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GERMANY HAS HAD ITS FAIR SHARE OF STARTUP SUCCESS STORIES: Zalando, Kreditech, TeamViewer, Trivago and DailyDeal, for example. They’re either major players in their own right or have been sold for a pretty penny to US corporations. They arrived in the big leagues as secret German-engineered heroes of the digital economy. But there aren’t enough of them to guarantee success in the global mar-ketplace, warn observers. That’s why a host of networks and initiatives between the Alps and the Baltic Sea are working furiously to ensure the next paradigm-changing digital business idea comes from the land of poets and thinkers.

Christian Pott stands at his new offi ce counter. The founder of Web-sitebutler wears jeans and sneakers. When he and his three co-founders, Philipp Gohlke, Hendrik Köhler und Malte Sieb, aren’t burning the mid-night oil at their new offi ces at Alexanderplatz, they can sip cappuccino in a lounge chair or simply eat pasta with co-workers in the kitchen. The quartet that founded the startup in 2013 can spread out on a single fl oor measuring over 560 square meters.

That’s enough room for their young business, which is currently shak-ing up the German website development market. James, its self-learning system, works virtually fl awlessly and autonomously thanks to artifi cial in-telligence. Customers either complete an online questionnaire describing what they want the website to achieve or simply call up the company. Then, they supply pictures and website copy. The system uses this raw data to build a website. The Berlin team prides itself on providing per-sonal service. “Our customers don’t have much time. That’s why we aim to handle everything related to the website for them,” explained Pott. At the end of this painless process, Websitebutler’s 1,000-plus customers (including Stroba Bau, Barbers Berlin and Weilands Wellfood) receive a customized, low-cost website that is constantly managed by profession-als. Websitebutler even has room to expand in Berlin; its team of 40 em-ployees will be growing soon. But what about Silicon Valley, Munich or Hamburg? Nothing doing, according to Pott and his three co-founders. “Berlin is perfect for us in terms of fi nding contacts, investors, employees and, obviously, new customers.”

BERLIN: STARTUP CITYThe hottest place for startups right now is Berlin. Munich was more at-tractive in the 1990s, but Berlin has retaken the crown with 600 startups

over the past two years, according to the Chamber of Industry and Com-merce. Munich only logged around 300 in the same period. Quantity is secondary, though. Success is more about development opportunities for entrepreneurs, staff and equipment costs and, above all, access to fi nance. And all these factors tilt the scales in Berlin’s favor.

KKR, Spark Capital, Nokia Growth Partners and other notable ven-ture capitalists gave Johannes Reck 100 million euros to realize his vi-sion of building an app for booking city tours and theater tickets instead of just fl ights and hotels. His startup, GetYourGuide, began life as a stu-dent initiative with 15 employees in Zurich in 2008. The startup grew quickly and now employs over 200 people at offi ces in Berlin, Zurich, Rome and Las Vegas.

3yourMind has received funding from EOS, the global market leader for industrial 3D printing with laser sintering. The 3D printing startup, which was spun off from Technical University Berlin, targets large and small companies interested in using 3D printing to quickly and inexpen-sively manufacture prototypes and small parts. Siemens is already using its services, and architects employ 3yourMind to create building models

WITH ITS VIBRANT LOCAL STARTUP SCENE,

GERMANY IS CATCHING UP IN THE

RACE FOR THE DIGITAL POLE POSITION.

<Copy> Anja Steinbuch

From Zurich to Berlin: GetYourGuide

founder Johannes Reck (left)

and his co-founders Tobias Rein,

Martin Sieber and Tao Tao

(from left to right) started out

small, but are fl ourishing in

Germany’s capital city.

They design and maintain websites with “James”,

their own special software: Philipp Gohlke, Malte Sieb,

Christian Pott und Hendrik Köhler (from left to right).

Germany’s answer to Silicon Valley.

Digitization – Who, what, when, where

Entrepreneurship

Lots of room for digital creativity: ideas turn

into success stories at the legendary

Sankt Oberholz café in Berlin. SoundCloud,

Betahaus and even Zalando started here. Phot

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Source: The Global Startup Ecosystem Report 2015

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Digitization – Who, what, when, where

Entrepreneurship

FOCUS

35

in less time. German Accelerator, a development program run by the German federal government, sent the 3D experts to the US to put the fi nishing touches on their technology. The startup recently opened an offi ce in San Francisco to build interest in 3yourMind’s software solutions among dynamic young companies in innovative sectors.

