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An analysis of commercial register data shows that start-up activity in Germany has plummeted this year after the corona pandemic ended in 2022.
In recent years, Germany has experienced an unprecedented economic roller coaster ride, ranging from the corona pandemic to inflation. But while the pandemic has put many businesses to the test, and even forced some to close, inflation has managed to affect startup activity in the country in a very different way. A detailed analysis of commercial register data over the past five years sheds light on this remarkable trend.
A look at the data
The commercial register data show a significant decrease in the number of company start-ups in Germany since 2022. In particular in the years 2019, 2020 and 2021, the number of start-ups remained relatively stable, with fluctuations being recorded in the various calendar weeks. In 2019, the year started with 2,880 foundations in the 20th calendar week, but reached a low point of 2,354 foundations in the 25th calendar week before it rose again.
The post-pandemic tipping point
However, times changed after the end of the Corona pandemic in 2022. While the economic outlook was initially optimistic, analysis of the data for this year shows a striking void in start-up activity. Only 1,878 and 2,414 start-ups were recorded in calendar weeks 24 and 23, which represents a drastic decline compared to previous years, even if these figures do not include the start-up of associations. Post-pandemic uncertainty, coupled with economic uncertainties and rising inflation, seem to deter potential entrepreneurs.
Inflation as the new stumbling block
While the Corona pandemic has undoubtedly had a significant impact on business activity, it is worth noting that inflation has emerged as a new factor negatively affecting start-up activity in Germany. Inflation can increase the cost of starting a business as commodity, rent and labor prices rise. This could make budding entrepreneurs reluctant to start new businesses as economic uncertainty and rising costs pose a significant risk.
Outlook and challenges
Current data suggests that start-up activities in Germany are facing serious challenges. As the economic landscape continues to be characterized by uncertainty, it will be crucial for governments, business associations and companies alike to devise strategies to encourage entrepreneurship and support budding founders. The effects of inflation on start-up activity illustrate the need for a holistic approach to ensure economic stability and growth in Germany.
Overall, the analysis of the commercial register data makes it clear that start-up activity in Germany is influenced by a variety of factors, from the pandemic to inflation. The coming months and years will show whether and how Germany can overcome these challenges in order to stimulate start-up activities in the country again.
| Year | KW 20 | KW 21 | KW 22 | KW 23 | KW 24 | KW 25 | KW 26 | KW 27 | KW 28 | KW 29 | KW 30 | KW 31 | KW 32 | KW 33 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2880 | 2746 | 2148 | 2708 | 2157 | 2354 | 2793 | 2785 | 2801 | 2770 | 2714 | 2770 | 2596 | 2692 |
| 2020 | 2697 | 2069 | 2625 | 2121 | 2237 | 2807 | 2840 | 3048 | 3034 | 2735 | 2954 | 2861 | 2682 | 2809 |
| 2021 | 3458 | 2744 | 2857 | 3467 | 3286 | 3266 | 3334 | 3181 | 3278 | 3068 | 3219 | 3046 | 2939 | 2992 |
| 2022 | 2344 | 2299 | 2708 | 2414 | 1878 | 2345 | 2372 | 1993 | 2138 | 2111 | 2431 | - | - | - |
| 2023 | 1692 | 1821 | 1327 | 1861 | 1604 | 1791 | 2235 | 1749 | 1703 | 1888 | 1755 | 1128 | 2294 | 819 |
Data sources: Commercial Register 2019-2021, StartupDetector Newsletter 2022-2023 (excluding associations).
Note: Data missing for week 31-33/2022
The GEM country report Germany 2021 presents pleasing results regarding start-up activities in 2021 and their connection to the COVID-19 pandemic. The start-up rate, measured by the total early-stage entrepreneurial activity (TEA), has increased significantly compared to the previous year. This could be due to a positive response from business and the adaptability of those looking to start a business during the pandemic.
Start-up rate at the second highest level since 1999
The TEA rate, which represents the proportion of 18-64 year olds in Germany who have founded a company or are in the process of founding one, reached the second highest value in 2021 since the survey began in 1999 – 6.9%. This represents an increase of 2.1 percentage points compared to the previous year (4.8%). This increase suggests that, despite the ongoing uncertainties due to the pandemic, the willingness to start a business has increased in Germany.
Pandemic as driver for new business opportunities
Interestingly, more than a third of the TEA founders surveyed appear to indicate that the COVID-19 pandemic has opened up new business opportunities. This makes it clear that in the midst of the crisis, entrepreneurial opportunities can also arise that lead to new start-ups. In 2020, that proportion was even lower (a quarter of TEA startups were based on pandemic-related opportunities).
More focus on digital sales channels
Although around 76% of TEA founders in Germany have set up their sales channels digitally, the report shows that there is still room for further progress in the field of digitalization. In particular, cooperation between established companies and young, up-and-coming start-ups could lead to a win-win situation. Digital sales platforms and the customers of established companies could offer young companies faster market access.
Gender differences in start-up activity
An interesting aspect highlighted in the report concerns gender disparities in start-up activity. This shows that the gender gap, i.e. the difference between the start-up activities of men and women, was reduced during the COVID-19 pandemic. This applies above all to the prospective founders (nascent entrepreneurs), whose proportion is equalizing. The results indicate that women are more likely to intend to start a business, but are less likely to put them into practice than men.
Measures to promote start-ups by women
The report proposes various measures to further reduce the gender gap and to promote the start-up activities of women. This includes the expansion of childcare options, the promotion of women in business and STEM subjects and the presence of successful female founders as role models. Access to venture capital for female founders could also be improved, especially in the technology-oriented area.
