Start-ups Germany’s start-up founders

Start-ups strive for both innovation and growth.
Photo (detail): © Sergey Nivens

Today, ten years after the global financial crisis of 2008, start-ups are an integral part of the German corporate landscape. Innovative start-ups are shaping the future – and not just of the labour market – with their creative vision.

Start-ups – young, vibrant companies that strive for both innovation and growth – are an integral part of the German business landscape and responsible for every second new job created here. Most start-ups are not focused primarily on profit, at least not in the first few years. It is much more important to convince investors of the company’s innovative character and growth potential. The Berlin-based start-up Delivery Hero is a good example. Founded in 2011 to sate the cravings of hungry customers via a local delivery service app, Delivery Hero recently secured a record-breaking investment to the tune of 387 million euros despite persistently being in the red. The company is now worth more than four billion euros, which means Delivery Hero has joined a very exclusive club of ‘unicorns’. A unicorn is defined as a start-up with an estimated market value of more than one billion dollars. The daily Wall Street Journal recently identified 149 worldwide with five in Germany.

The German start-up scene

Don’t waste your time looking for a German Silicon Valley – an area in keeping with the American model where the entrepreneurial spirit, technical know-how and venture capital come together over a latte or a game of ultimate frisbee to plan the next billion dollar unicorn. There is no such place. Germany’s start-up scene is spread out with inventors and visionaries concentrated in every major city. Berlin, Munich, Hamburg and Cologne are currently leading the pack and hosting more than half the 2,407 start-ups listed by online magazine Gründerszene’s database. Berlin alone is home to 729. The German capital is blazing a new trail in e-commerce, the industry with the highest investment inflow in Germany. Almost one billion euros were invested here in e-commerce start-ups in the first half of 2017. Bavaria has carved out a niche for itself in the booming e-health sector, where 75 million euros of risk capital flowed in the same time period. Hamburg is strong in the fintech or financial technology sector, though with an influx of 135 million euros in venture capital, the Hanseatic city is still a few steps behind the capital (141 million euros). The green economy sector is doing particularly well across the board in Germany: almost one in five start-ups deals with energy efficiency and renewable energy.
 
Record investment in the first half of 2017 has the current start-up barometer at a record high. Compared to the previous year, the total value of German start-ups rose from 971 million to 2.1 billion euros, a jump of 123 percent.

Good infrastructure, bureaucratic hurdles

Despite record investment sums, German start-up hotspots have slipped a bit in overall EU rankings in recent years. While Berlin still topped the list for overall investment in 2015, London, Paris and Stockholm have overtaken the German capital. Still, Munich’s seventh-place slot meant two of the top 10 European start-up cities were located in Germany.
 
If you ask entrepreneurs to assess Germany as a place to start a business, they have a lot of positive things to say about the infrastructure. In a recent survey by the Bitkom industry association, nine out of ten start-ups are satisfied with the transport infrastructure, and 77 percent are happy with internet speed. Respondents expressed less satisfaction with administrative structures, which received relatively poor marks: 40 percent said working with state authorities was often difficult. According to Florian Nöll, chairman of the Bundesverband Deutsche Start-ups (The Federal Association of German Start-ups), young companies face numerous bureaucratic hurdles, especially when recruiting foreign talent. One in four start-up employees is from abroad.

Today’s start-ups are tomorrow‘s established enterprises

Ultimately, how long a start-up stays a start-up determines how the company continues to develop. The ideal scenario is to end the start-up cycle with an IPO or buy out from a large, established corporation. According to a study conducted by PricewaterhouseCoopers (PwC) in the summer of 2017, one in five new entrepreneurs ultimately hopes to sell their start-up to a corporation as lucratively as possible. The mentality of the start-up scene also demands that start-up founders show no fear of failure. Forty percent of IT start-ups in Germany fold in the first five years. Some successfully make the leap. Take mail-order company Zalando, for example, which was founded during the global financial crisis in 2008, and is now reliably generating billions in sales. German entrepreneurs are not driven by purely material motives, though. The PwC study found that start-up owners were more concerned with realizing their vision, which they believe passionately in and which often coincided with their own personal interests.