Study by Deutsche Börse and EY compares global start-up landscapes

07 Jun 2017

Study by Deutsche Börse and EY compares global start-up landscapes

More than 600 accelerators and incubators are active in the United Kingdom. There are over 65 “unicorns” to be found in California – a name used for start-ups valued at over US$1 billion – while Israel even has its own state authority for innovation. A comparative review of the start-up scene in Germany and other industrialised nations brings to light some significant differences.

Deutsche Börse Group and Ernst & Young have undertaken a detailed comparison of this field. They compared the start-up landscape in four different regions: Germany, Israel, the United Kingdom and California (USA). The upshot is that while Germany has made considerable progress in some areas, its start-up ecosystem still has growth potential and is lagging behind globally.

Eric Leupold, head of Pre-IPO & Capital Markets at Deutsche Börse, comments, “We have to strengthen the entrepreneurial spirit in Germany by encouraging founders to also fail with their ideas once in a while. Investors highly value these experiences.” According to Leupold, another key factor is the lack of sufficient capital. “Many start-ups leave Germany as other countries provide better financing possibilities. Companies, policy-makers and universities need to work together in order to make Germany more attractive for start-ups. Individual initiatives within the private or educational sectors are not sufficient to become one of the top players in the international league.”

The analysis goes beyond just taking stock of the current situation. It also recommends concrete action steps for German legislators and the German business community. Its five key proposals, which are based on a comparison with the leading international start-up scenes, are summarised below:

  1. Improve start-up infrastructure:

    while prices in Germany for office space and vacancy levels are favourable in international terms, the country still has some way to go in order to be considered “best in class”. Further co-working spaces and start-up centres should be established. This will resolve space problems while possibly creating hotspots that address a full range of financing and start-up issues.

  2. Support investors:

    on the one hand, legislators can set up “angel co-funding” – a government fund that, in tandem with business angels, promises investments during the early phase of a start-up’s existence in order to support high-potential business ideas. On the other hand, a “risk capital catalyst fund” should be introduced to support funds mainly dealing with risk capital investment. These catalyst fund would help other risk capital funds grow and establish themselves on the market.

  3. Strengthen private initiatives:

    what Germany lacks by comparison with other start-up scenes is a platform enabling efficient cooperation between multinational companies and growth firms. The German government should establish a framework defining the conditions for these types of cooperation.

  4. Revise the tax regulations:

    the German tax system does not grant start-ups any special treatment. That acts as an obstacle to their foundation and rapid growth. The possibility of targeted forms of tax relief for start-ups should be considered, e.g. for research & development activities, handling of loss carryforwards following a takeover, for set-up costs and in the area of taxation of investors etc.

  5. Scale back bureaucracy for start-ups:

    it is worth looking at the example of the United Kingdom, where a “sandbox” (i.e. an isolated test area) offers an environment in which fintech can test innovative business models without having to comply with all of the regulatory requirements straight away. The capital requirements for the creation of a business should also be reconsidered and revised, as should data protection regulations.

In summary, Germany should look at how measures from these other countries might be implemented in a similar form in order to strengthen the start-up landscape in Germany on a long-term basis.

Deutsche Börse Group and start-ups

Deutsche Börse Group created the Deutsche Börse Venture Network® in 2015 to finance young companies.

Deutsche Börse is thus providing a significant contribution to the establishment of a strong growth ecosystem in Germany: this network helps young and up-and-coming companies gain access to capital even during their pre-market phase and thus supports innovations which may shape growth in Germany and Europe on a long-term basis.

In addition, through its venture capital arm DB1 Ventures, Deutsche Börse is a strategic partner for early- and late-stage start-ups whose business models are directly or closely related to Deutsche Börse’s strategic orbit and which achieve an attractive return on revenue.

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