Germany, famous for its beer and precision engineering, has another feather in its cap: its burgeoning startup scene. From Berlin's urban cool to Munich's tech-savvy vibe, Germany's cities are the perfect launchpads for startups. Let's look at the incredible journey of startups in Germany, from humble beginnings to global players.

Germany’s strong pillars

Germany frequently tops the charts in the top three startup ecosystems in Europe. There’s no wonder why. A compelling blend of factors makes this European powerhouse a magnet for budding entrepreneurs.

Robust Economy

Germany boasts the largest economy in Europe and the fourth-largest worldwide. This robust economic climate and impressive infrastructure provide the ideal backdrop for thriving startups.

After all, who wouldn't want a piece of that economic pie?

Innovative Spirit and Talent Pool

Let's not forget about the German knack for innovation. Germany has a rich history of technological advancements, from automotive giants to software conglomerates. It's a wellspring of creativity, with many talented individuals ready to take startups to the next level.

Germany's industrial heritage also provides startups with a unique advantage. The country's well-established industries create opportunities for startups to collaborate, innovate, and provide solutions to existing challenges.

The startup funding landscape in Germany

Over the past year, Germany's startup funding landscape has experienced notable fluctuations in response to global economic challenges.

After a remarkable surge in venture capital investments in 2021, the momentum slowed down in the latter half of the year due to the impact of war, inflation, and rising interest rates. The repercussions of these external factors led to a 46% year-on-year decline in the total value of investments in German startups in 2022, amounting to $11.9B.

Moreover, the number of funding rounds also dropped 29%, with 1,137 deals recorded compared to 1,606 deals in the previous year. Despite the decline, it's worth noting that the overall funding levels still surpassed those of 2020, which saw $6.5B in total investments.

Things got better in the first half of the year when funding local startups started to perform better and grow 38% compared to Q4 2022.

Amidst the downturn in later-stage funding, there has been a relatively stable trend in early-stage financing, from pre-seed to Series A funding rounds. This resilience in early-stage funding indicates investors remain interested in supporting promising young startups and innovative ideas.

Additionally, a positive development in the ecosystem has resulted in a burst of new venture capital funds, especially smaller funds with funding sizes under $50M. These smaller funds' increased presence in the market signals continued interest in backing early-stage ventures. It signifies the potential for future growth and revitalization of the German startup scene.

Investors who traditionally backed companies in their later stages are now watching public stock prices tumble and growing increasingly wary of later-stage private valuations.

And there's another twist to the tale. US funds, historically propped up a significant portion of later-stage investments in German startups, are now retreating. With the US financing market tightening, many funds that once lavished investments on German startups have pulled back their support.

Germany’s major startup communities

Berlin

Berlin is a city that has quickly morphed into a thriving breeding ground for startups, thanks to its conducive business climate, eclectic talent pool, and robust support systems.

Berlin is a haven for co-working spaces, incubators, and accelerators, crafting an ideal environment for startups to blossom and expand their horizons. It’s no wonder startups from various sectors, especially FinTech and transportation, are flocking to this robust ecosystem.

Berlin's startup ecosystem is also known for its pulsating calendar of events and myriad opportunities for startups. From the annual Tech Open Air festival to countless networking events, workshops, and accelerators, there's always a platform for startups to learn, grow, and shine.

But what's a thriving startup ecosystem without investors?

Berlin's startup ecosystem is a magnet for investment, accelerating the growth of its startups. Funding availability is instrumental in nurturing new ventures and cultivating unicorns - startups valued at over $1B. With a rich canvas of resources, talent, and opportunities, Berlin continues to entice entrepreneurs, investors, and innovators.

Munich

Munich's startup ecosystem has emerged as a thriving hub, benefiting from successful major corporations, established startups, and a robust university and research environment. The city offers a supportive and dynamic community for entrepreneurs, with multiple innovation centers and accelerators aiding startups in transforming their ideas into successful businesses. With many startups and a high concentration in industries like Transportation, Software and Data, and Energy and Environment, Munich ranks as Germany's second-best startup ecosystem and sixth in Western Europe.

The availability of venture capital and funding opportunities, coupled with Munich's strong economy and global player presence, makes it an attractive destination for investors looking to support innovative ventures. The city's recognized universities and research institutions also contribute to a high-quality talent pool, enabling startups to access skilled professionals and scale up their operations effectively.

Germany’s most funded sectors

• Fintech

Fintech has been one of the most funded sectors in Germany since 2015, and it continues to attract significant investment. Berlin is the leading city in Fintech, with successful startups such as N26 and Solarisbank.

