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Startups and Venture Capital in Germany

A Frontline Ventures x Point Nine Capital collaboration.

It is no surprise that Germany dominates much of the conversation around European tech — the growth of the startup and venture capital ecosystem has surpassed even the most optimistic of expectations.

As an early-stage software fund in London/Dublin with a pan-European investment view, we are seeing exciting young companies emerging from all over Germany. They are following in the footsteps of already successful global companies like Rocket Internet, Soundcloud, and Auctionata.

Germany’s tech transformation is startling, and seems to only be just beginning. Learn more about:
- funding options for German startups
- notable players in the VC and startup ecosystem
- challenges that lay ahead for German tech
- future opportunities & existing winners
- typical terms offered to startups
- successful exits in Germany so far

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Startups and Venture Capital in Germany

  1. 1. 1 www.frontline.vc Startups & Venture Capital in Germany Tech emerges in Europes largest economy A GLOBAL PERSPECTIVE BROUGHT TO YOU BY: www.pointnine.vc
  2. 2. 2 Many new venture funds have been raised in Germany 1Cash on Hand and Bank Balance, RKET Annual Report, Rocket ECP, Earlybird, Creathor, bmp, Target Partners, Lakestar, Coparion, Crunchbase: Global Founders Capital, Holtzbrinck, HTGF, Cherry Ventures, Dow Jones Venture Source, CBInsights, Estimates may sometimes include realisations, does not include funds HQ’d outside of Germany TotalFundsRaisedorSimilar(€1,000s) FUNDS RAISED IN 2016 Funds domiciled in Germany or primarily do business there 0 400 800 1,200 1,600 RocketInternet RocketRICP EarlyBird Holtzbrink HTGF Acton Lakestar TargetPartners ProjectA Coparion B-to-V IBB Creathor Cherry BlueYard PointNine Speedinvest Paua Capnamic 4065100110120 150 180182200225 290300 385 470 576 635 700 1,000 1,504
  3. 3. 3 Which has lead to better upstream funding for startups Seed Series A - B Late StageIncubators Note: approximation, many investors participate across different stages
  4. 4. 0 13 25 38 50 20% 24% 35% 37% 40% 48% The highest level of international participation in Europe 4 London Paris Berlin Stockholm €0b €4.5b €9b €13.5b €18b $2.3b $5.8b $3.7b $11b $1.8b $1.3b $9.6b $17b USD Total Funds Raised Total Funds Invested TOTAL VC FUNDS RAISED VS INVESTED2VC BACKED WITH AN INTERNATIONAL INVESTOR1 1 Crunchbase Pro (2013-2016), 2 The numbers behind Europe's VC ecosystem [datagraphic] (2006-2016)
  5. 5. As funds globally position themselves to do more German deals 5 FUNDS ADD GERMAN DEAL MAKERS RECENT TRANSACTIONS IN GERMANY Series B Series A v 77% OF FUNDING ROUNDS IN BERLIN ARE LED BY NON-LOCALS Berlin needs more VCs! 0 15 30 45 60 13% 29% 57% 60% 17% 22% Berlin Silicon Valley Local Led rounds Non-Local Domestic International Led Why Berlin Needs More Local VCs a Network Analysis
  6. 6. A boom in investment activity 6Crunchbase Pro, Gil Dibner Slideshare # OF VC BACKED COMPANIES IN THE PAST 10 YEARS 50 140 230 320 410 500 Q 3 2014 Q 4 2014 Q 1 2015 Q 2 2015 Q 3 2015 Q 4 2015 Q 1 2016 Q 2 2016 Q 3 2016 Q 4 2016 QUARTERLY VC FUNDING EX-MEGA (€100m) ROUNDS IN GERMANY Quarterlyfundsraised($1m) 62% CAGR 0 350 700 1050 1400 139 157 165 417 607 1,203
  7. 7. $3.1b €9b €2b Is giving birth to the German startup ecosystem!! 7 €3.1b €100m €150m €760m €82m $4b €830m $190m €210m Scout24 €3.2b €210m €150m €100m €215m €950m €1b €272m €300m Current or last valuations: Notable exits, companies with €50m+ in funding, other notable. Private market valuation, best estimate based on public data €420m $700m $700m €480m
  8. 8. 8 Investors
  9. 9. 9 1See Appendix & FY 2015 Financial Statements and Rocket Internet Financial Statements and Capital Markets Day, 2Crunchbase, 3Rocket ECP, GFC vs. Rocket Internet Capital Partners: Wie passen Rockets Fonds zusammen? ,Rocket Internet Capital Partners fund closes at $1 billion 4 The Samwer brothers control vehicles with billions in combined assets1,2 Rocket participated in 16 out of 20 of Germanys largest funding rounds1 Rocket is largely an emerging markets and eCommerce investor1 Cash €1.5b1 RICP4 €1b FOUNDED 2007 OFFICES Berlin, London FUNDS 2 RAISED - # OF INVESTMENTS 75+ EXITS 5+
  10. 10. 10 1Holtzbrinck-Ventures.com, 2Crunchbase, 3Proprietary, 4Holtzbrinck Ventures etabliert 177 Mio. Early-Stage-Fonds mit HarbourVest Partners, 5Holtzbrinck Ventures Closes $331M Fund To Back More Consumer And E-Commerce Startups Founded in 2000 as part of German publishing house Holtzbrinck Track record of investment success: 150+ investments1 , 16 acquisitions2 and 3 IPOs3 LPs include US based HarbourVest Partners and Georg Von Holtzbrinck4 Strong focus on consumer internet, eCommerce, transactional business models AUM €635m Consumer Internet in EU Fund VI €285m5 FOUNDED 2000 OFFICES Munich FUNDS 6 RAISED €635 # OF INVESTMENTS 100+ EXITS 25+
