Executive Summary
In this episode of Startuprad.io, host Jörn "Joe" Menninger delves into the 2024 Deutscher Startup Monitor, highlighting key trends in the German startup ecosystem. The discussion covers the dominance of B2B startups, a shift towards profitability, and the rise of sustainability-focused firms. Joe also explores employment trends, regional startup distributions, and the increasing importance of deep tech and AI. Additionally, he addresses funding challenges and preferences, noting a significant reliance on government funding. The episode underscores the optimistic yet cautious sentiment among German startups amidst evolving business climates and political preferences.
Introduction
Welcome back to Startuprad.io, your trusted source for insights into the German startup scene. This is Joe Menninger, your host and founder of Startuprad.io. In today's episode, we're diving into the 2024 Deutsche Startup Monitor (DSM) to uncover the latest trends shaping the future of startups in Germany, Austria, and Switzerland.
We'll explore key statistics revealing that nearly 80% of startups are now prioritizing profitability and focusing on B2B models, with a particular emphasis on sustainability and eco-friendly solutions. We'll also examine regional differences, industry distributions, and the evolving landscape of employment within startups. Furthermore, we'll take a closer look at funding trends, the rise of deep tech and AI, and the political preferences of startup founders.
Stay tuned to learn how your startup can navigate these emerging trends and thrive in the ever-changing startup ecosystem. Whether you're a founder, investor, or simply passionate about innovation, this episode is packed with valuable insights you won't want to miss. Don't forget to subscribe for more in-depth analyses and discussions on the dynamic world of startups. Let's get started!
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Interview Highlights
Questions Discussed in the Interview:
B2B Dominance: Why do you think there has been such a significant shift towards B2B models among German startups? What factors are driving this trend?
Profit Over Growth: Do you believe that prioritizing profitability over rapid growth is a sustainable strategy for startups in the long term? Why or why not?
Sustainability Focus: How might the rise of eco-friendly startups influence the broader startup ecosystem in Germany? What advantages and challenges do these startups face?
Geographic Distribution: What could be the reasons behind the concentrated startup activity in regions like Berlin, North Rhine-Westphalia, and Bavaria?
Industry Focus: Why do you think sectors like Medtech, healthcare, and energy are among the top industries for German startups? How do these sectors compare to those in other startup hubs globally?
Employment Trends: The survey indicates a reduction in headcount for larger startups but growth in smaller ones. What might be the implications of this trend for the German startup ecosystem?
Founder Demographics: With a noticeable decline in younger founders (below 35), how might the age of startup founders impact innovation and business strategies within startups?
University Influence: How do you think the prominence of universities like the Technical University of Munich and RWTH Aachen shapes the startup culture and innovation in Germany?
Collaboration with Established Companies: What barriers might be preventing stronger collaboration between startups and established companies, and how can these be overcome?
Political Preferences: What might the voting preferences of startup entrepreneurs (with a leaning towards the Green Party and Free Democrats) indicate about the policy needs and priorities of the startup community in Germany?
Key Takeaways
Industry Trends:
Shift to B2B:
74.7% of German startups are now focusing on B2B customers, marking a shift from consumer-focused models to stable, long-term B2B relationships.
Notable examples include companies like Celonis and Personio.
Emphasis on Profitability:
78.8% of startups are now prioritizing profitability over rapid growth.
Rise in Sustainability:
Nearly half of all startups identify as part of the green economy, attracting investors who prioritize ESG (Environmental, Social, and Governance) criteria.
Geographic Distribution:
Berlin: 19% of surveyed startups are based in Berlin.
Nordheim Westfalen: Also 19%.
Bavaria: 17%.
Baden-Württemberg: 12.5%.
Hesse: 6.4%.
Top Industries:
Information and communication technology.
Medtech and healthcare: 11%.
Food and consumer goods: 7.6%.
Edtech: 5%.
Energy and electricity: 5%.
Business Models:
Software as a Service (SaaS): More than a third.
Online Platforms: Almost 12%.
Software Development: Over 10%.
Ecommerce: Only 6.4%.
Employment:
Startups are cutting back on headcount, particularly those with large numbers of employees.
Almost a quarter of startups don't have any employees, only founders.
Founders:
Founders are generally older, between 25-44 years.
There is a noticeable decline in founders below 35.
Funding:
Almost 75% of startups are looking for external funding in 2024, most of it below €2 million.
Preferred funding sources: Government funding, business angels, venture capital, strategic investors, venture debt.
Academic Origins of Founders:
Top institutions: Technical University Munich, RWTH Aachen, University of Cologne.
Partnership Challenges:
Only 37.5% report good collaboration opportunities with established companies.
Future Focus:
Increasing focus on deep tech and AI.
