The “Startup Monitor 2019”: the current status of the German startup scene
The “German Startup Monitor 2019“, the „big picture“ of the current German startup scene, has been published and it details women’s quotas of startups, founder hotspots in Germany, political attitudes of founders, job creating activities and much more. I have put together the key findings for you.
The German startup scene: the status quo in 2019
Every year the „Bundesverband Deutsche Startups“ (German Startups Association) publishes the „Deutscher Startup Monitor“ (German Startup Monitor, DSM) which describes the current state of the German startup scene. Florian Nöll, chairman of the German Startups Association, writes in the foreword to the now seventh edition of the DSM that the findings are based on almost 2,000 participating startups and is therefore the broadest information base since the first edition of the DSM, an increase of almost 25%.
Definition of startups
First of all, for clarification: according to the German Startup Association, startups have three specific characteristics in common: they are less than ten years old, have planned employee and revenue growth and/ or are highly innovative in their products, services or business models and technologies.
Women as founders
Women are still underrepresented among founders, although fortunately the trend for women starting a business is growing. Since 2013, the number of women founders increased from 13 percent to 15.7%.
In addition, the composition of the startup teams shows that more than two-thirds of the startups were founded exclusively by men. Women co-founders are only present in 31.1% of all startups studied and in about one in ten companies of this 31.1% one or more women are involved from the beginning.
Industry sectors
The most frequently represented sector in the German startup scene is still the information and communication technology sector with around 30%. In second place is the food and consumer goods industry with almost 11%. These sectors are followed by the medical sector and the healthcare sector with each around 8.5% and the automotive/ mobility/ logistics sector with around 6.5%.
Sustainability is becoming increasingly important. 36% of the DSM startups belong to the Green Economy or the Social Entrepreneurship sector. In this sector, startups are often pioneers for further solutions and developments.
Founder hotspots
Unchanged to last year, there are five founder strongholds. With a share of just over 16% of all surveyed startups, Berlin is the startup capital in Germany. Then the region of Rhine-Ruhr follows with just under 14.5%, that corresponds to an increase of around three percent. Hamburg with 7.5%, the Stuttgart/ Karlsruhe area with 7.5% and Munich with 7% are following. In addition, the number of startups in the Stuttgart/ Karlsruhe and Munich areas have increased.
Half of all foundations were established in one of these five strongholds. The new federal states in the East part of Germany are unfortunately still not very strongly represented as startup regions.
The reasons for the centralization of startups in these five hotspots are according to the DSM:
- an international and fast growing population with many qualified and highly motivated talents (Berlin),
- the close geographical proximity, which leads to a good network among each other (Rhein-Ruhr),
- the existence of the necessary capital, thanks in part to universities with strong educational and research potential (Munich),
- the attractive framework conditions for sustainable business models (Hamburg)
and the trend that established corporations cooperate with start-ups (Stuttgart).
Job creation and founder´s teams
Startups create jobs. On average, it is 13.3 per company, one more job than in 2018. In addition, startups are geared towards growth. In 2020, startups will recruit an average of another 7.9 employees.
Startup foundations are carried out in teams in about 66% of the cases. The average size of a startup team is 2.4 people. Only about 25% of the startups participating in the DSM are founded by individuals.
Founder biography
Over 81 percent of startups can be attributed to founders with a university degree. However, a new trend is emerging. Although the information and communications industry continues to be the strongest represented, the proportion of MINT subjects (mathematics, computer science, science and technology) has declined.
The reason according to the DSM is that an economic background is becoming more and more important for the success of a startup, rather than a background from a subject-specific area such as computer science. IT-related problems are often assigned by the startups to external specialists.
Interesting insight: A founder personality can generally be spotted at an early stage. In early years, later founders proved their leadership qualities: for example, they were pupils’ spokesmen or they liked to swim against the stream. This is often proven by references or class book entries.
Furthermore, founders are significantly more likely than the general public to be “very satisfied” with their life situation, which means they cope more easily with the requirements and imponderables of startups.
