The Venture Capital Landscape in Germany
Germany continues to be an attractive VC environment. The country continues to draw in VC investments, particularly in the areas of car-, bio-, and agri-tech. In this article we will share the most promising cities for startups in the country and what fields are seeing promising VC interest.
Venture Capital Germany
According to the German Private Equity and Venture Capitalist Association, Germany saw robust VC engagement in recent years with the market reaching new highs in investment and fundraising. Investment volume has continued to rise upward propelled by investments from both national and international VCs.
Technology remains the top sector for VC investment, particularly biotech, FinTech, mobility and SaaS. E-commerce remains a viable sector for investment although interest in this sector has markedly decreased.
Despite the global pandemic, the VC market sentiment in Germany remains optimistic. Market reports for the third quarter of 2020 showed investors are willing to invest again, with recoveries in the fundraising climate, interest in new investments, and deal flow quality. Indicators for valuations and innovation have remained largely steady from the start of the pandemic. The worst performing area in 2020 is the exit climate due to a lack of strategic buyers.
Well-Known Start-ups from Germany
Germany has no shortage of start-ups looking at encouraging valuation prospects from national and foreign investors. These include start-ups from the most promising sectors such as FinTech, bio-tech, health and medicine, personal mobility, and robotics.
ResearchGate, founded in 2008 but now based in Berlin is the biggest start-up in Germany and counts Bill Gates as one of their 22 investors. Babbel is the largest language learning app in the world. Founded in 2007 in Berlin, the company raised 33.3M USD in 4 rounds and was awarded the most innovative education company of 2016.’ Their acquisition of LingoVentura in 2018 marked their expansion into the language travel market. Online fashion platform Zalando is also another top German startup. Currently operating in 17 countries, the company raised 467.7M EU in 8 rounds of funding. They raised 605M EU since their 2014 IPO.
Coach-hub, for one, raised over €18.9 million in capital investment. It was founded in 2018 and offers mobile personalized coaching for employees at various career levels. The company offers a pool of top coaches and professional mobile coaching sessions done through web and smartphone communication.
Medloop is another start-up seeing high levels of interest. Founded in 2018 the company focuses on self-service features for medical patients who want a more independent health care management. The service allows users to independently communicate with doctors, as well as an integrated system for medical information management and communication. The company secured VC investment amounting to €6 million at the start of 2020.
Despite the pandemic, German start-ups are weathering the storm in a better way than their European counterparts. Mobility is a sector seeing surging VC interest, particularly individual mobile devices that allow users to avoid crowded public transportation. TIER, a micro-mobility start-up offering electric scooters to urban dwellers is a prime example.
Pitch is another start-up taking on the challenging investment climate of the pandemic. They launched in 2020 and were founded by the same team that founded Wunderlist which was later acquired by Microsoft. The start-up raised €47m after the close of its Series A round. Services aim to enhance virtual team communications and virtual remote presentations. The software is already used by companies like Superhuman and Notion.
Infarm is also start-up aiming to revolutionize urban farming with their modular vertical farms that can be assembled and operated anywhere, from restaurants to shopping centers and schools. The company raised $100m series B in 2019 and another $170m in 2020. It also has deals with Amazon Fresh and big supermarkets like Casino and Auchan, with expansion talks in the US and the UK.
Top Start-up Cities in Germany
Berlin tops German cities in terms of VC investments, being the home of almost 31% of German start-ups, among them 11 Unicorns. More than 500 startups register in Berlin annually and receive the highest amount of funding at €3.5 billion in 2019, second only to London. Berlin is attractive to FinTech startups, including N26 which is one of the highest valued FinTech startups in the world. Factors like good quality of life, a young and creative atmosphere, and readily available capital and funding make Berlin an easy choice for entrepreneurs.
Munich follows with over 1,300 start-ups, among them 9 Unicorns. Munich’s young, dynamic and multicultural environment makes it another attractive hub especially for sectors like biotech, AI, personal mobility, and ecotech. The city is already home to large corporates such as Allianz, Siemens, IBM, Google, and Amazon, which help create an environment with easy access to B2B customers and potential partners. Other cities to watch out for include Karlsruhe and Cologne which are emerging start-up cities that are either already home to corporate giants like Michelin, Bosch, and Stora Enso, or are enjoying robust economic development initiatives by the government. Trivago, the biggest hotel aggregator in the world, is located in Düsseldorf.
Venture Capital Exits in Germany
The most common exit strategy in Germany is the trade sale where shares are sold to strategic investors or buyers in the same industry. Trade sales allow investors and founders to realize good returns based on strategic influencing that prop up valuations, alongside the promise of high-profit margins without the added burden of financial or organizational effort. For unsuccessful investments, a secondary sale usually made to the founders is another common form of exit. Secondary sale exits are made convenient for investors using ‘put option’ clauses that allow investors to back out of the investment and protects them from insolvency and liquidation proceedings. Other forms of exit strategies open to VCs include IPOs, buybacks, management buy-outs, and receivership/liquidation.
Germany has long established itself as a promising ground for start-ups and VC investments. Promising start-up growth and continued investor interest despite a global pandemic are proving that active government support, encouraged access to industry leaders as well as a strong network of digital hubs make Germany the ideal environment for start-ups to adapt and thrive.