Looking at the capital raised in 2021, startups in Germany have come through the past twelve months relatively well: According to the capital raised in 2021 published in January 2022, EY Startup Barometer Germany Never before has more money been invested in German startups than last year. The total value of all investments in German startups in 2021 more than tripled compared to the previous year, to a total of 17.4 billion euros, the report shows.
Higher initial ratings and more diversity
Various developments can be observed in 2022. Initial valuations of startups appear to be continuing to rise. At the same time, there is increasing critical reflection on the topic of venture capital. Many founders are asking themselves questions such as: Do I even need venture capital, or can I bootstrap – or work with other sources, such as family offices or strategic investors? More and more founders today desire the freedom to build and manage their business as they see fit. They want to keep the option open to learn, to make pivots, and not, following the 0-for-1 approach of major venture capitalists, simply strive for the highest possible valuation. Therefore, many startups now prefer to remain very realistic when scaling. Increased profitability is also becoming more and more of a focus, rather than being dependent on venture capital for years.
The importance of the venture client model is growing
With the return to revenue as the core of successful business operations, the venture-client model is also gaining increasing importance. Instead of raising as much investment as possible, more and more startups want to quickly generate income from their own revenue, test their solutions in practice, and solve real problems for their customers – something the venture-client model is ideally suited for.
Many corporations desire close collaboration with young companies to find innovative solutions to problems and new business and revenue opportunities. However, investing through venture capital is relatively indirect and costly. It is much faster and easier for the corporation to become a 'customer from the very beginning' of the startup. This not only solves the corporation's problems, but also allows the startups' products and services to be directly tested and, if necessary, optimized, while the young companies simultaneously generate revenue. The venture client model thus offers an excellent alternative to venture capital, especially when startups value their independence.
A success story in the venture client sector: the startup Galactify. Galactify offers software to optimally manage and monitor complex projects and their progress. Galactify was given the opportunity to participate in Wayra, Telefónica's open innovation hub, to acquire the telecommunications group as a customer, deploy their software in the shortest possible time, and immediately test it with a major customer. Scaling was thus achieved through real sales – and very successfully and sustainably.
5G business models and suitable use cases are the future
From a business model perspective, the developments in the 5G sector are currently particularly exciting from a technical perspective: Telecommunications companies are currently investing considerable effort in building 5G networks, but often lack use cases for their meaningful application. Accordingly, they are urgently seeking concrete applications to derive value from the new networks. Due to the intense competition, proprietary magazines or TV programs, or other business models that telecommunications companies have tried in the past, are taking a back seat.
Founders focus on core processes
In the startup sector, it's noticeable that founders are also becoming increasingly focused on designing their processes: Functions that are not core to the business, such as finance, HR, logistics, or sales, are increasingly being outsourced. This allows managers and employees to focus on other tasks.
Last but not least, the importance of diversity continues to grow: The benefits and importance of diverse teams are undisputed and are increasingly becoming a reality in companies of all sizes, including start-ups. This is a highly encouraging and long-overdue development – even if there is still a significant need to catch up on diversity aspects, particularly in the area of investments and the distribution of venture capital. For example, the FAZ last year about the unequal distribution of investor money: The Female Founders Monitor 2021 shows, among other things, that men have a 60 percent higher chance of receiving venture capital than women for similar business models. One possible cause of this problem: 96 percent of venture capital firms are run by men, according to the study. Improving these circumstances and distributing investor funds equally is a key focus for the startup world this year.
Conclusion: The startup economy in Germany has proven robust even under the difficult conditions of recent years. Investors continue to trust in the innovative power of young companies and are investing increasing amounts of money in this area. But venture capital is not the only path to success: More and more founders are recognizing the value of early customer relationships, e.g., through the venture client model, as well as the freedom that bootstrapping and early revenue generation allow them. Innovative products and services in the 5G sector, in particular, are poised to attract the attention of even major customers – and thus achieve impressive success in a short time. If founders, customers, and investors also consciously address the issue of diversity, the starting conditions for young companies in Germany are positive – and more exciting success stories can be expected in 2022.