• Health/Medicine

The healthcare sector has been growing in importance in Germany's startup ecosystem, with a 10.6% share of startups in the industry. Healthtech startups such as Ada Health and Medwing have raised significant funding rounds.

• Food/Consumer Goods

The food and consumer goods sector has also been attracting significant investment in Germany's startup ecosystem, with a 10.2% share of startups in the industry. Successful startups in this sector include HelloFresh and Gorillas.

• Enterprise Software

Enterprise software is another sector attracting significant investment in Germany's startup ecosystem. Successful startups in this sector include Celonis and Personio.

German Venture Capital Funds.

• Earlybird Venture Capital — Earlybird Venture Capital focuses on European technology companies. Founded in 1997, Earlybird identifies and backs early-stage companies and supports them through their growth and development phases – providing financial resources, strategic support, and access to an international network & capital markets.
• High-Tech Gründerfonds — High-Tech Gründerfonds is a hot spot for early-stage startups. With an initial investment of up to €4 million, they're a game changer for many upcoming businesses.
• Point Nine Capital — A VC fund known to back SaaS and online marketplace startups, nurturing them into successful businesses. They are your next best friend if you're in software or online retail.
• Cherry Ventures — Cherry Ventures is an early-stage venture capital firm led by entrepreneurs with experience building fast-scaling companies such as Zalando and Spotify.
• HV Capital — Since 2000, HV Capital, formerly HV Holtzbrinck Ventures, has backed Internet and technology companies through various generations of funds and is one of Europe's most successful and financially strongest early-stage and growth venture capitalists.
• Lakestar Ventures — Lakestar’s mission as a venture capital fund is to find, fund, and grow disruptive businesses - enabled by technology - founded by exceptional entrepreneurs in Europe and beyond.
• Cavalry Ventures — Cavalry Ventures is a European early-stage venture capital fund focusing on pre-seed and seed stages with EUR 260+ million in assets under management.
• Bmp Ventures — Bmp is a venture capital firm based in Berlin, and Magdeburg committed to supporting exceptional entrepreneurs to build successful companies. We look for companies that create sustainable and profitable businesses.
• IBB Ventures — IBB Ventures is a venture capital and mezzanine arm of Investitionsbank Berlin specializing in seed/startup, early venture, and mid-venture investments. The firm invests in technology-oriented companies and companies from the creative industries.
• Atlantic Labs — Atlantic Labs supports and invests in mission-driven founders working on transformative technology ventures in Digital Health, the Future of Work, Machine Learning, Decentralized Networks, Mobility, and Industrial Applications.
• Bayern Kapital — Bayern Kapital is a wholly owned subsidiary of the LfA Foerderbank Bayern (Bavaria‘s development bank). Bayern Kapital’s objective is to finance research and development as well as the market launch of new products, product diversification, and market share expansion.
• APX VC — is a very-early-stage VC fund based in Berlin and backed by Axel Springer and Porsche. They invest up to EUR 500K in startups until a series A starts with a quick EUR 50K investment.
• TGFS - Technologiegruenderfonds Sachsen — TGFS is an early-stage VC fund targeting high-tech startups with strong growth potential. The fund invests in ventures in Saxony/Germany, Europe's leading semiconductor cluster.
• Speedinvest — Speedinvest is one of Europe’s most active early-stage investors, with more than €1bn AUM, 40 investors, and offices in Berlin, London, Munich, Paris, Vienna and San Francisco.
• Project A — Project A is an early-stage venture capital firm combining financial and operational support for technology companies. In addition to $600 M in assets under management, Project A provides its portfolio companies with a wide range of operational support services.
• Picus Capital — Picus Capital is an early-stage technology investment firm with a long-term investment philosophy. They work with daring technology companies to build successful, global companies that challenge the status quo and shape tomorrow.

Unicorns & soonicorns of Germany

Let's take a look at some key players who are making waves in Deutschland.

1. Zalando

On e-commerce, Zalando is a giant in Germany and Europe. This Berlin-based fashion platform has become one of the continent's leading online retailers, boasting over 24 million active customers.

2. N26

If we're talking FinTech, we can't miss out on N26. Born out of a desire to revolutionize banking, this Berlin-based startup has taken the finance world by storm with its fully digital banking services, expanding to 24 countries in just six years.

3. Delivery Hero

Based in Berlin, Delivery Hero is an online food delivery service in over 40 countries, serving millions of meals daily.

But it's not just these big names. Germany's startup ecosystem is teeming with up-and-coming players ready to disrupt various industries. Companies like Infarm are shaking up the urban farming scene, and Grover is making waves in the tech rental market.

