Study Results Indicate Consistent Level of New Businesses in Germany Among Start-Ups
The German start-up landscape, once thriving and dynamic, is currently navigating the turbulent waters of the coronavirus crisis. The pandemic has brought about a shift in the ecosystem, with more companies facing the threat of failure and fewer new start-ups emerging, according to Fritzi Köhler-Geib, KfW's chief economist.
Despite these challenges, the demand for venture capital (VC) from start-ups in Germany has significantly increased in recent years, reflecting a growing and vibrant start-up ecosystem. However, Germany lags behind the UK, which leads Europe in VC investments with approximately 16 billion USD in 2024. This indicates a robust demand and availability of venture capital for German start-ups, albeit on a smaller scale.
The crisis has presented both hurdles and opportunities for start-ups. While economic uncertainty and disrupted supply chains have created challenges, the pandemic has also accelerated digital transformation and new business models. Start-ups in sectors like robotics and AI-related services have seen growth potentials as these technologies address post-pandemic challenges such as labor shortages and e-commerce fulfillment pressures. The crisis has catalysed innovation and increased interest in technologies like Robotics-as-a-Service (RaaS), aligning with broader trends in automation and AI adoption.
The number of start-ups in Germany remained stable at 70,000 in 2019, supported by around 127,000 active founders. Women founders represent 19 percent of this figure, totalling approximately 24,000. In 2019, nearly one in five (19 percent) start-ups sought VC for future growth financing, double the number from the previous year.
However, the impact of the coronavirus crisis on the German start-up scene is uncertain, with many start-ups experiencing revenue losses in early summer. VC investors anticipate a higher default rate in their portfolios due to the crisis. The crisis is providing a tailwind for digital or internet-based business models, but it remains unclear whether the number of new start-ups can compensate for those exiting due to the crisis.
KfW Research focused on young companies founded within the last five years, with an innovative or growth-oriented focus. Annual VC investments by institutional investors have increased by 2.8 times since 2014, reaching around 1.9 billion euros in 2019. Despite the challenges posed by the pandemic, the German start-up ecosystem remains resilient, with continued venture capital interest and evolving innovation strategies post-pandemic.
In conclusion, the coronavirus crisis has strained the German start-up ecosystem, leading to more companies failing and fewer new start-ups emerging. However, the crisis has also provided opportunities for start-ups to adapt, scale, and access new funding mechanisms, contributing to a vibrant entrepreneurial environment in Germany. For a more detailed and current analysis of the pandemic's quantitative impact on start-ups, specific regional data or reports would be beneficial.
Other sectors, such as robotics and AI-related services, have seen growth potentials amidst the pandemic, creating investment opportunities within the start-up landscape. This shift in focus towards digital and internet-based business models has increased the demand for venture capital (VC) investing in Germany, with around 19 percent of start-ups seeking VC for future growth financing in 2019.
