ICT Start-ups in Germany
Georg LichtCenter for European Economic Research (ZEW)
Mannheim, Germany
VUZF UniversityDriving Higher Levels of Innovation
October 1, 2013, Sofia
Agenda: Drivers of Startups in
ICT Industries in Germany
Market Entry Costs
Importance of Knowledge and Network Infrastructure
Access to Financial Resources
Startups Activity in Germany1995-2011
50%60%70%80%90%
100%110%120%130%140%150%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Inde
x 19
95=1
00
ICT-Sector High excl. ICT All industries
Source: Mannheim Enterprise Panel 2012
Startups Activity in German ICT Sector1995-2011
Source: Mannheim Enterprise Panel 2012
40%
60%
80%
100%
120%
140%
160%
180%
200%
220%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Inde
x 19
95=1
00
Total ICT ICT Services Hardware Software
Learning from Times Series Analysesof Startup Activity in Germany
Ease of Market Entry & Market Exit is crucial
Limited liability of founders: Introduction of opportunity to constraint the risk for founde
Regional Distribution of ICT Startups 2006-2011
SOFTWARE ICT Services Hardware
Source: Mannheim Enterprise Panel 2012
Startup Intensity = No Startups / Workforce at County Level
What Explains The Regional Distribution? Knowledge Infrastructure
o R&D in the Private Sectoro Regional availability of universities and public research facilitieso Supply of Highly Qualified Workforce especially with a
background in mathemathics, IT, engineering, and other technical degrees Larger number of potential founders Larger workforce available for startups
Network Infrastructure (only important for Software and Serviceso Distribution of product, aquisition of customerso Exchange of people, knowlegde, experienceo Communication with customers, market access
Based on analyses of panel of counties in German during the roll out of high speed telecommunication networks 2000-2006
Source of Finance of Start ups- Total funds used in first year (in %) -
Source: ZEW Startup Panel 2012
48
35
6
3
1
5
2
47
31
11
5
1
5
0
46
30
13
5
3
2
1
0 20 40 60 80 100
Cashflow
Founder
Private Banks
Public Banks / Subsidies
Family & Friends
Equity capital (VC, BA)
Others
Volumenanteile
ICT Sector Hightech excl. ICTr All industries
Financing of Startups Typically: Most Startups need only small amounts of money External funds is provided by private and/or public banks VC / BA is used by a small number of ICT startups only, which
however are characterised by a significant demand for external funding
Demand of external funding is highly skewed A sound financial system needs to provide small as well as significant
amount of money i.e. banks and VCs are needed Early stage equity funds are provided by private VC, public VC, or
business angels (more or less in equal shares) Funding gaps are present at startup as well as in expansion stage
A sound financial system should comprise bank financing and equity financing providing large as well as small funds for startup; in early stages government funding is also crucial
Thank You For Your Attention
Georg Licht [email protected] for European Economic Research www.zew.deZEW, Mannheim, Germany
Co: Science Metrix