Founder scene - Bavaria lags behind in Start-up financing
Bavarian Start-ups have fallen behind in terms of investor funding in the German state comparison at least temporarily. In the first half of the year, 577 million Euros in risk capital flowed to Bavarian young companies, 274 million less than in the first half of 2023. This caused Bavaria to slip from second to third place and be overtaken by North Rhine-Westphalia. According to a study by the economic audit and consulting firm EY, which was obtained by the German Press Agency, NRW-Start-ups raised a total of 822 million euros, more than four times as much as a year ago. The main causes were two large deals: the online translation service DeepL and the semiconductor company Black Semiconductor, which secured a combined total of over half a billion euros. Nationwide, Berlin start-ups remained in first place with investments of nearly 1.1 billion euros.
Due to these large NRW deals, more money flowed to German start-ups for the first time since 2021, a total of 3.4 billion euros and 400 million euros more than in the previous year. The authors speak of "signs of a turning point" - investments in start-ups had significantly decreased in the first and second halves of 2022 and 2023.
Financial Struggles for Young Start-ups
Despite the uptrend, the financing situation has not improved for all start-ups. The number of financing rounds - like in previous year-end periods - has significantly decreased nationwide to 367 deals, almost a fifth fewer within a year. In Bavaria, the number of financing rounds dropped from 81 to 60. "There is still no sign of a general relaxation in the German startup scene," said EY Partner Thomas Prufer. While there were more medium-sized and even large financing rounds over 100 million euros, the number of small deals under ten million euros had declined. It is "alarming that it seems to be getting harder and harder for very young start-ups to get fresh capital." Because in the initial phase, injections of capital are essential.
State government provides more money
To improve the financial situation of companies, the state government is also providing more money: From 2025, the Federal Ministry of Economics and the LfA Förderbank and Bayern Kapital plan to set up new venture capital funds with a billion euros. The initiative is intended to reach at least 400 companies according to the words of Economic Minister Hubert Aiwanger (Free Voters). Aiwanger hopes that with the involvement of private investors, a total of seven billion euros will be raised.
Recovery after difficult times
Start-ups depend on investors for their growth as they usually incur losses in the first few years and would go bankrupt without capital investors. Large funds and corporations invest risk capital in young companies in the hope that their ideas will succeed. In the Corona pandemic, start-ups experienced a boom. They benefited from low interest rates and the digitization push - for example, in financial transactions, online shopping, or food delivery. In the boom year 2021, alone in the first months, almost 7.6 billion euros flowed to start-ups.
However, with the interest rate increase followed the crisis: Many start-ups cut jobs, others were taken over. According to EY, venture capital investments decreased by 39% in 2023. Now it seems that at least the worst is over.
- Despite the improvement in funding for German start-ups, the study by EY revealed that Bavarian start-ups still lag behind in the Federal States Comparison, having secured 577 million Euros in the first half of the year, a decrease of 274 million Euros compared to the same period in 2023.
- The city of Stuttgart, being a part of Bavaria, significantly contributed to the overall number of financing rounds in the Federal States Comparison, with 60 financing rounds in the first half of 2023, a decrease from 81 rounds in the same period of the previous year.
- The founder scene in Bavaria, specifically in Stuttgart, has been facing financial challenges, as the number of small financing deals under ten million Euros has significantly decreased, making it harder for very young start-ups to secure fresh capital in their initial phase.
- Even though North Rhine-Westphalia overtook Bavaria in terms of investor funding with deals from companies like DeepL and Black Semiconductor, the city of Stuttgart continues to attract funding and investments in the semiconductor sector, contributing to the growth and development of local companies.
- To improve the financing situation of start-ups in Germany, the state government, along with the Federal Ministry of Economics, LfA Förderbank, and Bayern Kapital, plans to establish new venture capital funds with a billion Euros, aiming to support at least 400 companies and attracting additional private investments.
