Financing boom: German startups raise record money

Founders in Germany experience an ongoing blessing of money. In 2019, startups raised more capital from investors than ever before and received large sums for business ideas such as mobility services, software solutions and financial apps. International investors in particular put a lot of money into local startups, like a new study by Consulting company Ey shows. German investors hardly played a role in large investments. If founders want to expand, they are heavily dependent on foreign sources of money.

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In 2019, startups in Germany received 6.228 billion euros from investors, as it says in the paper available to the German Press Agency. That was another 36 percent more than the previous high of the previous year (4.592 billion euros). There were a total of 704 financing rounds last year, which corresponds to an increase of 13 percent.

"The financing boom continues unabated"said Hubert Barth, chairman of the Ey management in Germany. "There is a lot of liquidity in the market – and the tendency continues to rise." In 2019 there were 13 financings with around 100 million euros, more than twice as much as in the previous year. Most of the money went to the Munich company Flixmobility, which is known for its long-distance buses, the Berlin travel startup Get Your Guide, the used car platform Frontier Car Group and the smartphone bank N26.

Startups need money

For startups, the cash injections are often essential for survival: The companies rely on investors for their expansion, since they usually do not initially make a profit. Anglo-Saxon funds in particular have venture capital in startups – in the hope that their business ideas will prevail and bring them profits.

Corporations have long sought proximity to founders. Whether the Deutsche Bank with digital factories, the Lab1886 from Daimler or the alliance with its investment bank Allianz X – everyone wants to benefit from new ideas and present themselves as attractive for specialists.

Despite the hype about startups, weaknesses remain in Germany. So nothing comes after Berlin's founding stronghold. The startups in the capital collected around 3.7 billion euros in 2019 alone, which is almost 60 percent of the money distributed in Germany. Another 1.5 billion were accounted for by Bavaria with the center of Munich, which according to Ey caught up strongly. The other federal states hardly play a role for founders.

Big sums hard to get

If startups need capital, they quickly get small sums. But beyond that it will be difficult. "There are hardly any addresses in this country that offer financing of over 50 million euros", says Peter Barkow, founder of the analysis company Barkow Consulting. These included the associated company Rocket Internet and groups like Allianz. "The big tickets almost always come from abroad, especially the United States."

Ey partner Peter Lennartz explained: "Financially strong and predominantly international investors from the United States, Great Britain and Asia are particularly interested in very large transactions." This is also due to the fact that startups in Europe are rated lower than in Silicon Valley, and entry is correspondingly cheaper.

German venture capitalists are also active: "In order to get the first, smaller rounds financed mainly by German investors, young companies have to operate a business model from the start that can potentially be successful internationally." Then it goes on with large rounds with foreign investors.

Federal government wants to intervene

The federal government has recognized the problem. It wants to promote the start-up culture with state-sponsored venture capital funds. A new platform for founders should also promote advice and networking. "The early stage investor scene has developed very well", says Carsten Rudolph, managing director of the funding agency Bay Startup in Munich. The first one or two million are not a problem. "It becomes difficult from ten million euros upwards when a startup is about to conquer the world."

This can also be seen in the biggest deals in 2019: Anglo-Saxon investors TCV and Permira entered the Flixmobility financing round of around 500 million euros. The Get Your Guide travel platform received 428 million euros from a consortium of the Japanese media group Softbank, Singapore's Temasek sovereign wealth fund and foreign equity funds. And the smartphone bank N26, in which Allianz also invested, received 261 million from the investment fund GIC from Singapore and the US venture capital fund Insight Venture Partners.

There is a lack of success stories

The extensive absence of domestic names is also due to the fact that there is a lack of success stories in this country, says Barkow – such as tech billionaires like Paypal founder Peter Thiel, who invest their wealth in startups. "The boys with the deep pockets are missing in Germany." For example, foreign start-ups often set the tone for local startups – with the risk that technology will migrate.

And even if startups later go public, they rarely do it in Germany. Aspiring founders are often drawn to New York, such as the Mainz startup Biontech on the tech exchange Nasdaq in October. "Germany has a bad reputation for startups going public"says Barkow. "It would need one that flies properly."

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