German Startups on the Rise

Results of the German Startup Monitor 2022 (Deutscher Startup Monitor DSM)

This year’s survey — the 10th — was especially interesting because it allowed researchers to see how the German startup community has changed over time. Note that the data was collected in cooperation with the German startup association and other partners, but the survey itself and the analytics were left to researchers. It seems that despite some major setbacks — which have caused many businesses their hiatus or close entirely-the country still remains an important part of European business culture. This time almost 2.000 startups, as well as 4.800+ founders and close to 35.000 startup employees participated. As always the survey was conducted in the spring of 2022, without knowledge of the current situation (Ukraine, Gas, Heating, Inflation, …). The survey is not representative. It can not be used for rankings and comparing cities.

North Rhine-Westphalia, Germany’s most populous state was home to the largest number of participants. Berlin came in second with Bavaria third as both contribute heavily towards new business creation throughout Europe’s technology hub. It is important that we understand these statistics and what they mean for your industry or potential investments.

Here are some highlights, you can read the whole survey free of charge (in German only) by downloading it from the link at the end of this blog post.

Startups as a whole are a large employer

• With the startup scene in Germany, it’s no wonder that there are 1.6 million jobs secured directly and indirectly through this vibrant culture of entrepreneurs who want nothing more than to make their mark on society with innovative ideas- even if they have never done so before!

Business Climate

• The business climate for startups in the country has been cloudy lately. As IFO Business Climate Index with -15,7% (https://en.wikipedia.org/wiki/Ifo_Business_Climate_Index) in September showed. 54% of respondents are looking positively at their future compared to 72% the year before.

Startup Employees

• The startup community in Germany is vibrant, with on average 18 employees and more than 9 planned new hires each. Startups based out of Munich tend to be larger at 42+ workers while those located within Berlin can boast even higher numbers with 44+ employees. Startups in Munich planned to hire ~ 16 employees and in Berlin ~20.
• Startups are also known for attracting top talent from around the world. According to recent data, the average startup has 28% of its employees coming from outside its home country. The majority of these international employees come from Europe (13%) and Asia (7%), with North America accounting for 2.3%. Teams in Munich and Berlin are especially international.

Women in Startups

• In recent years, startups have been driving innovation and growth in the German economy. However, startup companies employ relatively fewer women than the German average. Only 37% of startup employees are women, compared to 47% for companies overall.
• For the first time ever, startup companies (co)-founded by women have surpassed the 20% mark (20,3%). This is a significant milestone for women in business, and it highlights the growing importance of female entrepreneurs in the startup ecosystem. A number of factors have contributed to this increase, including greater access to venture capital and a growing awareness of the importance of diversity in startup teams. On the other hand, there is still a long way to go, seeing that 63% of startups are founded by all-male teams.

Skills of the Founding Team

• For startup companies, having the right mix of technical and business skills is essential for success. The survey found that most startup teams are mostly combining business acumen with technical skills since 62.7% of startups have a technical co-founder and a business co-founder. Technical co-founders bring valuable skills and knowledge to the table, but they are often less able to sell their ideas to investors. Business co-founders, on the other hand, are often better equipped to drive growth and scale a startup. The best startup teams are those that have a balance of both types of skills.
• Universities are often thought of as places where young people go to get an education and prepare for their future careers. However, they can also be fertile grounds for startup businesses. Many startup teams form at university, thanks to the presence of like-minded people and the opportunities for collaboration that universities provide. Universities are also hotbeds of innovation, with new ideas and technologies constantly emerging from research labs.

Industries

• The startup culture has to lead to the development of an environment where innovation is highly valued. This is especially true in the information and telecommunications industry, which is the №1 industry for startups in Germany with 29,7% of all startups.
• With the continued success of vaccines developed by medtech/biotech companies like BioNTech, it’s no surprise that medtech startups are booming. In fact, according to the survey, medtech is now the second-largest sector for startups in Germany with 10,6%.

Hot Topics

• In a rapidly digitizing world, it’s more important than ever to keep up with the latest changes in technology. Startups are amazing in embracing new technologies. For them, the important topics are artificial intelligence to the Internet of Things. Industry 4.0 is another term that you may have heard thrown around recently, and of course, has importance for startups. The Metaverse is also an emerging concept that startups are paying attention to.

