While investment in German start-ups declined somewhat in 2016, with Berlin being particularly weak, this is not a cause for concern coming, as it does, off an extremely high base.
A new report by Ernst & Young shows that competition in Europe is fierce and that investment in start-ups has also declined. Germany is also weak in the ‘start-up barometer’ when compared to other European countries, with Berlin falling to the fourth most important city in Europe for start-up investment.
While risk capital investments increased in Germany in numerical terms, rising 17 per cent to 486 rounds in 2016, the number of financing transactions across Europe increased by a remarkable 41 percent to 2,340 – more than twice as high as in Germany. Great Britain and Sweden in particular showed good performance: both countries doubled the number of their investments, Britain with 535 while Sweden reached 134.
In terms of the number of loans on a city basis, Berlin had to beat the French and British capitals. Paris grew slightly to 300, and London significantly to 291 loans. Berlin was in third place with 220. While Munich had 56 and Hamburg 40 investment rounds, and thereby also made it into the European Top 10.
It was in terms of value of these loans where the decline in overall risk capital investment shows up, and a strong downward trend is evident. In Germany, the total value of all venture capital (VC) investments fell by 30% to EUR 2.2 billion. In comparison, the volume of capital declined throughout Europe by 11% to 11.8 billion euros.
In Germany what was clear was the lack of large transactions. The number of investments over 100 million euros fell from seven in 2015 to zero last year. In contrast to Germany, Great Britain and France continued to make slight increases in 2016. Germany’s lead as the second largest market for VC investment was only slightly ahead of France.
Berlin had to vacate its top position from 2015 and only managed to finish in fourth place in 2016. London, Paris and even Stockholm clearly outperformed the German capital in investment volume. Here, London came in with € 2.2 billion, Paris € 1.3 billion and Stockholm to € 1.2 billion. Berlin recorded €1 billion euros in investment, a decline of more than 50 percent.
Deals in Germany:
The winners were the mobility, health and energy sectors. The largest deals for Germany were made by HelloFresh (85 million euros), Heliatek (80 million euros), Sonnen (76 million euros), Flixbus (72 million euros) and GoEuro (63 million euros).
Most Active Region in Germany:
Both in the number and the sum, Berlin is still far ahead of other German cities. E-commerce, mobility and fintechs remain the strengths of the capital. However, second-placed Bavaria continues to close in on the capital. While the amount of capital invested in Berlin was more than halved, Bavaria almost doubled its commitment to € 527 million. It is especially strong is the area of Health.
The number of medium-sized deals is impressive for the strength of the German start-up scene. The decline in the German-wide investment volume alone is due to the absence of large transactions of more than 100 million.
The original report can be downloaded from Ernst & Young (german only).