Overall, less money, but more investment for German startups: this is the prediction of the startup barometer of the auditing and consulting firm EY (Ernst & Young) for the first half of 2018. A closer look reveals that venture capital investments in particular are on the rise—currently at record levels—and that Bavaria is hot on the heels of Berlin as a startup location.
German startups raised a total of €2.4 billion from investors in the first half of 2018 – seven percent less than the previous year, when Delivery Hero's IPO in particular set a record. The transaction volume of pure venture capital investments – excluding IPOs – rose by 3.5 percent in the first half of the year to a new high of €2.2 billion.
The number of investments reached a new record with a total of 272 transactions – three percent more than in the same period last year.
Bavarian financing volume increases significantly
However, more money flowed to Bavarian and North Rhine-Westphalian startups than in the same period last year: In Bavaria, the financing volume climbed by 67 percent to €355 million, and in North Rhine-Westphalia by as much as 138 percent to €129 million. Startups in Hesse raised €98 million, more than double the amount of the previous year. Only Hamburg recorded a decline of just over a third in the first half of the year, with a total of €116 million. These are the results of the Startup Barometer of the auditing and consulting firm EY (Ernst & Young).
"The first half of the year was once again successful for Germany as a startup location – the volume of pure venture capital investments even rose to record levels. In addition, more and more German startups are receiving fresh capital,"
observed Peter Lennartz, Partner at EY.
Growth momentum slows down
However, the growth momentum is slowing somewhat: In the first half of 2016, the number of transactions increased by almost 60 percent; in the first half of 2017, the growth rate was six percent; currently, it is three percent.
"We have apparently reached a temporary peak in market activity at a high level in Germany – the number of transactions has been hovering around 250 since 2015."
Young companies in particular are struggling
In particular, the number of small and medium-sized financing rounds stagnated: A total of 194 transactions were recorded in which investments of up to five million euros were made – compared to 192 deals of this size in the same period last year. The number of investments between five and ten million euros even declined slightly, from 36 to 32.
“Smaller transactions often involve a high level of risk because they involve very young companies with mostly untested business models,”
observes Lennartz.
“But it is precisely here that capital is still urgently needed to overcome the initial hurdles and demonstrate potential.”
More large financing rounds
Fortunately, the number of large financing rounds above ten million euros increased significantly in the first half of the year: from 36 to 45.
"This is proof that many startups that received smaller amounts of funding in the past have developed very positively and are now on a growth path to market leadership, supported by experienced national and international investors. Many of these startups will need additional growth capital in the future, which can be obtained either through venture capital or through IPOs."
Berlin still ahead — Bavaria and NRW are catching up
On paper, Berlin is and remains Germany's startup capital and international beacon – but Bavaria is especially so. North Rhine-Westphalia and Hesse caught up in the first half of the year. Berlin's share of the total financing volume fell from 74 percent to 67 percent compared to the same period last year, while the combined market share of Bavaria and North Rhine-Westphalia doubled from 10 percent to 20 percent.
