A new breed of German startups


At a rooftop bar in Berlin on May 29th, the glitterati of Germany’s startup scene toasted a new arrival. Silicon Valley Bank, a commercial lender which counts as customers half of American startups that went public in 2017, has just opened an office in the country. “They are doing unique, cool things here,” gushed Greg Becker, the bank’s boss. One of his first German clients is Lilium Aviation, whose electric flying taxis have mastered the tricky combination of a drone-like vertical take-off and forward jet propulsion.

Silicon Valley Bank arrives as a new breed of German startups is gaining altitude. At first e-commerce firms dominated the scene, often by copying ideas from abroad. Rocket Internet, an early success, went further, cloning American e-commerce models in other countries, too. Rocket and Zalando, a fashion e-tailer, did initial public offerings in 2014. After that only two big stockmarket debuts followed, of HelloFresh (which sells meal-kits) and Delivery Hero (a food-delivery firm), both in 2017.

The latest crop have in common an emphasis on science and manufacturing, Germany’s historical strengths. These younger startups are developing technologies that address areas such as health care, finance and transport. As would be expected in a decentralised economy, Berlin is gradually ceding ground as the hub of the startup scene. At UnternehmerTUM, an incubator just outside Munich, for example, a hangar-sized workshop is buzzing with 3D printers, welding stations and a gigantic metal-cutting machine. It is attached to the Technical University of Munich (TUM) but owned by Susanne Klatten, heiress to an industrial fortune.

Its boss, Helmut Schönenberger, lists some of the stars born there in the past five years. One is Lilium. Another is NavVis, which makes 3D maps of indoor spaces. Konux, another young firm, makes artificial-intelligence sensors that predict when and where railway-track repairs are due.

Such firms are off most people’s radar. “You’ll not hear about many of them,” says Peter Lennartz of EY, a consultancy. Unlike e-commerce firms, startups that make business-to-business products, such as measurement systems, are bound to be less visible. But they are becoming increasingly popular with investors.

Although e-commerce startups still draw the lion’s share of financing, that is largely because they are more mature. The three biggest venture-capital rounds in 2017, all in e-commerce, accounted for almost a quarter of the total amount invested in Germany last year. But the number of funding rounds in e-commerce fell by 34% between 2015 and 2017 (see chart). For startups in health care the figure more than doubled; in mobility it increased fourfold. 

This shift reflects the emergence of new firms in industry hubs such as Frankfurt, Germany’s financial centre; Hamburg, which has a cluster of logistics firms; and Munich, home to firms such as BMW, Airbus and Siemens. In 2014-16, Hamburg had 253 new business founders per 10,000 working people annually, compared with 238 in Berlin. The capital remains the centre for entrepreneurs in e-commerce and entertainment; but the number of funding rounds for startups in Berlin increased by 14% between 2015 and 2017, compared with 33% for those elsewhere.

Wherever they are based, funding rounds at all stages of a firm’s life are becoming bigger and easier. For a young company with a strong product, team and global ambitions, raising money has never been easier, says Julian Riedlbauer of GP Bullhound, a tech advisory firm in Berlin. In 2017 investors poured €4.3bn ($4.8bn) into German startups, 53% more than the average in 2015-16. KfW, the federal development bank and one of the biggest startup financiers, is about to launch a subsidiary that will invest €2bn in early-growth firms in the next decade. 

Firms have better access to talent as well as to money. Entrepreneurship programmes at technical universities are proliferating. And according to Dietmar Harhoff of the Max Planck Institute for Innovation and Competition, a think-tank, experienced managers are more willing to join startups. Lilium, for example, poached senior staff from Airbus and Tesla when it was a fledgling with just $10m of backing. For entrepreneurs there seem likely to be further occasions for parties.



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