Health care identified as a top future industry, followed by education and energy.
Political Preferences:
Green Party: 41.3%.
Free Democrats (FDP): 21.4%.
Christian Democratic Union (CDU): 15.8%.
General Sentiment:
Despite a declining business climate, startup founders are generally optimistic, with more than 80% willing to found their companies again in Germany.
Closing:
For more insights, listeners are encouraged to follow the blog for a series of articles on the German startup monitor.
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Jörn ‘Joe’ Menninger is the founder and host of Startuprad.io. He has worked more than 12 years with household names in consulting, in financial services and startup services, as well as a startup scout. With a passion for uncovering the next big thing in tech, Joe brings deep insights and thought-provoking questions to every interview. Connect with Joe on LinkedIn and Twitter.
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Automated Transcript
Narrator [00:00:05]:
Welcome to startuprad.io. Your podcast and YouTube blog covering the German startup scene with news, interviews, and live events.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:00:20]:
Hello, and welcome, everybody. This is Joe from start up rate dot I o, the authority on German, Swiss, and Austrian startups. Are you a startup founder, executive, or investor looking for insights into the future of startups in Germany? Today, we're diving into the 2024 Deutsche Startup Morning tour, which reveals fascinating trends about b to b sustainability and challenges chain shaping the startup system. Stay tuned to find out how your startup can thrive amidst these changes. Let's see a few facts here from the core results. 79.8, so almost 80%, are looking for an improved business climate in 2024. 74.7% of German startups now focus on b to b customers. That means more than almost 3 fourth, more than, 2 thirds of the startups in Germany are b to b, are basically our home turf.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:01:30]:
Whether it's scaling your business, securing those all important b to b clients, or navigating the ever tightening funding landscape, you've got the insights you need to stay ahead. Let's kick things off with some numbers. 74.7% of startups in Germany are now generating revenue primarily from b to b customers. This is not only the large entities, but also the very big share of German economy that is SMEs, small to medium enterprises, or in Germany, kleinund Mittelstandischer underniem. This show this shows a shift from consumer focused models to stable long term relationships that b to b clients offer, especially in sectors like SaaS and enterprise software. The first take is b2b is the future of startups at least here in Germany. We're seeing companies like Celonis and Personio, 2 of the 3 most valuable German startups making their mark in this space by focusing on offering high value scalable solutions. Secondly, profitability is now front and center, 78.8%.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:02:49]:
So, again, almost 80% of start ups are prioritizing profits over rapid growth, especially in today's economic climate. This is a major shift from the growth at all costs mentality we've seen in the past few years. And 3rd, sustainability is still on the rise. Nearly half of all startups identify as part of the green economy. They are focused on eco friendly solutions, which isn't just good for the planet. It's also a major draw for investors who are prioritizing ESG. Question for you. What's been the biggest challenge for your start up this year? It is finding clients, securing funding, or maybe scaling up? Let me know in the comments below.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:03:37]:
And if you're finding this video helpful, please give it a thumbs up. And don't forget to hit that subscribe button for more insights on startups and entrepreneurship. To give you a little idea about the diversity of this German startup ecosystem, a lot of news coverage is always focused on Berlin. And I'll have to say increasingly on Munich as you can see from this graphic here. Only around let let's make it round. 19% of startups that participated in the survey, not the total startups, but the startups that participated in the survey are based in Berlin. That's here. And 90% are in Nordheim Westfalen, which is the most populous state within Germany.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:04:33]:
Also, Bavaria is doing pretty good with almost 17%. And Martin Wurttemberg, known for, places like Stuttgart being the home of Mercedes, Porsche, and so on and so forth, with a big machine building, industry there as well has 12.5% of the startups in there. And then there are a few also ran which only have 0 point something percent. Also, the state of Hessen is doing a respectable middle field position with 6 0.4% on the start ups participating in this survey. Let's go to the top 10 industries. There is information and communication technology. Medtech and health care is number 2 already with 11%. Food and consumer consumer goods is 7.6%.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:05:31]:
Edtechs make up more than 5%. Energy and electricity, this is way you'll find a lot of the green startups. They are ranking around 5%. Mobility and logistics as well. Not surprising that since Germany is in the core of Europe and there's a lot of traffic going on, plus Germany is still very heavy on industry, so there has to be a lot of goods transported around. HR tech also almost at 5% with 4.9%. Chemistry and biology, 4.5%. Keep in mind that health care, especially biotech startups, that would be more in the biology cluster here, depending on how you define those individual startups, are important in Germany.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:06:20]:
