Online shopping, food deliveries or financial transactions via app: start-ups have become indispensable in some areas of life. The industry has grown significantly recently. But there is still room for improvement.
Despite the great progress made in recent years, the German start-up industry still sees some catching up to do with international competition. “We see a clear upward trend, but also a significant gap to top locations,” said the startup association on Wednesday.
Although there are over 1000 start-ups in Germany with at least 50 employees and 31 growth companies with a valuation of over one billion euros (“unicorn”), the gap between the industry as a whole and other countries is immense. The total company valuation of German start-ups has increased around sixfold within five years to 168 billion euros. But that corresponds to less than 5 percent of economic output. In France it is almost 7 percent, in Great Britain a good 13 percent and in the USA 16 percent. The entrepreneurial spirit in Germany is also comparatively weak.
Vulnerability venture capital
Data also shows that the Federal Republic of Germany performs significantly weaker in terms of invested venture capital per capita than France and above all than the technology-strong USA. Even if the venture capital invested has more than doubled to almost ten billion euros since 2018: per capita venture capital investments in the USA were five times as high in 2022.
Start-ups depend on investors because they need money to grow before turning a profit. Large funds and corporations invest in young companies with venture capital in the hope that their ideas will prevail. The amount of money raised is considered decisive for the success of the start-up industry.
Another problem is the high dependence of German start-ups on international investors. Only a quarter of the financing volume comes from national donors, “the proportion is not so small in any other major European start-up location,” the association stated. While many large venture capital funds are based in the USA, there is a lack of financially strong financiers in Germany. Anglo-Saxon investors are indispensable for large financing rounds.
The association’s deputy chairwoman, Lina Behrens, called for faster immigration and internationally competitive regulations for employee participation. “When it comes to growth and scaling, talent is the decisive factor, which is why the shortage of skilled workers is becoming an increasing problem for start-ups.”