Sources of capital
A growth brake for the German startup scene is the big difference between the preferred and actually used sources of capital. On top of the wish list of startups is the financing through business angels and venture capital.
Although nearly 40% of startups try to attract venture capital funding, only 15% were successful in collecting VC funds. Capital is a coveted commodity overall. It is never enough and represents the main problem in the further development of German startups.
Employee participation
Forms of employee ownership are available at more than half of DSM startups. However, the founders encounter difficult legal tasks that they rarely rate as “very favorable”. Here the report refers to the study of Index Ventures, according to which Germany occupies the sad penultimate place of 22 European countries studied, when it comes to attractiveness for employee participation. Accordingly, only 31.6% of startups rate the legal framework for employee participation in Germany as (very) favorable.
Political attitude
Meanwhile, most of the startups participating in the DSM choose the „Greens“. This is an interesting development. After all, this may be a sign of a loss of confidence in traditional business-friendly parties such as the FDP (Free Democratic Party).
The wishes for politics are directed above all to the reduction of bureaucracy and to a better promotion of capital procurement. In addition, there are increasing demands that are geared to sustainability, environmental protection and social concerns.
Business situation
Even though a weakening of the economy is now being talked about within Germany, this does not yet affect the mood of the startups participating in the DSM. About 50 percent of the startups continue to see the situation as very positive, although there is a decline in the positive assessment of the business situation of around 2.5%. It goes without saying that just under two-thirds of the startups look confidently to the future business development. This corresponds to an increase of around 30% compared to the previous year. Otherwise, the current business situation is classified as satisfactory by around 42% and poorly by just under 8%.
Copyright reform
New to the DSM is an assessment of the European copyright reform, because digital business models using personal data are commonplace among startups and play an important role in them. Nearly 72% of the surveyed startups come to the conclusion that the copyright reform has a negative influence of or can be seen as a danger to their own company and their own business models.
Conclusion
Even though the toal number of startups in Germany is currently decreasing, the economic development is rated positively by the surveyed startups. That’s an important insight, because it allows a conclusion on the assessment of the risk to start a business with ones own company: starting a business remains an alternative for well-educated and motivated people compared to a secure job as an employee.
However, there is one topic that is reflected in the DSM every year since its first edition: the unfavorable regulatory framework conditions for founders. Here, an improvement is urgently needed, and this urge is expressed by founders not only in the DSM, but also with regularity in numerous other places. It’s just plain incomprehensible that so little is happening here. Considering that Germany as an economy relies on the innovation, enthusiasm and economic commitment of young people, there is no time to wait for improvements any longer. This is all the more so because it is becoming increasingly easier for startups with an online business model to use foreign business forms in foreign countries. These founders are than lost for the German economy.
Finally, the improvement of financing options is still one of the main concerns of the surveyed startups. Politicians should to increase the incentives for investors. It would be helpful if startups are understood by politicians not only as a risk, but as a major employer and as a motor of innovation. As such, start-ups should be nurtured and cared for, and in particular should be provided with as optimal a starting position as possible so that they can hold their own in the international market.
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I am the co-founder of “Gründen@Würzburg”, the startup initiative of the German city of Würzburg. I had the honor to be the President of the G20 Young Entrepreneurs´ Alliance (YEA) Germany and the Chairman of the Steering Committee of the G20 YEA, an organisation that is the voice of more than 500.000 young entrepreneurs in the G20 countries (www.g20yea.com) .
A corporate lawyer by profession and equipped with my own law firm, I advises German and international clients (who want to do business in Germany) in corporate and commercial legal matters. By invitation of the European Commission, I had the pleasure to participate three times in a row in the annual SME Assembly, the most important event for small and medium-size enterprises in Europe. Additionally, I am a member of the B20 Task Forces and was from 2014 to 2017 the General Legal Counsel and also a member of the national board of JCI Germany (WJD — Wirtschaftsjunioren Deutschland), the biggest organization for young leaders and entrepreneurs in Germany. Last but not least I am one of the ambassadors for the “Großer Preis des Mittelstands”, the biggest and most prominent German award for companies of the German Mittelstand.
