"Very healthy correction" - Now the founder selection begins

The new Staedium electronic weight bench, which the Munich fitness app Freeletics had announced for spring 2022, should cost a whopping 2450 euros. A smart camera should keep recreational athletes under surveillance. The start-up announced nothing less than a revolution in domestic strength training at the end of last year - and wanted to get more investors on board.

The plans have since shrunk. The clever camera console is not coming. With a delay of several months, Freeletics now only wants to send two dumbbells and a holder for a smartphone to record the training for a third of the planned price, the company explained to WELT AM SONNTAG on request. A round of financing is no longer necessary for the cheaper offer. Instead, Freeletics has lowered its advertising costs and will soon be working profitably in its core business with its app.

Freeletics is not an isolated case: Established start-ups in particular reduce their costs during the crisis and try to postpone further rounds of financing with new investors as far as possible. For example, the Berlin e-scooter provider Tier recently announced that it would freeze its expansion in favor of lower losses. 180 employees, 16 percent of the workforce, have to go.

Grocery supplier Gorillas is cutting 300 office jobs and cutting locations. The Californian subscription service Patreon is closing its Berlin offices. And the successful European payment service provider Klarna is also saving. "We don't have a mature start-up in our portfolio that doesn't take 10 to 20 percent of its costs," says one investor.

Still, venture capital is not drying up. Two large German investors announced new funds last week. The venture capital firm DTCP from Hamburg has initially raised 300 million euros from financiers such as Deutsche Telekom and Softbank, which will help established start-ups to grow in the coming years.

The Berlin early-stage investor Visionaries Club has also filled the largest fund in its history with 400 million euros. Project A, one of the most experienced German start-up financiers, had already reported 360 million euros in the summer.

"We don't see the current development as a crash, but as a very healthy correction," says Visionaries co-founder Robert Lacher. He speaks from the soul of large parts of the German start-up scene. After all, the ratings have gone through the roof, especially in 2021. According to the consulting firm EY, three times as much venture capital flowed into German start-ups that year as in the previous year, at 7.6 billion euros.

For a long time it was no longer the case that founders wooed financiers, but the other way around: Investors jockeyed for promising start-ups in order to be allowed to invest. The founders received money, even for the most daring plans. The fast delivery service Gorillas, for example, opened branches in Paris, London and New York at the same time – with no prospect of real synergies between the distant locations. At the same time, hardly any competitors were eliminated because money was available for everyone.

The selection process, which has been shut down in the meantime and is important for a functioning start-up scene, could now get going again. "Market leaders will emerge stronger from the crisis - and weak companies will retire more consistently," expects Thomas Preuss, Managing Partner at DTCP.

Nevertheless, German investors, who have discovered the venture capital asset class in recent years, are apparently not losing their interest. Visionaries, for example, lists well-known names as the Oetker pudding dynasty, the Ruhr barons of Haniel, the Siemens heirs, the heating engineer Viessmann and the shipowner Lürssen among his current financiers. There are also founders of companies such as Hellofresh, Flixbus and Skype, who also want to invest the money they have earned in new start-ups.

EY expert Thomas Prüver sees the first half of 2022 as the second strongest half of all time despite the crises: six billion euros flowed into the scene. However, the lenders are reassessing the risk. Oliver Holle from the early-stage investor Speedinvest observes that they are primarily making safe bets, such as serial founders and those start-ups whose business model catches on from the start. Software for companies, for example, is attractive - a business that burns much less money on advertising than end customer offers such as delivery services or e-scooters.

“The investors – also from overseas – remain in the German market. But they play it safe,” says Oliver Holle. He concludes: “The strongest founders get even more money this way. But many riskier start-ups that would have gotten a chance last year are now being sorted out.”

Instead, investors are forced to invest their money in start-ups from their existing portfolio, which have had to postpone their IPO, which was actually planned for this year, due to the slump in stocks - and who also do not want to attract new financiers to the currently lousy valuations.

DTCP manager Preuss hopes that the ratings will stabilize at a healthier, lower level as early as winter. Then things could go particularly well, he is not the only one who suspects: The venture capitalists could get in at low valuations - and hope that the world situation will look much rosier when they exit in several years. And with it the return.

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