In Germany, more and more AI startups are being founded, while at the same time 10 percent of deep tech startups are migrating abroad. Find out here which exceptional German startups have raised millions this year and why Germany is on the right track to remain attractive for deep tech startups.
According to a study by appliedAI, a total of 508 AI startups are listed in Germany this year, 67 percent more than in the previous year. From climate tech to generative AI to robotics, there is something for everyone.
According to their report “German AI Startup Landscape 2023”, new companies can be observed particularly in the areas of health, manufacturing and mobility. Almost all of the AI startups counted are B2B startups. This is not surprising, because deep tech products often have the potential for breakthrough innovations that have a groundbreaking influence in several industries at once.
Enpal, DeepL, Alpeh Alpha and 1Komma5° – these Germany-based deep techs have received investments in the hundreds of millions this year and are among the country’s flagship startups.
The German start-up scene is particularly proud of unicorns such as Deepl, Enpal and others. Unfortunately, the financing volume in Germany is rather exceptional by international standards – is it because Germany is losing promising start-ups to other countries?
In 2023, 15 percent of German startups in the AI sector have dropped out of the startup race compared to the previous year. There are various reasons for this. According to “German AI Startup Landscape”, 28 percent are no longer counted due to a takeover, 24 percent are older than ten years and are no longer listed as startups.
Ten percent drop out of the German startup count because they move to another country with their sales or location – out of Germany.
There is a lack of venture capital throughout Europe
According to a Bitkom survey, a third of the startups surveyed are considering going abroad. The reason: there is currently too little venture capital in Germany. And an IPO in Germany? According to Bitkom, this is not an option for the majority of startups.
Despite promising start-ups, investments in Europe are declining, while they are increasing in the US in the field of AI. In the first half of 2023, 30.8 billion dollars were spent on AI technology in the US, compared to only 3.7 billion dollars in the EU.
“The challenge we have in the EU is capital. It is the driving force behind innovation. We need to add a few zeros to what we do to keep up with the global world,” said David Rosskamp, Managing Partner of Magnetic, about the lack of capital in the EU.
The lack of risk appetite among German investors is also slowing down the progress of deep tech in Germany. Since many deep tech companies are research-intensive and want to bring about a paradigm shift in industry, they need more time to be tested, evaluated and made market-ready. Some investors lack the patience and risk appetite for this: They want scalability and rapid profitability.
Robert Lacher at the Hinterland of Things Conference 2023
So, overall, investors are investing less, but the good news is that when they do invest, they are most likely to invest in deep tech products. However, they must demonstrate a clear path to profitability.
“The pressure to be profitable has never been higher in our industry,” said Robert Lacher, Founding Partner at Visionaries Club, about the current status quo at this year’s Hinterland of Things Conference in Bielefeld.
New EU law could fuel migration abroad
Another hurdle for deep tech in Europe: in mid-June this year, the EU Commission decided to pass a law on artificial intelligence. The EU Commission’s so-called Artificial Intelligence Act (AIA) is part of a digital strategy for artificial intelligence.
The law is intended to promote trustworthy AI companies and control harmful applications. Now concerns are being raised that the EU regulation could be to the detriment of open-source developments and slow down AI progress.
According to AppliedAI, 16 percent of startups surveyed say they will no longer develop AI projects at all or will only develop them outside the EU. This is a clear sign that Europe’s competitiveness in the deep tech sector could suffer.
DeepTech & Climate Tech Fund: government enables 1 billion euros in capital
At the beginning of this year, the German government activated the Deep Tech & Climate Tech Fund (DTCF). The total volume over the next few years will be up to one billion euros. Startups in the fields of IoT, artificial intelligence, robotics, smart living and clean and climate tech can receive funding of between one million and 30 million euros per round. So far, the DTCF has already invested in two startups: the 3D printing startup Xolo and the construction startup Vemcom. This is a promising sign.
Deep tech is still a popular sector among investors
Deep tech companies have special challenges and need special financial support. German venture capitalists who embrace the market and focus on research and innovation will potentially benefit from AI progress in the future.
This is where the business plan could make all the difference: startups that can demonstrate a plan for profitability and scalability will likely have a better chance of getting funding in Germany and joining the likes of Enpal, DeepL and others.
Nevertheless, German and European investors should be more courageous, especially when it comes to large investment sums. In particular, late-stage financing rounds with investments of around 50 to 100 million euros are significantly more difficult to obtain in Germany than they were in 2021. This must change if Germany wants to keep up on the international market and retain successful startups.
If, in addition, the German government and the European Union strive to create ideal conditions for the deep tech scene by providing financial and infrastructural support, chances are good that Germany will remain an attractive location for German start-ups.
© 2024 Hinterland of Things