MORE VENTURE CAPITAL, LESS REGULATIONMany members of the German startup community feel a twinge of envy at the sight of Silicon Valley. Growth happens so quickly over there in California. Entrepreneurs can set up a company within minutes and col-lect venture capital in a fraction of the time required in Germany. Their wish list for Germany: more venture capital, more loans, less regulation and especially more speed. But something is happening. Europe is catching up, believes Christian Leybold from Eventures, a venture capital fi rm. Internet businesses used to be limited to regional markets, but to-day, they can quickly expand worldwide in sectors such as smartphone apps. At the same time, they have access to inexpensive services from all over the world.

There are more reasons for Europe’s resurgence. More and more money is now fl owing in the other direction – from the US to Europe. VC funds are opening offi ces in London, Paris and Berlin. According to stud-ies, in 2016, around 88 billion dollars poured into the European deep tech segment – the sector that generates ideas for artifi cial intelligence, the internet of things and machine learning. In these technologically ad-vanced fi elds, Germany has a world-class educational system and thus an excellent environment for growth.

Digital research has caught the attention of more and more industrial fi rms, too. In Germany, carmakers and machine producers are the big-gest cohort of “conventional” manufacturers seeking or building relation-ships with startups. This cross-fertilization benefi ts the German scene.

3D printing for everyone: 3yourMind founder Aleksander Ciszek (left) and Product Manager Felix Bauer have an o� ce in San Francisco thanks to German Accelerator.

“WE NEED A VENTURE CAPITAL

CULTURE IN GERMANY.”

Christoph Keese, Executive Vice President of Axel Springer SE

Two-thirds of Europe’s largest corporations have invested directly in tech fi rms. One-third of them have bought a startup since 2015. Examples include Allianz, Audi, BMW, Daimler, Munich Re and ProSiebenSat1. Their interest has accelerated the pace.

VENTURE CAPITAL CULTURE“We need a venture capital culture in Germany,” demanded Christoph Keese, Executive Vice President at Axel Springer SE. The fi nancial differ-ences are still staggering. Around 2.5 million people live in Silicon Valley, which is home to 20,000 startups with access to 60 billion dollars in venture capital. Second place goes to Tel Aviv, with around 4,000 start-ups, close to 450,000 inhabitants and 3.6 billion dollars in VC funding. Berlin, with 3.5 million residents, has only around 2,000 startups that can tap into 700 million dollars in venture capital. Even so, that’s still 30 per-cent of all of Germany’s startup fi rms.

“Germany is catching up, though”, said Iris Bröse. As the startup specialist at Bitkom, Germany’s leading IT industry association, ex-plained, “Around half of the company founders surveyed in our latest startup report said that they would set up their businesses in Germany again. Only 30 percent thought the US would provide better conditions for growth.”

The difficulties start in the second funding phase, according to Bröse: “Starting a business is relatively easy over here, too. But the hur-dles really begin when German fi rms move on to follow-on fi nancing for larger sums.” The tax regime is still not attractive enough, particularly for

“STARTING A BUSINESS IS

EASY IN GERMANY. THE HURDLES

BEGIN WHEN FIRMS

SEEK FOLLOW-ON FINANCING.”

Iris Bröse, Bitkom

international investors. But red tape and overregulation get in the way as well, said Bröse. For an object lesson, just consider fl inc. The Darmstadt-based startup developed a ride-sharing app to bring together drivers and passengers across Germany. Now, though, it has run afoul of the Ger-man Person Transportation Act. According to the Act, fl inc drivers have to obtain a passenger endorsement for their driver’s license once they start to transport people regularly. Being in Germany has benefi ts, too, said Bröse, such as German data protection laws. “Germany is perceived and admired the world over as a trailblazer for data privacy.”