As well as the chemical industry makes up a big chunk of the German industry as it is right now. Industrial goods make up 3.9%, and the prop techs 3.4%. The business models here are not that surprising. More than a third are software as a service. Almost 12% are online platforms. A little bit over 10% are software development. And now here comes the catch, only 6.4% of the startups, again, participating in this survey. In terms of digital business models, they are still, ecommerce startups.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:07:05]:
So that means less than 7% of the startups in Germany. Let's let's make the assumption that it's a pretty pretty good translation, this survey of the real, startup economy here. Less than 7% of the startups are still in ecommerce. Keep in mind a few years ago, what you had, like, all the big ecommerce startups everybody talked about from Berlin, they are now taking a back seat to other industries. And in terms of like hybrid digital and physical model, there is of course developed technology development and production, a big chunk. Almost, almost a 4th. And in terms of simply analog startup models, there is, services. Still a pretty big chunk here.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:08:06]:
In terms of employment, we have seen that startups here have been cutting back on headcount. This is also something you can see in the statistics. Most startup either are just the founders. It's usually around a 4th 25%, a quarter, that are taking this again. In terms of employment, you have seen that startups, have big headcounts, and they've been drastically cutting back on headcounts, especially the big startups. But what you can see in the survey here is that almost a quarter of start ups don't have any employees. They are mostly just the founders. Then you have, like, below 5 employees.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:08:55]:
It's around 30%. Then you have 5 to 9 employees, it's around, I would say 18%. And you have, 10 to 20 employees, which made up almost 20% last year, 2023, but have been going down to a little bit over 16% this year. Then you have the, the next bracket with 30 to almost 50, 49 employees. They also have been going down from almost 5% to a little bit over 3 a half percent. And the 50 and more employees, they have also been going down. So in terms of larger employment, you have seen the, the effect of the tech drop rack or however you wanna call it. The long list of layoffs we have seen from all across Germany, Austria, and Switzerland in the last few month.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:10:00]:
Surprisingly, that is an effect you have seen in the startups with war employees. But actually only around 14% of the startups say they have less head count. Again, around 30% has been steady and more than half, almost 50 over 55 percent have been growing in terms of head counts. That is attributable to the smaller startups, hiring the people getting laid off, it's easier for them to hire. Plus, we do hope that also their business is going much, much better. Again, founding in a team is very successful, as it has been in the past. The founders have been a little bit older with, the biggest chunk made up of people between 2534 and the 2nd biggest chunk between 3544, the founders below 35 have been declining for more than 10%. Quick question for you.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:11:16]:
What's been the biggest challenge for you this year? Is it finding clients, securing funding, or maybe scaling up? Let me know in the comments below. And if you're finding this video helpful, please give us a thumbs up and don't forget to hit that subscribe button for more insights on startups and entrepreneurship. Another surprising fact we have found is that in the past, especially during the very early stages of the Berlin startup, ecosystem, the WHO, Otto Beisheim Schule Schule, Otto Beisheim School of Management in Wallander close to Copland has been the absolute champion in that. Now the number 1, founder university they come from is the technical university Munchen. The the second one is the RWTH Aachen, which is a very technical university focused on machine and automotive building. They're famous for that. Next one is University Cologne. Then the WHU comes in.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:12:25]:
And then we have a few surprises, including number 5, Technical University of Dresden. Then we have Technical University Berlin. The LMU in Munich, Ludwig Maximilians Universit8. Another surprise is number 8, Universitie Manheim. Number 9, Karlsruhe Institute of Technology, KIT, formerly known as Technical University Karlsruhe. And then we have another surprise for me is the technical is the University Paderborn. Not surprising, the Humboldt University in Berlin, it's one of the big universities there, and there's a big ecosystem there. But also the Technical University of Dortmund has been a big surprise here.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:13:06]:
Now let's dive a bit deeper. One of the more concerning insights from the monitor is that only 37.5% of startups report having good collaboration opportunities with established companies. This is a challenge especially when partnerships can help you scale and build trust and keep in mind the large percentage of startups that are focusing on b to b. We are also seeing that deep tech and AI driven solutions are becoming crucial. With 11.4% of startups focusing on deep tech, this sector is rapidly growing in importance. AI isn't just a buzzword anymore. It's becoming the backbone of many startups. Take for example HR Tech Unicorn Pasonio, a German SaaS company that's grown by focusing on simplifying HR processes for small and medium sized enterprises.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:14:02]:
