Growth by diversity: German Tech start-ups defy the pandemic Venture capital and start-ups in Germany 2020 Content 1 2 Trends Funding B2B software solutions Top 100 German start-ups and environmentally-focused technologies account for an accumulated funding of are prevailing topics in the German VC USD13.7b in 2020, exceeding the prior-year ecosystem in 2020. Driven by the pandemic, level by USD3.7b (on a like-for-like basis). new innovative business models emerged Berlin and Munich are the leading German in 2020. The visibility of female players in start-up hubs. the VC market is slowly but steadily on the rise. Page 8 Page 16 3 4 Exits Investors Corporate investors Early stage funding still represent the most relevant exit continues to develop with well balanced channel for German start-ups. While some liquidity supplies in seed and series A rounds M&A activity was delayed due to the driven by domestic investors. International pandemic, prominent exits of Flaschenpost, investors remain the key driver in later- Circ, Auxmoney, or Instana made headlines stage investments. in the market. Page 30 Page 36 Appendix ............................................................................... 50 Contacts ................................................................................ 53 Venture capital and start-ups in Germany 2020 | 3 Introduction Growth by diversity: German Tech start-ups defy the pandemic After years of unbridled growth, Founder teams get increasingly more the German Tech ecosystem was tech-focused, backed by solid German confronted with a global pandemic in universities and international talent. 2020. Like the entire economy, the Diversity evolves as a differentiating local ecosystem had to deal with a lot factor to build a successful and of uncertainty. This was demonstrated sustainable business, driven by more by a decreased number of financing advanced investment criteria of VC rounds and less financing volume in funds where diversity is not a nice-to- the first half of 2020 compared to have anymore and rather a necessity. Dr. Thomas Prüver prior year. In particular, grown-ups However, female founder teams and Partner, EY operating in the travel sector, female managers of investors still Strategy and Transactions consumer retail or the hospitality represent a minority in the German industry faced significant issues to ecosystem, as underpinned by our secure their business going forward. interviews with market participants. There is still further work to be done However, 2020 did also demonstrate with increased focus on gender the robustness and resilience of the diversity in science, technology, German ecosystem. The number of engineering and mathematics at financing rounds and financing school and university levels. volumes came back in the second half, which partly showed even higher German Tech start-ups have adapted numbers than ever seen before. very quickly to the pandemic and will Karolina Yalamova Large international financial and evolve as winners in the mid- and Project Lead VC Study, EY corporate investors show continuous long-term. The pandemic revealed Strategy and Transactions interest to invest into the German Germany’s weaknesses in terms of market thanks to zero interest rates digitalization and will accelerate the and the strong substance of the local growth primarily in the B2B Tech Tech ventures and founder teams. sector. We expect huge funding While online B2C businesses gained rounds and large exits, respectively, unexpected momentum from the IPOs in 2021, which will boost the lockdowns, B2B is currently the place German Tech ecosystem up to levels to be for start-ups and investors. never seen before. 4 | Venture capital and start-ups in Germany 2020 Gender equality is key to unlock success Technology is changing our world Attracting more women to the world for the better in many ways. The of technology calls for championship unprecedented challenges we faced from a wide range of stakeholders. during the pandemic acted as the We know there is no silver bullet to latest catalyst for change. Digital resolve this issue and require collective technology enabled flexible working action to make progress. This means models, connected companies to that we need to find ways to boost our remote talent, and created exceptional entrepreneurial ecosystems with more opportunities in the German start-up robust and diverse investor networks. Julie Linn Teigland and venture capital ecosystem. EY EMEIA Area Managing Furthermore, we need to encourage Partner and EY Global Leader — While technology allows for a high a higher visibility of female investors Women. Fast forward variety in our workplace, the level of and Tech entrepreneurs as role models diversity in the workforce is still in the VC community to fuel ambition lacking behind. Today, less than 10% and inspiration of the possible. This of top positions in venture capital also should include mentorship firms are covered by women. Female- programs for female entrepreneurs to led ventures receive funding less provide valuable insights and support often than men, and in