Boyden Executive Search

Industrial startups that make B2B products for industry, transport, logistics and healthcare are gaining ground in Germany’s startup sector.

As in many other countries, Germany’s startup sector has long been dominated by ecommerce. Berlin-based Rocket Internet, an incubator, found early success providing ecommerce models to startups. It made its IPO in 2014, as did Zalando, a fashion e-tailer. In 2017 there were two other major IPOs, both focussed on consumers: meal-kit service HelloFresh and food-delivery firm Delivery Hero. Ecommerce investment remains relatively robust.

Many newcomers to the German startup sector, however, spring from the country’s traditional strengths in science and manufacturing. Such firms are less visible than ecommerce firms, but they are attracting more foreign investment. Silicon Valley Bank, a big American bank which specialises in lending to tech companies, recently opened an office in Frankfurt. One of its first German clients is Lilium Aviation, a maker of electric air taxies.

Most funding still goes to ecommerce startups, but as The Economist posits, “that is largely because they are more mature.” In 2017 Germany’s three biggest VC rounds were all in ecommerce, and together accounted for nearly a quarter of the total amount invested in Germany. But ecommerce investment is decreasing. Between 2015 and 2017, the number of funding rounds in ecommerce fell by 34%. This number more than doubled for industrial startups in healthcare, and mobility saw a fourfold increase.

Correspondingly a geographic shift is underway, as more startups emerge outside Berlin’s established tech hub, in industrial cities like Hamburg and Munich. UnternehmerTUM, an incubator, is attached to the Technical University of Munich (TUM). Lilium is one of its success stories (all four of the firm’s co-founders are graduates of TUM). Others include NavVis, a maker of 3D maps, and Konux, which makes AI sensors to predict when railway tracks need repair. Berlin remains the centre of gravity for entertainment and ecommerce startups, and the number of funding rounds for startups there increased by 14% between 2015 and 2017; however it increased by 33% elsewhere.

Overall this is a good time for German startups, regardless of industry or location, as funding rounds are getting bigger and easier. According to Julian Riedlbauer of GP Bullhound, a tech advisory firm in Berlin, raising money has never been easier. These young companies also have access to an enviable talent pool. And, experienced managers are willing to join them, according to Dietmar Harhoff of the Max Planck Institute for Innovation and Competition, a think tank. Lilium recruited senior managers from Airbus and Tesla when it was a new startup with only $10 million in backing.

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