By offering real tangible value to its b to b clients, it has become one of the fastest growing startups in Germany. Something we at starterbrite. Io always had at the core is b to b startups. But what's fascinating in this graphics here is that it has always been around at least 2 thirds of the markets focusing on b to b clients in the German startup scene now going up to almost 75%. In the same take, the share of b to c startups is slowly declining from formally 28. A little bit over 28% in 2018 to below 20%. This survey and the business to govern b to g is steadily has been steadily hovering around 5% with now hitting a 5.9% here. Also, an interesting effect is health care is the top future, the top interesting industry as seen by the founders, followed by education, energy, industry, mobility and logistics, public administration, agriculture.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:15:28]:
And the the fintech bank and insurances, they only make up 10 point 4% of the replies when asked what is the future industry as feed from a startup founder. And then we have, food, retail, and media. What I personally also found interesting is what you could see here, a growth by more than 30% on which startup is counting itself among the green economy started in 2019 around 36%, and now almost reaching, reaching a little bit over 48%, almost 50% of startups associate themselves with the green economy. This is also quite fascinating. That shows the desire or the demand for external capital. Meaning in 2023, almost 70% have been looking for external funding and 70 almost 75% are now looking in 2024 for external funding. The largest groups of of answers is less than €500,000 as well as somewhere between €500,200,000,000. So you could say the vast majority of startups in Germany is looking for funding below €2,000,000, then we do have 23% looking for 2 to €10,000,000 and around 5.7, almost 6%, only are looking for €10,000,000 and more in external funding.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:17:39]:
We've seen that almost 75% of start ups that reply to the survey are looking for external funding, most of them below 2,000,000. The but the preferred funding option is actually government funding followed by business angels, followed by venture capital, followed by strategic investors, and only somewhere around, less than 5% are looking for venture debt funding. This is an interesting craft in terms of, how the German startup scene has been growing and matured. That means in 2014, we had 1 unicorn and 2,000,000,000 startup investments across Germany. In 2021, we had a high point with 26 startups and 15 point 8 €1,000,000,000 in startup investments. And now for 2024 forecasted for the rest of the year, we are looking at 32 unicorns here in Germany and €7,100,000,000 in startup investments. It is also interesting to score who has the most unicorns in terms of cities. Berlin with 18, Munich with 8.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:18:57]:
Interestingly, the little town of Poisal, home to Volocopter, with 1, Khamnitz, 1, Tristan, 1, Frankfurt am Main, 1, and Cologne, 1. Compared to other international hubs, for example, San Francisco has more than a 170 unicorns, New York, still almost a 120. Beijing, 64. London, 43. Shanghai, 38. And Berlin comes in at number 10 in this global count, with 18 unicorns, and Munich, a number 26 with 8 unicorns. In the past, Germany had a reputation for not being very startup friendly. Surprisingly, more than 80% of the founders who would found again would found again in Germany, almost 84%.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:19:49]:
More than 80% would also found in Berlin again, and almost 85% would found the company again in Munich. What we also find interesting is how much more positive the perception of the business climate is for start ups versus the general economy. You may remember that we always have the, efoggechaftklima index, the IFO business climate index that is, given monthly in our monthly startup news. What you can see here in this graphic is basically that, it has always been much much better with the startups. For example, in in 2019, 8.8%, 8.8 points for the general IFO business climate versus 50.52.7% for the start ups. But what you can also see that in 2022, 20 3, and 24, the general business climate according to IFO has been negative. It has been positive for the startups, but coming down from 51.6% down to 39% according to this survey. So, the mood is better in the startup part of the German economy, but it is also declining, and it has been declining since 2021 according to the German startup monitor.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:21:28]:
Another very interesting piece of information here is what political party those entrepreneurs are preferring with a vast lead for, the green party, 41.3%, followed by FTP that are the free democrats. Usually, the party of entrepreneurs, but it can only, convince 21.4% in this survey followed by, part of former party, the party of former chancellor Angela Merkel with 15.8%, followed by a very new party called Volt, which is not yet, in Bundestag, followed with a mere 5.5% for SPD. That is the party of the current chancellor, Olaf Mackle, followed by the right wing AFD, but with only 3%, followed by left party with only 2.2%. So that means, the, 2 of the 3 parties that make up the current German government are very favorable if seen by the entrepreneurs, but the party of the chancellor is not doing that well. Guys, that was it for me. A very, very short trip through a lot of data. Everybody would like to learn more. You can go on our blog, start up rate dot I o forward slash block, or just go on start up rate dot I o and click on the blog.
Jörn "Joe" Menninger | CEO and Founder Startuprad.io [00:23:00]:
We'll have series of 10 articles on the German startup monitor coming up for you in the next 10 working days. If you found value in today's video, don't forget to give us a thumbs up. And if you're interested in more content on growing out your startup or insights from the startup ecosystem, hit that subscribe button and check out my other videos. Thanks for watching. I'll see you in the next episode.
Narrator [00:23:30]: That's all, folks. Find more news, streams, events, and interviews at www.startuprad.i0. Remember, sharing is caring.