Slump in start-ups - the big rethinking has already begun

Significantly fewer new start-ups are emerging in Germany during the current crisis. On the other hand, the technological expertise of the founders is increasing: In the current year, more technology-based start-ups have been launched than in the entire previous year. This is shown by a study by the young Berlin tech investor Morphais.

According to this, 578 new start-ups were added in Germany in the third quarter of this year. That is almost a third less than in the same quarter of the previous year. The number of particularly technology-oriented start-ups in areas such as robots, biotechnology or artificial intelligence, known in scene jargon as deep-tech, rose to 209 in the nine months – two more than in the entire start-up boom year of 2021.

The study does not include all company foundations, but only start-ups. Start-ups are growth-oriented young companies that are usually financed with external venture capital and are therefore designed for a later sale or IPO. Craft businesses, for example, are not included.

Apparently, the crisis is causing start-up investors to choose young business models more carefully. Two areas in particular, which experienced an upswing in the past year, are falling behind in the case of the funds specializing in the first financing rounds. The authors of the study register significantly fewer new eCommerce companies. Because in times of inflation, their prospects decline.

Even more important from an investor's point of view: the stock exchange generally no longer believes that eCommerce models are capable of great growth. The prices of established companies such as Zalando and About You have fallen by two-thirds since the beginning of the year. This shows that online traders are increasingly no longer rated by stockbrokers as innovative growth companies, but as conventional retailers.

This makes new investments in this area less attractive for venture capital funds: After all, investors have to expect only a small return on a possible IPO or sale in a few years. A similar decline in the number of founders can be seen, for example, in food start-ups, which have been popular with investors in recent years with brands such as the YFood drink and Foodspring fitness bars, but have so far rarely fulfilled the high hopes for returns.

In the crisis, the financiers are therefore apparently thinking about technology-driven founders. This is borne out by the figures from the study, which is based on the Startup Detector database. Venture capitalists are investing their money primarily in the health, environment, software and crypto sectors. With the new focus, geographical weightings are also shifting: For the first time, just as many start-ups are emerging in Bavaria, i.e. primarily in the vicinity of the technology location Munich with its strong Technical University, as in Berlin. The capital is more of a location for eCommerce and software founders.

"The fact that the number of start-ups in the deep-tech sector continues to rise is a very positive sign for the industry and for Germany as a location for innovation," said Morphais founder Eva-Valérie Gfrerer. Such business models managed to get out of the start-up phase successfully much more often.

Instead of business models aimed at end customers, more and more founders are relying on services for companies. According to the current annual study by the start-up association, it is now over 71 percent. Software offers that give hope for regular subscription income are particularly popular.

The "Start-up Monitor" from the management consultancy EY had also shown for the first half of the year that the founders were collecting less money. The value of the financing rounds fell by 20 percent. However, the first half of 2022 was still the second strongest half of the year, because in the comparative year 2021 some particularly large rounds of financing had come about - for example for the Gorillas fast delivery service, which has meanwhile become quite ailing.

In any case, money for new founders is still available: Recently, important German early-stage investors such as Project A reported that they had filled new funds. A total of 30 billion euros are still invested in the funds of European venture capitalists. Therefore, what Silicon Valley banker Andrew Parker recently said to WELT still applies: “The start-up scene is not in crisis mode. 2021 was just an extraordinary year. A lot is normalizing now.”

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