Study on the start-up industry
More money for start-ups: Bavaria overtakes Berlin
Increased interest rates and cautious investors have plunged many German start-ups into a financing crisis. Now the industry is recovering. And the dominance of Berlin, the founding metropolis, is crumbling.
After a financing crisis, German start-ups are receiving more money from investors again – and the dominance of the startup metropolis Berlin is dwindling. In 2024, Bavaria and financially strong Munich overtook the capital, according to an analysis by the auditing and consulting firm EY. Founders from the Free State particularly benefited from the boom in artificial intelligence.
According to the study, start-ups from Bavaria collected 2.33 billion euros in venture capital, a good 600 million euros more than in 2023. Growth companies from Berlin received 2.17 billion (minus 200 million). This means that the Free State is overtaking the capital for the first time, according to the study, which has been published since 2014 and is based on the “Crunchbase” database and messages from start-ups and investors. In addition, North Rhine-Westphalia increased its funds significantly to 951 million euros (plus 620 million).
According to EY, start-ups from Bavaria alone received five of the ten largest financings nationwide in 2024. The Munich software company Helsing, which specializes in artificial intelligence for the defense industry, was ahead with 450 million euros. This was followed by the Cologne translation service DeepL (277 million) and Black Semiconductor from Aachen (254 million). Berlin was not represented in the top 10 at all.
“The fact that Bavaria has overtaken Berlin in terms of financing amounts for the first time is due to the tech and AI boom – Bavaria is ahead here,” says EY partner Thomas Prüver. At the same time, there is a significant decline in money for online retailers, the capital’s traditional strength. However, Berlin remains one of the most important start-up metropolises in Europe and in terms of the number of financings with 256, it is well ahead of Bavaria (164).
In total, German start-ups collected a good seven billion euros in venture capital in 2024. That’s almost a billion or 17 percent more than in the previous year. This means that the start-up industry is recovering from the crisis that broke out after the rise in interest rates. According to EY, German start-ups had raised 9.8 billion euros in venture capital in 2022 and even 17.3 billion in the record year of 2021.
Venture capital, which funds and corporations use to invest in start-ups, is considered the key to growth. The start-up scene in 2024 has stabilized despite the weak economy, said EY partner Prüver. “The second half of the year could even have brought about a turnaround in the trend.”
Berlin is no longer the only lighthouse
It has been apparent for years that the German start-up industry is becoming more diverse. In Munich, which has a strong research base, another start-up center has been created alongside Berlin. “It is now paying off that Bavaria, especially Munich, has focused on spin-offs in research and universities in recent years,” says Verena Pausder, CEO of the startup association.
Many companies are also emerging in university cities such as Heidelberg, Aachen and Darmstadt. The association believes that such research-related locations are increasingly becoming the second successful model in Germany, alongside the international hotspot Berlin.
Start-ups dependent on foreign countries
German start-ups benefited from a boost in digitalization and low interest rates during the pandemic. But when interest rates rose with inflation, investors held back. Investments in start-ups collapsed in 2023. Many jobs were cut, others, such as the Gorillas delivery service, were taken over. The financing crisis was also evident at the electric aircraft manufacturer Lilium, which was only just rescued after filing for bankruptcy.
Many German start-ups raise money in the early growth phase, but for large sums they usually rely on Anglo-Saxon investors. In this country, 90 euros per capita is invested in venture capital; in the USA (510 euros), according to the startup association, it is almost six times as much. “The good news should not obscure the fact that we still have a lot of catching up to do compared to other countries,” says Pausder.
In order to close the annual financing gap of around 30 billion euros, venture capital investments in Germany would have to triple by 2030 and grow to one percent of economic output, says the startup association. This requires more money from major investors such as insurance companies. However, you are only allowed to invest in venture capital to a limited extent.
Long-term upward trend
After all: in the long term, Germany has made great progress as a start-up location, as the London venture capitalist Atomico recently noted. The startup association now counts 29 companies with billion-dollar valuations. The development bank KfW, which coordinates an initiative by large corporations for more venture capital investments, sees a better environment for the industry again – thanks to falling interest rates.
Start-ups are also on the rise again. In 2024, 2,766 new companies were created, 11 percent more than in the previous year, according to the startup association. “Times of crisis are times of foundation.”
dpa
Source: Stern