DIGITAL HUBS EMERGINGThe US startup scene isn’t as monolithic as it may appear from afar. Sili-con Valley is the obvious choice, but Washington, Chicago and Boston are also abuzz with startups. In Germany, market players are hard at work to develop local centers of their own. Bitkom, under the auspices of for-mer Federal Minister for Economic Affairs Sigmar Gabriel, has initiated fi ve hubs to attract digital value creators. The hub in Frankfurt promotes the digitization of the fi nancial industry. In Dortmund, the hub focuses on the logistics industry in partnership with the Federal Research Ministry and the Fraunhofer Institute for Material Flow and Logistics. Hamburg is also home to a logistics hub, but it concentrates on maritime shipping with support from the port industry.

7.1%

13.9%

33%

Percentage of startups

set up by women

UNITED KINGDOMDigital hubs like the one here at the Technical

University of Munich are sprouting up nation-

wide. Players in the digital value chain meet

digitally or face-to-face at these local hangouts.

Source: www.bilanz.de

AUSTRIA

GERMANY

The Munich hub devotes its energy to the future of mobility. Its stake-holders include BMW and Susanne Klatten, a major shareholder in the carmaker, as well as the incubator UnternehmerTUM, the Bavarian Min-istry for Economic Affairs, the Federal Ministry of Transport and the Mu-nich city government. That – along with the presence of major carmakers in Ingolstadt and Munich and a test track for driverless vehicles on the A9 highway between Munich and Nuremberg – has primed the region to emerge as a Silicon Valley for mobility. Last, but not least, the Berlin hub focuses on the internet of things and the digitization of fi nancial services. Publicity campaigns will alert startups worldwide to the opportunities that Germany has to offer. “The hubs represent an open digital ecosys-tem where corporations, SMEs and startups in key industries work with universities, research institutions and investors to drive digital transfor-mation,” explained Iris Bröse.

WHAT ABOUT THE MITTELSTAND?Even the backbone of Germany’s economy – the mid-market family com-panies known as the Mittelstand – is cooperating with the young digital rebels. “La Famiglia” is a venture capital fund set up by members of Ger-man family-owned businesses, including such household names as Sie-mens, Miele, Braun and the Swarovski family in Austria. Besides the investors, the network also includes successful German entrepreneurs like Sebastian Pollok (Amorelie) and Sven Rittau (Zooplus). According to fund manager Robert Lacher, “We want to bring together the smartest entrepreneurs and the best ideas with companies that have been suc-cessful for generations.”

So far, La Famiglia has made seven companies offers that they couldn’t refuse. They include Coya, an insurance startup, and Freight Hub, a digital freight forwarder. This old economy initiative has another goal: to nurture pioneering ideas without depending on large industrial investors. Instead, the ideas will gain momentum through knowledge and contacts from “the family”. At the same time, the investors hope to pick up on new technologies and digital trends early on.

<Contact> bestpractice@t-systems.com

<Link> www.t-systems.com/telekom/dt-strategic-investments

Deutsche Telekom investsin startups

Deutsche Telekom has formed a new business

unit to pool and accelerate investments in

technology, media and telecommunications:

Deutsche Telekom Strategic Investments

(DTSI). The subsidiary is the latest iteration of

T-Venture, the strategic venture capital group.

Established in 1997 with a budget of over 750

million euros, DTSI is one of the largest corpo-

rate venture capital funds in the technology

industry. It has made 200 investments and

manages a portfolio of 90 companies. One of

its holdings is Kinexon. This Munich-based

startup improves industrial processes in digital

factories through precise localization and

motion sensing of objects and people in three

dimensions. One day, it may even collaborate

with Deutsche Telekom.

Communications

technology and life

sciences are the

likeliest sectors to

receive funding from

investors.

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11%

23%

4%

23%

7%

19%4%9%

LIFESCIENCES

ENERGY /ENVIRON-MENT

CONSUMER GOODS / RETAIL &

WHOLESALING

COMMUNICATIONS TECHNOLOGY

OTHERSCOMPUTERS / CONSUMER ELECTRONICS

FINANCIALSERVICES

CONSUMERSERVICES

INVESTMENTS

BY GERMAN PRIVATE EQUITY AND VENTURE CAPITAL FIRMS

2015

€ 837 MN

Creative thinkers wanted:

GetYourGuide’s team scours

the world for the best city

guides and events for their

customers. A generous infusion

of cash got them started.

Source: German Private Equity and Venture Capital Association