Germany’s Unicorns Riding High

The hype around Germany’s tech scene is turning into reality, as the investment data from 2018 shows. With a sharp spike in mega-round investments, an increase in ­funding from overseas and a new generation of unicorns, the future is looking bright.

July 2019

Berlin is home to over half of the technology companies Dealroom has identified as “future unicorns.” Unicorns are companies valued at over USD 1 billion. © RICOWde

Investment in German start-ups is at an all-time high with a total of EUR 4.4 billion invested in 2018 (compared to EUR 3.2 billion in 2017), according to the global company-growth database Dealroom. The rise is largely driven by a dramatic increase of mega-rounds into “Growth Equity” and “Series A” German companies (investments of EUR 87 million plus). The latest data shows that Germany – which overtook France in 2016 to become the No.2 tech hub in Europe after the U.K. – is significantly improving its position in the start-up solar system.

So, what are the factors driving growth? Firstly, Seed and Series A funding rounds in Germany are bigger than in the U.K., France or the rest of Europe – an indicator of future success and perhaps a shifting center of gravity to mainland Europe. Set against the background of a general bias toward early-stage investment in Europe and the strength of its start-up scene as a whole (Europe saw nearly double the number of IPOs than the U.S. in 2017), the German sector is thriving.

Germany’s future unicorns

One example is the performance of Germany’s tech unicorns since the mid-2000s (companies valued at over USD 1 billion, which now include Omio, N26, NuCom, and Celonis): over a third of them (nine) became unicorns in 2018 alone. While the U.K. is still the premier breeding ground for unicorns (it has 60 compared to Germany’s 28), there is room for growth. Brexit has already destabilized the U.K.’s dominance in the sector and Europe’s upcoming tech hubs of Berlin, Paris, Zug, and Munich are ready to pick up the slack.

Berlin, for example, is home to over half of the companies Dealroom has identified as “future unicorns.” Senior analyst Lotf Belych explains the reasons why: “The success of German unicorns is driven mainly by a well-connected ecosystem of talent and start-up enablers, along with the rapidly-growing list of their international customer base, especially for the tech unicorns (Celonis, BioNTech). This increases the investors’ appetite for global expansion.”

German start-up characteristics

51.8 %

raised external capital in 2018

31.6 %

classified themselves as ICT

60 %

say AI has or will influence business models

32 %

consider themselves part of the green economy and/or social entrepreneurship

15.1 %

have a female founder (increasing year on year)

Source: Deutscher Startup Monitor (DSM) 2018: DSM interviewed 1,550 start-ups in 2018, providing insight into the character of German entrepreneurship.

Another key driver is the marked increase in foreign direct investment (FDI) into Germany over the past year: investment from the U.S. and Asia alone was EUR 1.8 billion in 2018 compared to EUR 0.4 billion in 2016. Insight, Sequoia, Goldman Sachs, and Rakuten are some of 2018’s highest profile investors, while South Africa’s Naspers made a significant single investment. So why does Germany remain attractive when intercontinental FDI is slowing down around the world – a mega-trend which has been labelled “Slowbalization?” Achim Hartig, head of investor recruitment at Germany Trade & Invest, has some ideas: “The stability of the political system is a cornerstone of the E.U. as a free market and facilitates trade and investment worldwide,” he says. “The German government supports SMEs developing innovative products, services, technologies and processes. Start-ups in Germany are cooperating with traditional companies. As a result, we are attracting more international start-ups.”

Europe strong on sustainability

Dealroom has identified FinTech, mobility, and deep tech as Germany’s principle investment growth areas, but the Digital Hub Initiative is fostering innovation in a number of specialist fields. The Deutscher Startup ­Monitor 2018 found that, besides digitalization, sustainability and ethical business practices were high on the priority list for start-ups.

Florian Nöll, chairman of the board of the German Startups Association, believes European and especially German start-ups have an opportunity to change the game: “There are many topics out there that the big [U.S.] tech companies haven’t addressed sufficiently like transparency and sustainability. This is a big opportunity for European start-ups, many of which solve current and future problems, and we need to spread the word. If we can do that, the future tech giants will be based in Paris, Warsaw, Berlin and Lisbon.”

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