Germany is considered one of the hotbeds of venture capital (VC) funding in Europe, with startups in the country raising a record 11.3 billion euros (about $12.3 billion) over the past of the first three quarters of 2021, a jump of more than 70% of total fundraising the previous year, according to data from PitchBook.
Unlike France, the United Kingdom or the Netherlands where the capitals form a single and major digital hub, the German startup ecosystem has the unique characteristic of hosting a network of digital hubs across the country outside the major hubs like Berlin and Munich.
“Yes [someone launches a startup] and wants to serve a particular industry, they don’t necessarily go to Berlin or Munich, but they try to be close to their customers,” Christian Knott, managing partner at German venture capital firm Capnamic, told PYMNTS in an interview.
These smaller specialist digital hubs, from logistics-focused Hamburg to automotive-focused Stuttgart, where leading brands like Porsche and Mercedes-Benz are headquartered, specialize in a different area of technology and have the added benefit of providing access to local resources and specialist talent than Berlin and Munich.
But while the German venture capital ecosystem continues to grow with multiple digital hubs, most venture capital firms are only focusing on seed and Series A deals, leaving a void when late-stage investment phase, especially from product market adaptation to international scale-up.
“Series B is a difficult area to invest in because there is usually still some risk with international relationships and high valuation expectations,” Knott explained.
To fill this gap, Capnamic builds relationships with funds that are interested in later rounds and connects them to startups, he noted, adding that once startups can overcome this challenge and “go on the radar of all the major global funds”, it becomes easier. to raise funds in subsequent rounds.
Some of these funds come from foreign investors who fill the void where there is a lack of domestic capital, especially at the real growth stage, which is heavily dominated by international funds, he said.
Serving the German-speaking markets
Founded in 2013, Capnamic supports early-stage technology start-ups from the German-speaking region of Germany, Austria and Switzerland.
With the help of the Startup Investor, entrepreneurs linked to startups such as LeanIX, Staffbase, parcelLab and Capmo can transform their start-ups into full-fledged businesses, receiving assistance on product market fit, on executive hires or simply on the mapping of their investment objectives.
According to Knott, startups in the smaller Austrian and Swiss markets need to internationalize relatively quickly, and they intuitively look to countries like Germany and France first when they’re ready to expand internationally.
The Berlin and Cologne-based venture capital firm currently has 350 million euros ($381.6 million) in capital under management, and to date its portfolio companies have raised 900 million euros ( $981.3 million) of funds.
This month, the German company announced a $215 million raise, its third venture capital fund to grow startups in its target markets and help them expand internationally.
For startups looking to raise capital for the first time, he advised entrepreneurs to seek venture capital funds interested in their area of specialization without necessarily “overstating” their vision, adding that “tailoring your pitch to the person at who you talk to makes a ton of a difference.