So, there you have it – a glimpse into the bustling startup scene in Germany. The German startup ecosystem is diverse, vibrant, and ripe with opportunity, from established giants to promising newcomers.

Spotlight on future unicorns

1. Isar Aerospace

Isar Aerospace is a German space technology startup that has garnered significant attention and potential as a future unicorn in Germany's startup ecosystem. The company was founded in 2018 by Daniel Metzler and Josef Fleischmann and is based in Munich. Isar Aerospace focuses on developing launch vehicles and related technologies for the commercial space industry.

The company aims to create cost-effective, reliable launch solutions for small and medium-sized satellites. By addressing the growing demand for small satellite launches, Isar Aerospace taps into a market with tremendous potential for growth. As the space industry expands, the demand for satellite-based services, such as communication, Earth observation, and navigation, is increasing. Isar Aerospace is positioning itself to cater to these emerging needs.

2. Tink

Tink has the potential to become a future unicorn in the country's startup ecosystem. Founded in 2012, Tink offers an open banking platform that enables financial institutions, businesses, and developers to access financial data and build innovative financial products and services.

Tink has demonstrated impressive growth and secured substantial funding rounds, reflecting investor confidence in its business model and potential. The company's ability to attract large investments provides the financial resources to fuel its expansion plans and innovation efforts.

3. Zolar

Zolar, a German renewable energy startup, has the potential to become a future unicorn in the country's startup landscape. Founded in 2016, Zolar offers a digital platform that enables homeowners and businesses to transition to solar energy easily and cost-effectively.

The demand for solar energy has steadily increased as the world shifts towards greener alternatives to combat climate change. Zolar's platform allows customers to generate clean energy through solar panels, reducing their carbon footprint and contributing to a more sustainable future.

The company's mission aligns with Germany's ambitious renewable energy goals and the government's efforts to promote clean energy adoption, providing a favorable market for Zolar's growth.

Why invest in Germany

Earlybird Venture Capital

"Though we take a pan-European approach backing fundamental innovation across Software and DeepTech, Germany is a key market for investing in the future. Germany and DACH are also transforming ideas out of academia, fueling important progress.

The number of startups in urban hubs and beyond continues to expand. In an ecosystem of active VCs and angels, entrepreneurs are better supported to pursue big ideas with impact."

Says Elisheva Marcus, VP of Communication at EarlyBird Venture Capital

Point Nine Capital

„I think in line with reasons for the historical lack of VC - no track record of venture success because the German VC industry started in the 90s, got hit by the bus of the crash of 2000, and never was able to show success.

Now that it has, money is piling it, and it is just easier to fill in a €100m fund than a €500m or €1b fund, but they are happening.”

Source: Dealroom, mentioned by Pawel Chudzinski, Partner at Point Nine Capital

MTZ — Munich Technology Center

“The universities in Munich - among the best in the world - started promoting entrepreneurship early on. Not only do they attract many young and talented people every year, but they also ensure that cutting-edge research results quickly find their way into application. The same applies to the numerous research institutes in Munich - they, too, have launched programs in recent years to translate their research into practical applications. This led to numerous tech and deep-tech start-ups being founded in Munich.

A second important point distinguishing the Munich startup ecosystem is the strong focus on B2B business models. Many Munich startups develop their solutions in close cooperation with industry, which enables them to win their first customers early on. As a result, they remain resilient even in the economically challenging times we are currently experiencing.

Add to this a strong investor network of numerous VCs and business angels and a traditionally strong industry in Munich: Companies like Allianz, BMW, and Siemens are headquartered in the city, and global players like Apple, Google, and IBM operate a wide variety of research facilities here. All of this makes Munich a globally recognized science hub where the solutions of the future are created.”

Says Gabriele Böhmer, Head of Munich Startup.

Munich Department of Labor and Economic Development

„The flywheel is set in motion and has gained an incredible momentum of its own. Munich startups are a real driving force for jobs.

The report impressively shows the considerable influence of startups on the Munich economy. It is remarkable how the ecosystem mutually fertilizes and supports each other.”

Source: Dealroom, mentioned by Clemens Baumgartner, Head of Munich Department of Labor and Economic Development.

German Tech

“Berlin is the city where (almost) everything is allowed. I often call it the most “un-German” city. It is because of its history that Berlin had this “moment zero” in 1990 when Germany and the city of Berlin were reunited.

This led to a huge amount of artists, students, and young people moving to Berlin – because this was a city that could be created from scratch. And this is a spirit that still leads us here today. Of course, today, it is one of Europe’s major metropolises. But it is still a place where there is space and appreciation for creation.

Source: Dealroom, mentioned by Maria Gross from GERMANTECH.