Metropolis: Berlin's startup scene dominates German tech M&A

Data Insight Dealspeak 26 July

Metropolis: Berlin's startup scene dominates German tech M&A

Once best known to investors as a hub of unemployment and industrial dereliction, Berlin has emerged over the past decade to became Germany’s leading startup metropolis.

In 2021, 273 Berlin-based startups and tech companies raked in a record EUR 14.3bn in buyout, growth and early-stage funding, accounting for 26.6% of the deal volume in Germany (EUR 53.7bn) last year, according to Unquote data.

Thanks to this inflow of capital, the city on the Spree can now boast of being home to a number of tech unicorns, including digital freight forwarders Forto and sennder; neobroker Trade Republic; online bank N26; and mobile app developer Contentful, all of which have completed substantial fundraises over the past 18 months.

And while investment in 2022 in the German capital is unlikely to top last year’s haul, a respectable EUR 3.32bn has nonetheless flowed into 67 Berlin-based firms to date in 2022, putting it on track to be the city’s second-best year for venture capital (VC) and growth funding.

Digital insurer Wefox was behind Berlin’s largest tech fundraise so far this year, bringing in USD 400m (EUR 391.8m) in April, followed by football media platform Onefootball’s USD 300m Series D round and Trade Republic’s EUR 250m Series C extension.

Silver medal

It’s fair to say investors and founders alike continue to be drawn to Berlin for its deep pool of high-skilled and international talent, reasonable rising living costs, top-notch universities and lively cultural amenities. But does the German capital have what it takes to become Europe’s reigning startup hub?

Investment has no doubt increased massively over the past decade. In 2012, a total of 99 Berlin-based firms collectively raised a mere EUR 634m, but ever since, deal value has comfortably surpassed the EUR 2bn threshold year after year, according to Unquote data.

But while Berlin can claim to be the most vibrant tech hub on continental Europe – at least in terms of inbound investment – a glance across the English Channel shows it has some catching up to do if it wants to overtake London in the rankings.

In the year to date, 228 startups in the British capital have raised a total of EUR 35.5bn in 2022, placing it firmly at the top of the European pecking order and already exceeding the record EUR 28.7bn raised by 394 companies across the whole of 2021.

With the exception of the pandemic year of 2020 (EUR 11.65bn), London-based tech firms have raised more than EUR 20bn annually each year since 2018, so Berlin will probably need to settle for the silver medal, despite Brexit.

Pivot to stability

Still, rather than stew in its resentment, Berlin would do well to ensure that this year’s decrease in inbound funding remains a temporary blip on its otherwise upward trajectory.

With a recession potentially lurking on Europe’s and Germany’s horizon amid geopolitical uncertainty, rising interest rates and rampant inflation, investors might think twice about ploughing funds into fast-growing but unprofitable tech firms and pivot to more stable business models.

Some high-flying players are already seeing their ambitions curtailed. Gorillas Technologies, an online grocery deliverer and one of the most rapidly growing startups in Berlin tech history, is reportedly struggling to find backers for its latest funding round.

As of yet, this hasn’t deterred other firms from tapping VC markets for cash. Companies targeting fundraises this year include e-mobility company elvah, which is on the market for a EUR 10+m Series A; home healthcare tech company Kenbi, which is aiming for a USD 34m Series B; and green energy tech company firm HPS Home Power Solutions, which is likewise raising an eight-digit Series B this year.

Berlin-based, VC-backed companies ripe for exit include Contentful with a score of 28.98; travel search platform Omio (28.27); and SaaS-based banking platform Mambu (9.8), according to Dealogic’s Likely to Issue (LTI) algorithm.

With any luck, these companies can trumpet successful outcomes in the not-so-distant future. After all, the last thing Berlin wants is a return to the days of unemployed youths roaming a post-industrial landscape.

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