What you need to know about the German startup scene in 2020

The 8th German Startup Monitor (DSM) of the “Federal Association of German Startups” (“Bundesverband Deutsche Startups e.V.”) has been published and, like almost everything at the moment, it is strongly influenced by the Corona pandemic. The startups surveyed are severely impaired by the Corona crisis, even if, as Christian Miele, President of the Federal Association writes in the foreword of the DSM, startups “with all their might” try to cope with the effects of the crisis. In this article I summarize the findings of the DSM 2020.

Mostly losers, some winners and yet basic optimism
More startups and founders than ever were surveyed for the DSM this year, in numbers: 1,946 startups, with 4,745 founders who employ 25,966 people.

The Corona pandemic is noticeable for the majority of the startups surveyed for the DSM. Around 75% of the startups surveyed feel the negative effects of the pandemic. In the tourism industry, the figure was highest with 91.7%, in the media and creative industries around 85% and in the human resources sector nearly 85%.

These industries in particular had to react to the pandemic with great flexibility. They used the time to develop (new) products (56.2%) or adapt their products to the given situation. In addition, they acted with a tight savings plan and postponed investments that were already planned (50%). Almost none of the startups surveyed, however, want to lay off staff (only 11.4% are expecting layoffs).

But there are also winners. These include industries that benefit from the need to work or shop from home and that benefit from virtuell instead of face-to-face meetings, like online conferences or online events. This includes in particular startups that are related to online networks, e-commerce or online platforms.

Nevertheless, the negatively affected startups also see the future positively overall. That distinguishes them from established companies and, according to the DSM, is due to the startup mentality. Because startups are problem solvers in their approach and are not so easily thrown off track by surprising problems. Almost everything is new to startups, there is still no routine. In addition, without a strong basic optimism, no founder would have dared to set up a company.

Effects of Corona on financing
Corona also had an impact on the financing options. The worse balance sheet figures of the startups surveyed, caused by the loss of sales, in many cases discouraged external investors from investing. According to the DSM, venture capital investments fell by 20% in the first half of 2020.

The DSM also states that business angels in particular who were surveyed want to make fewer initial investments.

Satisfaction of the startups with the political measures taken
The DSM shows that the general economic policy measures taken in connection with the Corona crisis were rated 2.7 (on a scale from 1 to 6, 1 being the best) by the startups surveyed. So there is definitely agreement with the measures and a certain satisfaction. Similarly, the speed with which the supportive measures were taken was rated 2.9.

The measures specifically aimed at startups were rated worse, with a grade of 3.7. This is probably due to the fact that the measuresof the startup aid programs only became apparent after the measures of a general economic nature had a positive effect.

In addition, some of the support programs targeting startups were not yet available at the time of the survey.

Startups’ wishes to politics
It is not surprising that almost half of all startups (49.6%) would like administrative services to be simplified. Around 40% demand the expansion of state VC financing offers, such as of the HTGF, Zukunftsfonds and KfW Capital. Around 28% demand the creation of investment offers for private investors in startups.

There is thus a clear desire for a broader range of both state financial support programs and for the facilitation of financial support from private individuals. This desire is understandable, given that many startups lack financial resources, especially in the early stage.

In addition, the faster expansion of the gigabit network (broadband and 5G) is at the top of the wish list of the surveyed startus (25%). However, around 29% also name the reduction in taxes and the state’s launch of programs for the exchange between established businesses and startups, also with 29%.

Voting behavior
The reputation of the parties among the startups surveyed is interesting. The Greens are still the party that startups would vote most often for. But this party has lost its appeal: they fell from 43.6% (2019) to 37.0% in the current DSM. The attraction of the conservative CDU/ CSU more than doubled, from 11.7% (2019) to 28.1%.

The aforementioned figures could come from the fact that in crisis situations such as the Corona pandemic, conservative, established parties are more trusted with coping with such crisis, who have been able to score points with economic stability and expertise over a longer period of time. Nonetheless, ecological aspects continue to play a major role for startups.

Internationality
Startups are increasingly thinking internationally, both in terms of the employees they hire and the language at work. Every third startup (30.3%) speaks English as the “office language”, especially in Berlin and Munich.

This reflects the fact that many different nationalities often work together within startups. The DSM has shown that over 20% of business founders have a migration background and 26% employ foreign employees.

Job creation
The number of jobs generated by startups continued to rise, at least until the time of the survey as part of the DSM. An average of 14.3 people are employed by one of the startups surveyed. In the previous year this number was 13.3.

Share of female founders
Women as founders are still underrepresented at around 16%, even if their numbers are rising steadily. Dr. Gesa Miczaika, co-founder of Auxxo and executive board member of the startup association, said in the DSM that “role models have to be made more visible” to increase that number.

In her foreword to the DSM 2020, the Federal Chancellor Angela Merkel also expresses that she would like a higher number of female founders. The federal government has therefore launched the “WOMEN enterprise” initiative and wants to “awaken the entrepreneurial spirit in young women”.

Digitization, Artificial Intelligence and Sustainability
For two thirds of the startups surveyed, digitization has a very large impact on their business model. And almost 43% see artificial intelligence as the major influence on their startup.

The issue of sustainability plays a similarly important role in startups, which is reflected in the figures on the green economy (43.4%) and social entrepreneurship (42.6%). This means that the trend that environmental and social issues play a major role for the startups surveyed continues.

Conclusion
The startups surveyed as part of the DSM are heavily burdened by the Corona crisis. The pandemic hits these companies especially in the early stage, which is one of the most difficult phases in the life of a young company. At the end of March 2020, more than 90% felt that their business activities were “impaired by the crisis”. In the survey period of the DSM 2020 (May 11, 2020 up to and including June 21, 2020) the feared impairment was confirmed by around three quarters of the startups surveyed.

It is therefore to be hoped for the startups that the “two billion euro aid package for startups” mentioned in the foreword by Chancellor Angela Merkel, as well as the prospect of improved access to venture capital and the cooperation with the “European Investment Fund” will have an effect on the startups as soon as possible.

The German version of this article can be found on the blog “BASIC thinking”.

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I am a commercial lawyer by profession, the co-founder of “Gründen@Würzburg”, the startup initiative of the German city of Würzburg and an ambassador for the “Großer Preis des Mittelstands”, the biggest and most prominent privately organized German award for companies of the German Mittelstand. Oh, and I founded two other companies besides my law firm and work currently on founding my third….

I also 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) . By invitation of the European Commission, I had the pleasure to participate in the annual SME Assembly of 2015, 2016, 2017 and 2020, the most important event for small and medium-size enterprises in Europe. Additionally, I was a member of the B20 Task Forces and from 2014 to 2017 the General Legal Counsel as well as a member of the national board of JCI Germany (WJD — Wirtschaftsjunioren Deutschland), the biggest organization for young leaders and entrepreneurs in Germany.

As a lawyer and owner of the law firm “Lexa Legal”, I advises German and international clients (who want to do business in Germany) in corporate and commercial legal matters.