Funding / Venture Capital

• Almost three-quarters of German startups are bootstrapped, meaning they are funded by the founder’s savings or personal loans rather than venture capital. However, only 30% of those surveyed said they would prefer to stay bootstrapped; the rest would like to eventually bring on investors.
• In Germany, in fact, Government Funding, Business Angels, and “Friends & Family” are more important funding sources for entrepreneurs than venture capitalists. This should be a wake-up call for international investors.
• 44.4% of entrepreneurs would prefer to receive VC funding, even though they know the odds of getting it are relatively low. While it may be difficult to obtain venture capital, it’s clear that it can be a valuable source of funding for the 18,6% of entrepreneurs who are able to get it.
• 30% of participants have CVCs on board, they like the know-how, the gain in reputation, the opportunities for cooperation, and their distribution channels.

Cooperations

• 63,3% of participants work with established companies, down from 71,8% in 2020
• Also, cooperation with other startups is going down to 55,3%, from 60,2% in 2020

Challenges and framework

• Startups are popping up everywhere. In order to be successful, they need a strong startup ecosystem. A startup ecosystem is a community of startup companies and the organizations that support them. This can include incubators, accelerators, co-working spaces, and venture capital firms. The survey found that 2/3rds of startups are happy with their local startup ecosystems. The majority of respondents said that their startup hubs provide access to the resources they need to be successful. This includes access to universities, a network of other founders, talent, customers, mentorship, and funding. A sense of community is essential for startup success. Startups that are part of a thriving ecosystem are more likely to survive and thrive than those that are not.
• As so often in the 10-year history of the DSM the largest challenge is still access to capital
• The survey found, almost 46% of startups said they saw themselves as part of the green economy. This is an increase from the 43,6% who said the same in the 2020 survey. The increasing number of startups that are embracing the green economy is a sign of hope for the future of our planet.

Political Affiliations and Elections

• As the political landscape in Germany continues to shift, parties like the entrepreneur-friendly FDP are losing ground to the Green Party. This is frightening for the FDP since they have been traditionally in Germany the party of entrepreneurs. The survey found that almost 50% would vote for the Green Party if elections were held today. This is a significant increase from previous years, and it indicates that business owners are becoming more open to left-leaning policies. The SPD (5,9%) and CDU (10,1%) are also seeing lower support from entrepreneur voters, they are with the FDP in losing ground. This trend is likely to continue as Germany’s business community becomes more socially and environmentally conscious.

Challenges

• The biggest challenge facing entrepreneurs is the talent shortage. With businesses shedding headcount at an unprecedented rate, there is still an increasing demand for qualified workers. The pool of talented individuals is not growing at the required pace. This has made it difficult for startups to find and hire the talented workers they need to continue their growth. As a result, many businesses are struggling to keep up with the competition. The talent shortage is a major challenge that entrepreneurs must overcome if they want to continue to grow their businesses.

Work/Life Balance

• For entrepreneurs, the work week is never really over. In fact, the survey found that founders work an average of 55 hours per week, including 7 hours on weekends. That’s because when you’re running your own business, there’s always something that needs to be done. Whether it’s working on a new product, meeting with potential investors, or handling customer service issues, there’s always something that demands your attention.
• You have to be okay with long hours because when you’re running your own business, there is always more work to be done. One of the great things about being an entrepreneur is that you can often work from home, or at least have the flexibility to do so. In fact, the survey found founders split their time 50/50 between working in an office and working from home.
• Startups are a vital part of the economy, and their success is essential for driving innovation and growth. Unfortunately, 78,6% of startups never apply for public tenders, missing out on an important source of revenue. There are several reasons for this, including the perception that the process is too complex and the fear of competition. The government could play a role in addressing these concerns by simplifying the application process and providing more support to startup founders. In addition, the government should do more to promote the benefits of public tenders, such as exposure to new customers and the opportunity to collaborate with other businesses. By taking these steps, the government can make it easier for startups to compete for public contracts, which will ultimately benefit the economy as a whole.

Learn More here: https://deutscherstartupmonitor.de/