The German Startup Monitor 2018: Everything you need to know about the current state of the German startup ecosystem
What is the situation of the startup scene in Germany in 2018? What motivates founders? What is going well in Germany and where can something be improved with regards to startups? These and many other questions are covered by the most important survey of startups in Germany, the annual “Startup Monitor” (initiated by the “Bundesverband Deutscher Startups” — the “German Startup Association”, the organisation that represents the startups in Germany). Following are the most important findings of that survey.
Many participants, however not representative
The Startup Monitor 2018 again gives a good overview of the situation of startups in Germany. 1,550 startups, representing approximately 3800 founders and almost 17700 employees, have contributed to the Startup Monitor’s data pool. This represents a slight decline in the number of participating startups compared to the previous year: In 2017, 1837 start-ups participated with around 4250 founders.
However, the total number of startups and founders in Germany is not clear, which means that the weighting of this sample of 1550 start-ups cannot be assessed exactly. Nevertheless, the Startup Monitor is a good indicator of the trends and developments in the German startup scene.
An important note in this context: Since 2014, the number of startups in Germany has been falling. As startups are a crucial factor in the overall economic development of a country, because they implement innovative ideas, create jobs and contribute to gross domestic product, this is a worrying development — but not a surprising one when one looks at lacking the startup culture in Germany.
The examined startups
The startups that were allowed to contribute to the Startup Monitor are less than ten years old (here, of course, one can ask whether a company that has existed for ten years can actually qualify as “young” and thus as a start-up….).
They also have planned employee and revenue growth and are (highly) innovative regarding their products, services, business models and/ or their utilized technologies. The average age of the surveyed startup is 2.5 years.
The proportion of female entrepreneurs is still relatively small — only 15.1 percent. Although this proportion has been rising for the last four years, the question arises as to whether and how more women can start and develop entrepreneurial activities. The German Digital Minister Dorothee Bär therefore also aptly writes in her foreword to the Startup Monitor that here is ample room for improvement.
And another fact is interesting: Founders work an average of 56 hours a week for their company. Nevertheless, because of their self-determination, they are more satisfied with their life situation than the rest of the German population. 49% of respondents said they were “completely satisfied” with their lives. 90% of respondents are at least “satisfied”, whereas only 32% of the total German population say so.
And at what age do founders in Germany establish their companies? The average founder is 35.2 years old, which is almost identical to the number from last year (35.3 years). Most founders are in the age group of 25–34 years (48%) and 35–44 years (29%). Less than 5% are older than 54 years.
Cities, regions, sectors and teams
Most startups in Germany are based in Berlin (15.8%), followed by the Rhine-Ruhr metropolitan region (11.2%) and Hamburg (7.2%). Then follow Stuttgart, Karlsruhe and Munich.
Looking at the regions, there is a strong increase of the number of startups in North Rhine-Westphalia. Around 20 percent of the startups have their seat in this state. Then one finds Berlin (yes, there are more startups in North Rhine-Westphalia than in Berlin), Baden-Württemberg and Bavaria.
As was the case last year, it can be observed that although Berlin is on everyone’s mind with regard to startups, other regions in Germany are doing quite well and are becoming more and more important for founders.
Looking at the sectors in which startups operate does not cause any surprises. A good third of startups operate in the field of information and communication technology. After that, the sectors “nutrition / food / consumer goods” as well as medicine and health care follow.
Over three quarters of the startups are made up of teams, with the team mostly consisting of two or three founders. Interestingly, there is a difference between men and women: The rate of women solo startups is over one-third, whereas under 20% of men start alone.
Hiring and expansion
The surveyed startups plan to hire around 9500 people over the next twelve months, so they will create about 6.5 jobs per startup. The problem is, however, the filling of vacancies. 60 percent of startups have difficulties here. In particular, positions in applied IT (for example coders) and technical IT (for example IT administrators) as well as in research and development are difficult to fill. Finding employees in areas such as purchasing, sales and marketing as well as in personnel management is not as problematic. Nevertheless, the number of employees of the surveyed startups has increased compared to last year: They employ an average of twelve people.
It is gratifying that startups are not among those who endorse “closure of borders”. True, more than 80% of the surveyed startups generate their sales in Germany. However, expansion abroad plays a paramount role: More than 95% plan to expand into EU countries (they also plan to enter non-EU countries, especially in North America (25%) and Asia(33%)).
Funding sources
A relatively clear picture emerges when looking at the funding sources of startups: More than 80% finance their startup with their own savings, while money from family and friends as well as state subsidies play a subordinate role with around 30% and 35%, respectively (again multiple answers were allowed). Venture capital funding or funding from incubators or accelerators is least important with 15% and 13%, respectively. And with regards to venture capital funding, a good half of the funding is attributable to private investors and about a third to public investors such as the German “High-tech Startup Fund”.
Startups, politics and bureaucracy
Startups give politicians bad grades. In particular, the work of the German Federal Government with regard to the support of startups is rated a “4.0” (1.0 is the best and 6.0 is the worst grade). In the previous year, the Federal Government received a “3.8”. Therefore, the current Startup Monitor marks a new low point.
One the other hand, it is quite clear what startups expect from politics: The reduction of regulatory and bureaucratic hurdles is most important. In second place, with some distance, comes the support in raising capital.
It is interesting that the third most popular expectation is the inclusion of entrepreneurship in education (a request that I like very much and strongly support).
And a detail on the sidelines: With increasing tendency, startups are calling for the introduction of an English-speaking local and regional administration.
And as far as the removal of regulatory and bureaucratic hurdles is concerned, the Startup Monitor gives a very clear picture: The founders call for a simplification of accounting procedures, the establishment of so-called one-stop-shops for registrations, the restriction of notarial duty, the completion of the European “Digital Single Market” and the simplification of the hiring process of personnel from non-EU countries.
In general, there is the view that bureaucratic burdens in particular in the first year of a startup must be drastically reduced.
As far as electoral behavior is concerned, the CDU (Christian Democratic Union) and CSU (Christian Social Union) as well as the SPD (Social Democratic Party of Germany) find little favor. Only about 18% and 9% respectively of the founders would give their votes to these parties. Instead, the FDP (Free Democratic Party) with almost 38% and Bündnis 90/ Die Grünen (the Green Party) are favored the most. The AfD (Alternative for Germany), Die Piraten (yes, there is a political party in Germany that bears the name “Pirates”) and Die Linke (the Left Party) play virtually no role.
Christian Lindner, the leader of the FDP, was most often mentioned regarding the question “Who has the most founding competence?” — he received 60% of the votes. The answer that was in second place: “No party leader has founding competence” — with 23%.
Consequences of the Startup Monitor
While politics still puzzles how Germany can be strengthened as a startup location — if this topic is even dealt with at all — the founders interviewed for the Startup Monitor have a clear opinion.
On the one hand, digital educational content should be introduced at secondary schools in order to get young people interested in digital occupations at an early stage. On the other hand, modules such as “Entrepreneurship Education” in the field of STEM (science, technology, engineering, mathematics) should be created at universities in order to enable students to start their own businesses. And finally, a law on skilled labor immigration should be established to help companies attract talent from all over the world.
It is to be hoped that many politicians have read the startup monitor. Because the implementation of the three aforementioned demands, combined with a committed reduction in bureaucracy, easier access to capital from investors (combined with better tax conditions for investors) and increased recognition of entrepreneurial achievements not only creates better conditions for startups, but also massively strengthen Germany as a business location.
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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.