Conclusion: increase in start-up activities despite the pandemic
The GEM country report Germany 2021 shows that the start-up rate in Germany increased in 2021 despite the ongoing COVID-19 pandemic. This could be due to an increased adaptability of the entrepreneurs, the identification of new entrepreneurial opportunities and the positive reaction of the economic policy. Gender differences in start-up activity have also narrowed during the pandemic, indicating increased support for start-ups by women. In order to further support this trend, targeted measures could be taken to strengthen the framework conditions for women in the start-up world.
The rosy times for German startups appear to be passé as they struggle with a weak economy and tougher financing conditions. According to a Startup Association survey conducted by Deutsche Presse-Agentur, the business climate in the industry is at one of the lowest levels since the low point during the Corona pandemic in 2020, with the current score of 38.1 points only slightly higher than in 2020 (31.8 points). This continues a trend that has been seen since the record-breaking 2021.
The survey, which is based on a similar calculation method as the Ifo Institute, reflects a high level of uncertainty among founders. About 65 percent of the startups surveyed have difficulty assessing the future situation. Nevertheless, a slight increase in business expectations is evident, while the current business situation remains at the lowest level since the beginning of the pandemic.
The association stresses that after a wave of innovations that followed the shock of the pandemic in 2020, the current situation has become more difficult. Rising inflation and higher interest rates have led startups to act more cautiously. One-third of companies have reduced hiring and adjusted funding plans.
Since 2022, German startups have faced major challenges. While they were able to raise record amounts from investors in 2021, geopolitical tensions, rising interest rates and economic uncertainty have dampened the market. Investors are more cautious, resulting in many startups having to cut jobs and funding dropping dramatically in 2022. The situation remained tight in the first half of 2023, as startups raised about half the funding they did last year.
In particular, the ability to secure large funding rounds has declined sharply. There has not been a round over 250 million euros this year, compared to four such rounds in 2022 and eight in 2021, and the majority of founders rate the willingness of funders, particularly venture capital funds, as poor.
In view of these challenges, the startup association is calling for increased support from the German government. In particular, the expected "Future Financing Act" should be passed promptly to strengthen the location for founders. Among other things, this law should offer more favorable regulations for employee shareholdings and easier access to the capital market for growth-oriented companies. However, the implementation of this project has been delayed so far.
On Tuesday, the federal ministries of economics and finance announced that a new financing instrument called "RegioInnoGrowth" will support startups and small innovative SMEs. For this purpose, the federal government plans to provide up to 450 million euros from the Future Fund and the ERP Special Fund. Companies can each receive up to five million euros in funding.
On August 15, 2023, the CEO of the German start-up association, Miele, expressed his wish for increased political attention and improved framework conditions for the local start-up scene. The German government, he said, should give the industry more priority, particularly to promote innovative strength and future orientation. Compared to countries such as the United Kingdom, the Netherlands and France, Germany is still at a disadvantage when it comes to framework conditions for startups. Areas such as immigration of skilled workers, digitization and access to capital are better developed in other European countries.
The competition for talented professionals is particularly demanding, and German startups often lose out. The industry focuses on start-ups with innovative business ideas and great growth potential. These start-ups are characterized by young founders and employees who focus on a digital orientation from the outset. Overall, the association is calling for better support from the political side to strengthen Germany's position in the European startup competition.
The trade registrations in Berlin have recorded a remarkable increase in the first half of 2023. According to a recent press release from the Berlin-Brandenburg Statistics Office, a total of 21,551 trades were registered with Berlin's business offices, a 3.2 percent increase over the same period last year
Varied picture of trade activity
The report shows a dynamic range of commercial activities in the German capital. The economic section "Trade; maintenance and repair of motor vehicles" recorded the most activity with 4,121 registrations, followed by the construction sector with 3,390 registrations. Also significant numbers were recorded in the "provision of professional, scientific and technical services" section, with 2,835 business registrations.
At the same time, however, the number of business deregistrations also increased by 3.3 percent year-on-year to 16,546, with a number of 3,224 deregistrations recorded in the "Trade; maintenance and repair of motor vehicles" sector and 2,857 in the construction sector.
New establishments and complete tasks
An impressive 91.9 percent of business registrations were new businesses, indicating a continued interest in entrepreneurial activity. A total of 19,795 businesses were newly established. In contrast, 91.0 percent of deregistered establishments ceased operations entirely, representing 15,049 establishments.
Gender and nationality of traders
An interesting picture emerges with regard to the gender and nationality of traders. One third of the total of 16,279 sole proprietorships were registered by female entrepreneurs, an increase of 8.7 percent compared to the previous year. Among the deregistered sole proprietorships, women accounted for 30.6 percent.
It is also striking that a considerable proportion of business registrations and deregistrations came from foreign traders. 43.0 percent of the registrations and 39.3 percent of the deregistrations of sole traders were accounted for by this group.
Multiple economic sections
The business registrations are distributed among various economic sections. Construction is strongly represented with 3,390 registrations, followed by "Trade; maintenance and repair of motor vehicles" with 4,121 registrations. Other significant economic sections include "Professional, scientific and technical services" and "Other economic services."
Conclusion
The business registrations in Berlin in the first half of 2023 paint a positive picture of economic activity and entrepreneurial commitment. The increase in new businesses, particularly by women and foreign traders, reflects the diversity and dynamism of Berlin's economy. This trend could point to a positive economic future for the city, although a continued supportive infrastructure for startups and entrepreneurship remains important.