euros. Money that the company urgently needs in order to keep growing and keep the competition at bay. The situation is similar with Trade Republic, an online broker from Berlin. The young company received 747 million euros from venture capitalists in May. The insurance company Wefox from Berlin and Flixbus (Bavaria) landed behind with 539 million euros each. The fifth place, the delivery service Gorillas (241 million), is also based in Berlin.
Another problem becomes clear: Berlin and Bavaria clearly dominate start-up activity in Germany. Berlin start-ups closed a whopping 263 deals in the first half of 2021, 120 in Bavaria. In North Rhine-Westphalia there were still 52, in Lower Saxony only 19. If you look at the money that was invested, the difference becomes even more obvious: Von Of the total of all financings of almost 7.6 billion euros, 54 percent (a good 4.1 billion euros) came from Berlin, 33 percent (2.5 billion euros) from Bavaria. That leaves a meager 13 percent or just under a billion euros for the rest.
“This is not an either-or”
This concentration on a few hubs shows that universities and large companies play a role in a start-up ecosystem and are also decisive for where start-ups are founded, says Christoph Stresing, Managing Director of the Federal Association of German Start-ups. “Tesla would probably not have settled in Brandenburg without the proximity to the Berlin start-up scene,” he says, “a dynamic is developing there.” But he doesn’t want to generalize that either. “It’s not an either-or,” he says. “It can of course also work elsewhere.” This is shown, for example, by the success of the Chemnitz start-up Staffbase.
When success then sets in, the young companies come to a threshold: In order to become really big, they would need a lot of money. Although the situation in Germany and Europe has already improved a lot, this is still the main reason why it often does not work with European unicorns, i.e. start-ups that are valued at a billion US dollars or more.
There is no lack of capital, says Stresing: “The money is there.” It just has to be used correctly. It is crucial to mobilize the capital of private institutional investors increasingly for future areas. This could be done, for example, with the announced fund of funds, which is provided by the federal government in the future fund that has already been launched. This is intended to mobilize “dormant private capital for startup financing in the growth phase”, as his association calls for in a thesis paper.
It also makes it clear why this is important: The scene of start-ups and scale-ups, i.e. companies that are already in the phase of rapid growth, already employ 415,000 people directly, or 1.6 million indirectly. According to the association, the numbers could still rise sharply, but the conditions would then have to be created. Germany, for example, must become more attractive to foreign talent, start-ups must be made easier to compete as an employer against corporations.
The government fails
Incidentally, the start-ups themselves see the situation as worse overall than before. In a survey by the industry association Bitkom, which was published a few days ago, only 39 percent assessed the situation for start-ups as better than a year ago. A fifth of business founders think the situation is worse. For politics, there are mostly bad grades, only three percent give the school grade two, there is no one at all. In more than a quarter of the startups, the government would even have failed. There is a lot to be done for the next federal government.