The German startup ecosystem: Current state and possible future

April 18, 2022 by
Frank Calviño
Photo by Raja Sen on Unsplash

The German startup ecosystem was shaken to the core by the COVID-19 pandemic. Many companies that had never before pondered e-commerce as a possibility, decided to jump into the turbulent waters of selling online. And to survive there, these companies requested a lot of no-code, easy-to-use, software solutions, and in turn, this has skyrocketed the German startups in the fields of Information and Communication Technology and Fintech.

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Today we want to take a quick look at the current state of the German startup ecosystem, a key component of the EU e-commerce and cross-border community. Let us begin! 

Berlin is the place to be

First things first: the location. To better understand what's going on with the German startup ecosystem, we need to realize that Berlin has become the prime location for entrepreneurs across Europe.

In the past, London was - at least for the past 10 years - the main city for European startups. Yet, a combination of COVID and Brexit dethroned London in favor of Berlin at the end of 2019. 

The Start Up HeatMap, created by Startup and Places website, reported that Berlin performed outstandingly well with startup founders - selected from 29 diverse countries - choosing Berlin in 39% of the cases.

London in contrast continues to decline by -1%. One explanation might be the overwhelmingly positive perception of the German COVID-19 response during the time of the survey, but also the Brexit discussion that has supported uncertainty.

The Brexit effect has a negative impact on the startup ecosystem 

When looking at the same report, in 2019 we observed a divide going through Europe with Central Eastern European founders leaning dramatically more toward London, while the Nordics and Baltics turned to Berlin. 

In 2020 the positive trend for Berlin continues, but London sees a mixed picture: In the Nordics, London has regained ground (+12% points), while in CEE their popularity tumbled (-12% points). 

The worst effect however is seen with founders based currently in the UK and Ireland, where London dropped from 55% of the vote to only 36% in 2020 (-19% points). This provides a strong argument for a negative perception of the consequences of Brexit among founders who moved to London or the UK – many of them clearly would not do so again.

German startups: Information and communication 

A Statista report claims that 30.5% of German startups were in the information and communication technology industry. 

The report defines startups as being younger than ten years, highly innovative in terms of technology, and/ or their business model aiming for significant growth in revenue and employee numbers.

Keep in mind that it is not only a matter of a recently created business but the way this business was actually conceived and the way it runs, what defines a startup and separates it from a regular business. 

Startup density across Germany 

German states varied in their startup density. Based on recent data, North Rhine-Westphalia had the highest number of startups in its territory with 18,5% followed by Berlin at 17,1% and Bavaria with 15,7%.  All the same, Berlin received the most funding for entrepreneurship. 

German startups also differed in their range of generated revenue, though most achieved anything between 1 and 150,00 euros.

While information and communication technology was booming as far as startups were concerned, fintech is another area enjoying success in Germany.

What about female entrepreneurs? 

Unfortunately, Germany did not fare well when looking at male and female entrepreneur numbers. In fact, European countries are generally disappointed. 

Germany had a 3.3% rate of female entrepreneurship, followed by Italy.

More jobs in Berlin 

Looking at the monthly data concerning job creation, presented by the Startup Heatmap 2021, we see Berlin takes the lead over London with 2,757 monthly job openings. Even though it has a smaller number of investments every year. Paris and Munich follow suit with also more than 1.000 job openings in the startup sector per month.

Fintech: The future of the German startup ecosystem  

Germany is one of the leading European countries for Fintech. Startups are often the driver of innovation, bringing new and disruptive products and services. 

As of September 2021, there were 209 PropTech startups in Germany, targeted at the real estate market. Alternative finance came second with 198 startups.

Keep in mind that - as Statista reports - investment interest in European fintech companies has been strong for a number of years now, something the COVID crisis only increased. 

And despite some fluctuations, the total value of venture capital investments in European fintech companies has paid off. So, fintech investments in Europe will most likely continue to grow. With the highest in the British market and with Germany and Sweden following from a distance.

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