startups guide Germany 🇩🇪
what you need to know about startup funding in Germany
Hello,
Dragos here, from Project Arrow, where we mentor founders about how to build from 0 to 1 and get their startups investable in the process.
We have worked on a report helping startup founders from Germany make sense of the ecosystem and provide useful options for any early stage startup looking to figure it out. The report was initially dedicated to the Project Arrow members and we decided to share it with all of you, hope you will find it useful.
🇩🇪 Germany
Known for startup unicorns doing enterprise software (Celonis), online banks (N26), cloud-based HR SAAS (Personio), online transportation commerce (FlixBus)
💪 #3 VC-funded startups country in Europe in 2022
739 startups (962 in 2021) secured funds of $9.7 billion ($18.4 in 2021)
241 startups raised at the <$5M level (243 in 2021)
669 active angel investors (701 in 2021)
552 active VCs (545 in 2021)
🏁 Active Investors
Angels
VCs
Non-German investors
Accel (USA)
btov (Switzerland)
Creandum (Sweden)
Firstminute Capital (UK)
Nauta Capital (Spain)
Redalpine (Switzerland)
Seedcamp (UK)
Speedinvest (Austria)
Übermorgen Ventures (Switzerland)
Other active investors
☁️ Opportunities
Berlin is the place to be in Germany. Top three cities where startups got funded in 2022: Berlin (318 deals/$4.8bn), Munich (149 deals / $2.2bn), Hamburg (44 deals / $506M).
German startups get accelerated by Brits and Americans. Startup accelerators German startups go to: Y Combinator (USA), Entrepreneur First (UK), SOSV (USA), Techstars (USA), Plug and Play (USA).
Other local startup accelerators: neosfer, Rocket Internet, Wayra, Techfounders, xdeck, German accelerator, NCA, NMA, Xpreneurs, interfacewerk
German startups part of Y Combinator: Gigs, AccessOwl, Popsy, Kombo, Scopas. There’s more than 30 of them - talk to those founders and ask them about their experience.
German Superfounders: Jens Begemann (Wooga), Christian Hecker (Trade Republic), Sascha Konietzke (Contentful), Julius Köhler (sennder), Niklas Jansen (Blinkist), Christian Reber (Pitch)
State funding programs: Gründungszuschuss, IBB, BMH Hessen, BayStartUP, LfA, Bayern Kapital, The Berlin Startup Scholarship
Software startups raising the most - industries most German startups raised money in 2022: software (SAAS), manufacturing, e-commerce, marketplaces, finance, health, energy.
Investors say they’re interested in:
That means they would like to find this kind of startups - if you have an investable startup you should be ok too. 😊
🔮 Also notable
3 of 4 German startups are bootstrapped, meaning they are funded by the founder’s savings or personal loans rather than venture capital. Those who choose to raise capital, go after Government money, Business Angels, and “Friends & Family” - these are the most frequent funding sources for entrepreneurs vs professional investors. VC is very little used by the German startups for development.
In the startup world, Germans have a reputation of copying American companies and adapting them for the local DACH market - Rocket Internet has become famous in Europe for building startup cloning hubs dedicated to this. Some find it as a successful strategy, others just an indicator of Germans being incapable of producing innovation. Whichever side you’re on, clone other startups or not, your success depends solely on your ability to build a good product and getting paying customers for it.
The German government runs regular schemes and grants to help local startups - it announced, for example, a massive $30 Billion fund to be deployed in businesses that support clean innovation by 2030. (see the link section from below)
Most of the German startups are done with a focus on a local market. On the plus side - Germany is the largest market in Europe, has solid infrastructure and good local educated talent. On the minus: quite closed to the outside, not an English-speaking country, though in startup hubs most people do speak English - yet it's a downside for hiring international talent, new business from international customers and potential of being acquired. If you have international ambitions, you have better chances to build a successful startup.
The German legal environment is considered one of the worst in Europe for startups, there’s many investors avoiding investing in Germany for only this reason. Grounds include rigid paperwork and a high degree of bureaucracy - i.e overheads such as notary, stock options taxed as income and high taxes. Smart founders looking for international funding usually incorporate a holding company in countries like Netherlands, Estonia, Malta, Cyprus or US for holding the IP, and keep a German entity for the core business. It’s not as expensive as you’d initially imagine.
Other frequent startup problems: low pool of tech talent for hiring and the lack of an alumni founders network that is dependent on a minimum volume in exits. There’s not too many successful local startup exits and the German society needs more success stories - doing and/or working for a startup is perceived as risky exotic thing by the local society, which is more conservative and risk averse.
One the other hand, it’s never been a great time to become an entrepreneur in Germany.
the competition is not that high and the economy is stuck in the 90s. That’s a huge opportunity since there’s little startup competition for a society/market that needs badly tech innovation adoption - you just need to build your startup right and not to screw up. Besides, German people are very risk averse - only five percent of those who want to found a company dare to take the step into self-employment, according to a 2021 McKinsey study. No guts, no glory.
the market is flooded with investment funds - there’s more money than startups and in 2022 alone there’s been almost 100 new investment funds launched in Germany, 50% more than in 2020. Even though the macro economic conditions are not that good in this period, those VC funds are actively looking for startup projects.
the trick is to build an investable startup that’s attractive for what they’re looking for. It’s what we help founders with at Project Arrow.
🔗 Links
Existenzgründungsportal des BMWK (EXIST)
Set up a Company in Germany: A Complete Guide
HN: Just how complicated could it be to register a German company?
Doing Business in Germany: Overview
A quick guide to German Venture Capital Funds for Foreign Investors.
Want more?
We are producing more reports like this, covering countries, industries or business models tailored to our Project Arrow members needs. All our efforts and resources are dedicated to help startup founders get an easy grasp of what is going on in the European startup world and become successful. If this was forwarded to you, you can sign up for getting email updates here.
Until next week,
Dragos