Founders defy Corona: The big startup dying is canceled

Wednesday January 13th 2021

Founders defy Corona
The big startup dying is canceled

Young companies without significant reserves have a particularly difficult time in the Corona crisis. But according to a study, the German startup scene is holding up better than expected. The pandemic has changed how investors distribute their funds.

According to a study, the German startup landscape has so far coped with the corona crisis quite well. Many start-ups had struggled with major problems, but the "start-up dying" feared by many did not materialize in the past year, according to a study by the consulting firm EY. This is also due to the continued flow of money from investors for founders in this country.

In 2020, startups received 5.3 billion euros from investors, 15 percent less than in the record year 2019, the study shows. Big deals over 100 million euros were rare. The 5.3 billion was the second highest value in recent years, and more startups came to investor money: The number of financing rounds rose by six percent to 743 – a record high.

"There is a corona effect in venture capital investments," said Hubert Barth, CEO of EY Germany. This can be seen primarily in the decline in large deals, while there have been more small financing rounds. EY believes that it is too early to give the all-clear for startups. Because of the suspension of the bankruptcy filing requirement, it is not clear how the many small companies are doing that are not in the focus of investors and may be financed entirely with their own funds.

Berlin and Munich remain startup strongholds

Startups are dependent on money from investors because they are usually not yet making a profit. Funds and large companies invest capital in promising companies in the hope that their business ideas will prevail and bring them ample profits. With their ideas, startups are considered to be an important innovation driver for the economy. The corona crisis has dampened the long-term boom in the scene and made it difficult for young companies to do business. To avert damage, the federal government supports startups with billions.

According to EY, significantly more money flowed into startups in the healthcare industry during the corona crisis, but mobility companies were also very popular with investors. The largest transaction in 2020 was a cash injection of 255 million euros for the Berlin Auto1 Group with its used car platform. The company wants to secure more money with a billion dollar IPO in the first quarter. Auto1 was followed by financing of 218 million euros for the Munich air taxi developer Lilium. Financing for the Berlin startup Tier Mobility, which rents out electric scooters (212 million euros), came in third.

Of the five largest financing rounds, four were in Berlin and one in Bavaria. Munich has established itself as number two, said EY partner Thomas Prüver. Founders from Bavaria collected 1.5 billion euros and thus about half as much money as the competition in the startup stronghold Berlin (3.1 billion). "Munich and the Munich area have specific strengths in the technology sector and complement Berlin perfectly." Other German locations would have had a relatively difficult time last year, which should remain so in the new year. "The really big deals are increasingly being negotiated either in Berlin or in Munich."