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The Hamburg economy is experiencing a veritable start-up boom, according to a recent press release from the Statistical Office North. In the first half of 2023, 2,847 new businesses were founded in the Hanseatic city - an increase of a remarkable 18 percent compared to the same period last year. This not only represents a remarkable increase, but also marks a historic high since records began in 2008.
The dynamic development on the start-up market is not only reflected in the high start-up figures, but also in a positive balance of business start-ups and closures. A total of 1,568 more businesses were founded than discontinued. This positive difference underscores the strength and attractiveness of Hamburg as a business location.
Although the reasons for the increase may be manifold, it is striking that the propensity to start a business varies across Hamburg's districts. Business startup rates range from 0.6 in the Bergedorf district to a remarkable 4.2 in Hamburg-Mitte. The situation is particularly remarkable in the district of Hamburg-Mitte, where the number of business start-ups increased by more than 60 percent within one year. This could indicate a special dynamic in this district, which is characterized by entrepreneurial innovation and economic growth.
In order for a business start-up to be recorded in the statistics, certain criteria must be met. These include, for example, the legal form of the business or the number of employees. Businesses founded by natural persons can also be included in the statistics, provided they are entered in the commercial register, employ staff or have a craftsman's card at the time of foundation. The statistics thus provide an insight into those start-ups that are particularly relevant due to their economic significance.
A look at the number of start-ups per 1,000 inhabitants shows that 1.5 businesses were founded per 1,000 people in Hamburg. This figure illustrates the breadth of start-up activity within the city.
The development of business start-ups in Hamburg in the first half of 2023 not only shows a pleasing increase, but also points to the city's vibrant and diverse business landscape. The positive development of the start-up market could lead to a further strengthening of Hamburg's economy in the coming months and years and create new opportunities for entrepreneurs.
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 German startup world could be on the verge of a groundbreaking change as the German cabinet is expected to pass the Future Financing Act tomorrow. This law brings with it significant innovations in the area of employee equity participation. According to a recent survey commissioned by the digital association Bitkom, three out of four startups hope that the new regulations will make employee ownership more attractive.
Currently, 38 percent of the startups surveyed offer their employees the opportunity to share in the company's financial success. An impressive 48 percent of the companies surveyed can imagine introducing such employee share ownership schemes in the future. Only 6 percent of respondents are fundamentally opposed to the concept.
The survey reveals that 73 percent of startups would benefit from improved employee ownership plans. These are considered important for a variety of reasons: 87 percent of respondents would like to additionally motivate their workforce to make an active contribution to the company's success. A further 77 percent see them as a way of retaining employees in the company over the long term. Similarly, 63 percent of startups have been able to attract personnel on the basis of such shareholdings who would otherwise be difficult to recruit because of their salary expectations.
The current participation models show that virtual shares (33 percent) are currently the most frequently used, followed by share options (6 percent) and real shares (3 percent). Among the startups that already offer employee shares, executives are involved in 37 percent of cases. In 36 percent of the companies, selected employees participate alongside executives. In 27 percent of cases, all employees even receive a share.
The planned solution to the problem of so-called "dry income" is particularly encouraging. In the future, taxes will only be due when employees can actually realize profits from their shareholdings. Previously, taxes were already levied when employees changed employers, which affected the attractiveness of employee share ownership.
However, there are also critical voices. The planned flat tax rate of 25 percent was removed from the government draft, which raises uncertainties about the exact tax burden. This issue is to be clarified in the further parliamentary process.
The survey makes clear that many startups have so far refrained from employee share ownership, primarily because of the bureaucratic burden (30 percent), the complicated legal situation (27 percent) and the lack of tax appeal (26 percent). Despite these obstacles, 48 percent of respondents see the possibility of employee ownership as promising and could envision using this option in the future.
With the upcoming Future Financing Act, employee ownership in the startup scene could finally get the boost it deserves. The expected regulations could not only boost corporate success, but also help to retain highly qualified employees at the up-and-coming companies in the long term.
The latest German Startup Monitor report for 2023 shows a declining sentiment in the German startup ecosystem. With a value of 38.1 points, the startup business climate is 14.1 points below the value of 2021 and close to the second lowest level since the pandemic shock of 2020. This negative development is confirmed by 65% of the founders:inside, who have difficulties in assessing the future situation.
The willingness of business angels and VC funds to invest in startups is rated as good by only 15% of the Gründer:innen.As a result, 23% of startups have postponed planned financing rounds.A trend toward profitability is also evident.
Despite the many challenges, only 15% of startups have laid off employees in the past year. The Berlin ecosystem in particular has been hit harder, with 24% of Berlin startups cutting jobs.
The business situation is described as difficult to assess by 65% of the startups surveyed. Assessments of the current business situation are at their lowest point since the start of the Corona pandemic in 2020, and while business expectations are rising slightly, they are still well below the level of 2021.
Investment activity in German startups has declined noticeably compared to the records set in 2021 and the first half of 2022. Nevertheless, it is above pre-Corona levels. Larger financing rounds above €250 million have become rare, indicating continued uncertainty in the investment environment.
The respondents show a skeptical attitude towards the investment readiness of business angels and VC funds, with only 15% rating it as good.Nevertheless, 38% of the founders expect better investment conditions in the coming six months.
Despite the challenges, most startups did not lay off any employees last year and are focusing on further growth. Especially in Berlin, a more late-stage and funding-dependent ecosystem, job cuts and adjustments are more common.
The report makes clear that startups remain important engines for the German economy despite the difficult situation. The findings are based on a broad database of 1,825 startups surveyed between May and July 2023. This report is a preview of the German Startup Monitor 2023, which will be published on Sept. 25, 2023. The study was prepared in collaboration with the Startup Association, PwC Germany and Prof. Dr. Tobias Kollmann from the University of Duisburg-Essen (netSTART)