addition, in resourcing and networking. Finally, they attract lower funding volumes to build a strong pool of female talents, and valuations. we recognize that we should start at a much earlier age and nurture talents A strong female participation in the leveraging education in digital skills digital economy and venture capital early onwards. ecosystem is critical, not only to play an equal part in driving our At EY, we commit to support gender global economy, but also to prevent equality through our worldwide the negative impact of unintentional engagement with start-ups, women gender bias in the sector. Studies entrepreneurs, corporates, and other show that people naturally desire to global initiatives. We are aiming for an partner with people from similar inclusive culture that enables women to backgrounds. Entrepreneurship and unleash their full potential and together deal sourcing, for example, highly build a better working world. depend on personal networks and, thus, can be susceptible to bias if Now is the time to act together the majority of the investors’ and create a world that is equitable network is male. for all. Venture capital and start-ups in Germany 2020 | 5 Breakdown of key terms Investments With investments we refer to (i) fundings and (ii) exits (IPOs and M&A deals), which relate to German start-ups operating a digital business model. Investments in life science, BioTech or start-ups without a digital business model are not considered in this study. Debt, lending capital, and grants are also excluded, unless mentioned otherwise. For this reason, deal numbers and analyses presented in the 2020 EY Startup Barometer (743) and in this study (730) differ. Funding M&A IPO We define funding as equity provided M&A activity comprises transactions We define an initial public offering to a German-based start-up (with a with a change in ownership of more (IPO) as a public offering in which a change in ownership below 50%) that than 50%. German start-up sells shares for operates a digital business model. the first time. Exit 6 | Venture capital and start-ups in Germany 2020 Key players Investors (Corporate and Financial) Start-up We define investors as market participants acquiring Start-ups are companies generally younger than 10 years shares in a German-based start-up (>50% = M&A deal). operating a digital business model. Exceptions might apply A company is considered a corporate when its primary for older companies showing very strong growth potential, business is non-finance related, e.g. industry or service or which have digitally transformed their business model provision. We define an investor as a financial investor during the last 10 years. when its primary activities are investing or financing related. The digital sector comprises companies mainly focused on consumer products and services, software and analytics, financial technology, mobility, advertising technology/ media, digital health, and property technology. Corporate Financial Venture capital and start-ups in Germany 2020 | 7 Trends “The digitalization push driven by the Corona-crisis has a positive impact on start-ups with digital business models. HealthTech is now finally on the map – not only with sector specific investors, but on a broad investor level. Nina Wöss, Female Founders 8 | Venture capital and start-ups in Germany 2020 1 1. Trends New digital models emerged during the pandemic, primarily related to HealthTech and software solutions for remote working B2B Software Digital Health The evolution of large scale technological solutions has While the digitization of the healthcare system in Germany paved the way for new business models that can leverage has been a persistent topic in politics and media in the last the available technologies for creating sector specific B2B years, the pandemic has made it more ubiquitous than applications and services. Combined with strong academic ever. Founders had set their eyes on digital health ventures substance in engineering, Germany shows great potential in the last year, and investors caught-on in particular in and opportunities for B2B Tech ventures. 2020. 12% of the funding rounds were invested in digital health start-ups, with five companies, such as PlusDental, 43% of the top funding rounds by volume in 2020 are Kaia Health and Temedica, receiving tickets larger than invested in start-ups offering B2B solutions, such as USD20m. Recently passed legislation allowing health LeanIX, Contentful, Personio, and Spryker, confirming the insurance companies to invest up to two percent of investors’ confidence in German B2B software. their financial reserves in start-ups will create further opportunities for digital health ventures and will contribute to the venture capital environment. Sustainability Corona Business Models The awareness for sustainability and climate change has In light of changing consumer needs during the pandemic, been changing the consumer behavior for the last few German start-ups developed innovative business models to years. This resulted in a noticeable shift in venturing and gain better access to customers.