German Ecosystem Insights

During our Café session on 10 February, our Master Peter Lennartz shared insights on the German ecosystem for startups using the 2022 EY Startup Barometer, a study initiated by him when he was a partner at EY. It showed that with limited governmental influence, the ecosystem is rapidly growing and accelerating in number and amount of funding rounds. With the majority of investment capital coming from outside Germany.

Below is a summary of the report and you can find the full report here.

  • The total value of investments in German startups increased by 229% to €17.4 billion in 2021
  • Number of investments increases by 56% to 1,160
  • Berlin and Bavaria are far ahead in terms of investment volume and number of deals
  • Industry comparison: FinTech, e-commerce and software startups each receive more than €3.5 billion
  • Eight financing rounds totaling more than €500 million – previous year: zero 

Never before has so much money flowed to German startups as in the past year. The total value of all venture capital investments in young German companies has more than tripled from €5.3 to almost 17.4 billion (plus 229%). The number of rounds of financing rose by 56% to 1,160, also setting a new record. Above all, the number of major deals with a volume of more than 100 million euros has literally exploded from eight to 33 compared to the previous year.

Berlin and Bavaria are still the German startup hotspots: €10.5 billion went to Berlin companies last year (previous year: €3.1 billion). The Berlin start-up scene thus accounted for 60% of the total capital invested in Germany. With €4.4 billion (previous year: €1.5 billion), Bavaria has a market share of around 26%. The gap to the following federal states in the investment ranking is large: almost €600 million went to startups in Baden-Württemberg, €566 million to young companies in North Rhine-Westphalia, and Hamburg startups received €459 million.

In all larger start-up locations in Germany, not only was an increase in the investment volume registered, the number of investment rounds also rose: In Berlin by 60% to 503, in Bavaria by 30% to 228, in NRW by 63% to 101. An above-average positive development was recorded in Baden-Württemberg, where the number of financings increased by 115% to 73, and Lower Saxony, where a six-fold increase to 44 transactions was recorded.

These are the results of the start-up barometer of the auditing and consulting company EY (Ernst & Young). Companies that are generally no more than ten years old were taken into account.

“The pandemic is increasingly proving to be a catalyst for a real start-up financing boom,” says Dr. Thomas Prüver , Partner at EY. “Investment activities are increasing across sectors and locations. That means: More and more startups are getting fresh money. In addition, the investment sums are developing almost explosively. The reason is the renewed interest in potentially disruptive business models, especially in the technology sector. In addition, there is high investment pressure on the investor side. There is a lot of money on the market – promising young companies are currently benefiting from that.”

Software with the most deals, e-commerce gets the most money

As in the previous year, most financing rounds were counted in the area of ​​software and analytics in 2021: At 393, the number was significantly higher than in the previous year (232 deals). The investment volume has almost quadrupled from €1.0 to 3.6 billion.

However, even more money flowed to FinTech/InsurTech companies, which received a total of €3.8 billion (previous year: €0.6 billion), and e-commerce start-ups, in which €3.7 billion were invested (previous year: €1,0 billion).

“The investment landscape has changed and expanded significantly in recent years,” Prüver observes. “Although e-commerce remains a very strong segment into which large sums of money flow, technology and software start-ups have also been able to attract extremely high investment sums. These companies are often highly innovative and often have the potential to use their solutions to advance the digital transformation of the German economy and thus act as innovation drivers.”

Bavaria has finally established itself as the second strong start-up location

Although Berlin was able to maintain its position as Germany’s leading start-up location last year and again recorded a significant increase in financing activities, Bavaria has now also been able to establish itself as a top location with a clear profile of its own alongside Berlin. Of the ten largest investment rounds registered in 2021, seven went to Berlin companies and three to young companies based in Bavaria. “The really big deals are mainly made in Berlin and Bavaria. For the other start-up locations, on the other hand, it is difficult to keep up. The investment sums are also increasing here. The bottom line, however, is that it is a long way from the dimensions that are now part of everyday life in Berlin.

More and more unicorns in Germany

The largest transaction in Germany took place in September and was a €861 million cash injection for Berlin delivery service Gorillas, followed by a €830 million investment in Celonis, the Munich-based process mining software provider, in June. They are followed by two Berlin FinTechs, N26 and Trade Republic, which received €775 million in October and €747 million in May respectively. A total of eight financing rounds were counted, in each of which more than €500 million flowed to the companies – for comparison: In the previous year not a single transaction of this size was registered, in 2019 only one.

As the number of mega deals grows, so does the number of startups surpassing the $1 billion mark, dubbed unicorns. “Thanks to many high investment rounds and high ratings, 2021 was the year of the unicorns in Germany. And there is much to suggest that the development in 2022 will be similarly dynamic,” says Prüver.

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