For a long time the German economy was primarily defined by large corporations and thriving small and medium-sized enterprises. Since about 2005 a second strand has started to emerge and it is one which is becoming increasingly important and is creating jobs – start-ups in the digital sector. This start-up activity is playing an important role in Germany’s economic development: Start-up companies spawn innovations and create jobs, thus promoting the concept of competition. As a rule the term “start-up” refers to digitally-driven companies that are not more than five years old. It is difficult to determine the exact number of young entrepreneurs this covers. According to estimates there are currently around 6,000 start-ups in Germany. Since 2012 alone they have accounted for some 80,000 new jobs.
From e-commerce clones to daring business models
At the dawn of the Internet economy it was initially major e-commerce companies that shaped Germans’ awareness of digital matters. To begin with lots of ideas were adopted from the USA. But the German start-up world has long since become more daring: Nowadays German start-up entrepreneurs are launching their own innovations on the market. Alongside the classic economics courses, German universities are increasing establishing curricula including start-up-related subjects to train young men and women in setting up digital companies. The major research institutes such as the Fraunhofer-Society, the Max Planck Society, and the Helmholtz Association create numerous incentives for their employees to transform innovations and patents into digital business models.
With the Digital Agenda 2020 the Federal government has likewise committed itself to preparing the digital economy for international competition and making Germany the “No. 1 digital growth country in Europe”. Ever since 1998 the Federal Ministry for Economic Affairs and Energy (BMWi) has awarded the “EXIST” start-up scholarship to students and graduates. The Ministry also invests in the High Tech start-up fund. Together with Kreditanstalt für Wiederaufbau (KfW) and 18 other investors from the world of business the seed investor promotes young technology companies.
Private venture capital and international investors
Based in Berlin, in particular Rocket Internet is one of the major private investors in Germany. Rocket is a listed German Internet company with stakes in various start-ups. Brothers Marc, Oliver and Alexander Samwer, symbols of a new generation of Internet entrepreneurs, are among the innovation drivers in their field and established the company. In 2016 Rocket Internet employs around 30,000 people through stakes in companies that operate in 110 countries on six continents. The German Startups Group, the second largest source of venture capital in Germany, is also expanding. German Start-ups has minority stakes in more than 40 young companies that are thought likely to grow quickly and generate profits. Alongside these two giants in the sector there are numerous national investors who commit funds to digital business models. Foreign investors also regard Germany as one of the most interesting places worldwide. US investors in particular have their eye on the German start-up scene, and the amounts being invested are rising fast.
In 2015, just short of 3.1 billion euros were invested in German start-ups, almost five times as much as in 2013, and almost twice as much as in 2014. Most of the money or 1.8 billion euros went into the consumer services sector and online trading. What are known as FinTechs, i.e., start-ups for financial and insurance service providers, came second. These online platforms are increasingly competing with the traditional banks and insurance companies.
Berlin, Europe’s start-up capital
Berlin is a particular hotspot for start-up entrepreneurs. In 2015, 2.1 billion euros alone of venture capital investments in Germany were ploughed into the Berlin start-up scene. That makes the German capital Europe’s start-up capital. London comes in second with 1.7 billion euros worth of investments, followed by Stockholm and Paris. Germany’s biggest grossing start-ups are also based in Berlin. Munich, Hamburg, Cologne/Düsseldorf, Stuttgart and Frankfurt am Main are also successful start-up cities in Germany.
Yet Berlin has a special pull for start-up entrepreneurs in the creative industry and the technology sector. With almost 34 per cent of their workforce from outside Germany, Berlin start-ups are the most international in the country. For many, good higher education institutes and rents which, in comparison with other big cities, are still low, are key advantages. Berlin aims to achieve level pegging with start-up centres such as Tel Aviv, New York, and Silicon Valley. And its chances look good. The more digital talent the city attracts, the more agile, dynamic and diverse its start-up landscape will become.
Good conditions for international start-up entrepreneurs
With new business models, as well as good funding and infrastructure, Germany is now acknowledged as a start-up centre the world over. Lots of international start-up entrepreneurs also rate the excellent general conditions in Germany: Almost 10 per cent of start-up founders and 22 per cent of their employees come from abroad. In addition to start-ups for financial and insurance services, the latest trends include new companies focusing on real estate (PropTech), green technologies (GreenTech), automotive and nutrition. The numerous accelerators and incubators in Germany – these are frequently agendas financed by major corporations, which help start-ups in their early stages – are an indication of how classic industry is increasingly looking to join forces with start-ups in the digital economy.