The German Startup Monitor 2017: What you need to know about the German startup ecosystem

Where are most of the startups founded and how many employees do they employ on average? Where are the startup strongholds in Germany? What about women and foreigners as founders and how are startups in Germany financed? These and other questions are answered by the "Startup Monitor" (DSM) from the Bundesverband Deutscher Startups e.V. This article shows the most important findings of the 108-page report.

The DSM 2017 has evaluated the statements and answers of 1837 startups, which have 4245 founders and 19913 employees. Apart from the "Startup Monitor", Germany does not have a comparable study of this size. Therefore, it represents the current picture of the German startup landscape.

Remarkable developments that emerged during the evaluation of the study were, in particular, the further internationalization of the German start-ups, the origin of the founders and employees as well as the intensified cooperation of established companies with start-ups.

Which companies have been investigated?

Startups form a special subgroup of company foundations. These include foundations that are less than ten years old. The average age of the surveyed startups in the DSM was 2.7 years.

Furthermore, startups according to the DSM fulfill at least one of the two following criteria: They are either (highly) innovative in terms of technology and/ or business model, or they have already realized or strive for significant company and employee growth.

The strongholds for startups in Germany

In the previous year, Berlin, Hamburg, Hanover, Rhine/ Ruhr, Munich and Stuttgart were identified as the six strongholds for startups in Germany. In 2017, again more than half of the German startups still originate from one of these cities or regions. Berlin accounts for the largest share with 16.8% of the startups; however, in contrast to the previous year (17%), there was a slight decline.

As in the previous years, the trend is that other regional centers are slowly emerging. Cities and regions such as Lower Saxony and Bavaria become more important. Especially the number of startups in Bavaria (from 12.1% to 13.%), Hessen, Lower Saxony (from 10.7% to 12%) as well as in Thuringia, Saxony-Anhalt and Mecklenburg-Vorpommern increased. The least number of startups has been recorded in Brandenburg at 1.1%.

Interesting insight in this context: startups usually do not change from their founding country to another city or region. If, however, a change of location takes place, Berlin is the most popular destination.

Areas of activities, team foundations and job creation

The most important area of activities for startups remains the digital economy. According to the DSM, half of the startups can be found in the areas of IT/ software development, "software as a service", industrial technology/ production/ hardware, e-commerce or online market place.

Foundations happen mostly in teams (75%), with a predominant team size of two to three people. The different professional qualifications complement each other in the opinion of the surveyed startups. 90% rely on the expertise of team colleagues.

Startups generate an average of 13.2 jobs and plan for the next twelve months on average a new hiring of 7.5 employees. The recruitment of specialists remains a difficult issue for all startups.

Women and foreigners as founders

The proportion of women among startups in Germany has grown slightly to 25%. This shows, however, that startup founders in Germany are still mainly male..

The share of EU foreigners in German startups scene is interesting: not only every tenth startup founder comes from the EU. In Berlin, almost every second employee comes from a EU country.

"Two out of three founders believe immigration of people from abroad are an enrichment for the German startup ecosystem", says Florian Nöll, CEO of the "Bundesverband Deutscher Startups e.V." (German Federation of German Startups). He considers a "welcome culture that makes it easier for specialists to enter Germany" and a "need-oriented immigration law" as one of the most important aspects for startups environment in Germany.

In this context, the DSM shows that the biggest hurdles in the hiring of international employees are the bureaucracy, the language but also the lack of internationality of the qualifications and degrees.

The training of the founders and the pursuit of internationalization

81.8% of the startup founders have a higher education, in particular from the study subjects economics or "MINT" (mathematics, computer science, natural sciences, technology).

Tobias Kollmann from the University of Duisburg-Essen and co-author of the study, would like to see that the German higher education institutions offer training more from the point of view of entrepreneurship and more on internationality — for example through English-language courses.

The DSM shows that more than 80% of the German startups are making plans on internationalization, even if currently 78.7% of their sales are generated in Germany. The most important internationalization targets are Europe, North America and Asia.

Sources of financing for startups and profitability

The most important source of financing for 82.4% of the surveyed startups is the personal capital of the founders. The share of venture capital as a financing tool continues to decline to 15.9%, slightly ahead to a bank loan. Crowd funding plays only a subordinate role for German startups and only every fifth startup received a funding from a business angel. More than half of the startups (55.2%) are planning another capital increase over the next twelve months.

Already 40.5% of startups were able to make a profit. For 33.1% such profit was between EUR 50.000,00 and EUR 150.000,00. 71% of the profit was reinvested in the startup itself.

Cooperations with startups and established companies

The DSM shows a trend towards more cooperation between start-ups. Cooperations with established companies declined.

However, for the startups the customer base, the technology and the reputation of the established companies would be important, especially as the biggest challenge for startups is the acquisition of a customer base as well as product development — areas, in which established companies could help startups..

Startups and politics

Startups give the political parties in general bad grades when it comes to the knowledge of the worries and needs of startups. On average, the grade is 4.6 (previous year: 4.4). Participation in election of the founders is very high, at 96.2%, which is well above the nationwide average.

According to the DSM founders choose most frequently the Free Democratic Party "FDP" (39.4%) and almost every second startup of the DSM has the opinion that Christian Lindner from the FDP has the largest competence regarding startups.

Regarding policy expectations, the three most common claims have remained the same as in the previous year: less bureaucracy, less tax, and more support in raising capital.

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Carsten Lexa is the co-founder of "Gründen@Würzburg", the startup initiative of the German city of Würzburg. He is also the President of the G20 Young Entrepreneurs´ Alliance (YEA) Germany and the Chairman of the Steering Committee of the G20 YEA.

A corporate lawyer by profession and equipped with his own law firm (link to the law firm website), Carsten Lexa advises international clients, who want to do business in Germany, in corporate and commercial legal matters. He is, by invitation of the European Commission, a participant in the annual SME Assembly, a member of the B20 Task Forces and since 2014 a member of the national board of JCI Germany (WJD — Wirtschaftsjunioren Deutschland), the biggest organization for young leaders and entrepreneurs in Germany.

Interested in more information about Carsten Lexa and his adventures? Follow him on Twitter (kanzlei_lexa), "like" the Facebook fan page (kanzlei.lexa) or visit the blog (Link).



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