  11. 11. 111Tech.eu: Most Active Tech Investors In Europe (H1 2015) SaaS and marketplace focused, Seed and early Series A Created out of Team Europe, a network of Berlin-based entrepreneurs One of the most active Tech Investors in EU1 with strong foothold in Berlin American style VC, with international LPs (US, Israel, EU) €55m Fund 3 SaaS Marketplaces €40m Fund 2 FOUNDED 2011 OFFICES Berlin FUNDS 3 RAISED €112 # OF INVESTMENTS 80+ EXITS 10+
  12. 12. 121earlybird.com, 2Heilemann Ventures and Earlybird VC Join Forces Founded in 1997, with €700m invested across 5 funds, invested in over 100 startups1 Earlybird is one of the oldest and most established funds in Germany Invests €250k-10m across all stages1 Recently merged with Heilemann Ventures2 Technology Eastern Europe Healthcare FOUNDED 1997 OFFICES Berlin, Munich FUNDS 3 RAISED €112 # OF INVESTMENTS 120+ EXITS 25+
  13. 13. 13 Who to know Marc Samwer Oliver Samwer Alexander Samwer rocket-internet.com @RocketInternet Pawel Chudzinski Christoph Janz pointnine.vc @PointNineCap Hendrik Brandis Christian Nagel Fabian Heilemann earlybird.com @EarlybirdVC Daniel Glasner Christian Meerman Filip Dames cherry.vc @CherryVentures Ciaran O’Leary Jason Whitemire berlinvc.com @BlueYard Uwe Horstmann Dr. Florian Heinemann project-a.com @ProjectAcom Jan Beckers @FinLeap @HitFoxGroup Klaus Hommels Mark Schmitz Nicolas Brand lakestar.com Will Prendergast Thomas Olszewski frontline.vc @frontline
  14. 14. Corporate Investors 14 Funds Focus Areas B2C consumer goods, retail and services Manager of several corporate venture funds IoT, smart home, digital customer access, big data Direct-to-consumer or transaction oriented SevenVentures, Redstone Digital, Vito Ventures, Vowerk Digital Media & Publishing Tech Consumer internet, marketplaces, and deep tech Independent venture fund of Commerzbank
  15. 15. Accelerators 15 Accelerators % Stake Comments 6% 5% 6-8% 4-5% Investment €20k+100 €25k €15k - Techstars Berlin, Axel Springer Plug & Play, Berlin Startup Academy, Startupbootcamp Smart Transportation & Energy - - Diversified Transportation and energy Axel Springer Diversified Diversified Negotiable Community focusedNegotiable
  16. 16. What to expect when you close a deal in Germany 16*Most traditional databases do not contain accurate valuation information, Techstars Berlin1 Incubated Companies Angel & Seed Deals €1-3m €2-6m Angel Round Seed Round TractionInception SaaS Funding Napkin, the mobile-friendly edition , Fundraising Framework for Marketplace Startups in 2016 Expectations can very dramatically Business with some traction, first customers Can include companies from accelerator Typically raising at above market valuations Management owns 0-70% of equity Part of the capital raised may go to the incubator
  17. 17. 17 Opportunities
  18. 18. 18 Strengths Top class engineering and business universities Berlin is an attractive place to live for a lot of young talented people Easier immigration policies then elsewhere in Europe Largest EU economy in terms of GDP and population Higher capital efficiency as a result of lower salaries and cost of rent Optimism surrounding Berlin and the prospects of the ecosystem
  19. 19. Berlin 19 Population 3.5m 1 Bedroom Flat €500-1,0001 Beer €31 Avg Salary €40,0002 Avg Software Engineer Salary €50,0003 Berlin named most 'fun' city in the world - telegraph.co.uk 1Berlin named most 'fun' city in the world - telegraph.co.uk, 2Salary Survey in Berlin, 3Berlin Software Engineer Average Salary
  20. 20. 20 Growing Pains
  21. 21. 21 Challenges 1Think We're the Most Entrepreneurial Country In the World? Not So Fast Difficult to retain top talent with lower salaries vs other EU cities Victim of its own success? Rent and cost of living are increasing Culture of risk aversion and slower adoption of new products English & German are used Lower levels of entrepreneurship vs rest of Europe1 Relatively small talent pool of software developers in some sectors
  22. 22. 22 Incubated startups, management equity participation Incubator 50% New Investors 30% Management 20% A Letter to German Entrepreneurs, Index Ventures “ ” In some cases, part of the 2nd round of funding is used to pay for services A startling number of German startups that we have spoken to have ownership structures which put them at a real disadvantage when raising their first venture round. In many cases we have observed, the founders have given away too much equity to their first investors - typically angels and family offices, who have little experience with the fast- growing startups or the venture capital funding model. ‘Incubated’ companies allocate a relatively small equity stake to management teams EXAMPLE SEED STAGE INCUBATOR CAP TABLE
  23. 23. 23 Winning sectors
  24. 24. FinTech • Credit related and consumer business • Large market for consumer finance • Population which travels a great deal Four sectors where German startups have succeeded 24 eCommerce • Fashion, auctions, and food delivery • Largest market for fashion in Europe • Lean and cost competitive, low margin Leisure • E-sports, gaming, travel, and music • Travel culturally important • Large number of consumers AdTech • Big data, data analytics, data mgmt, SEO • E-commerce companies as customers • High small- & mid-cap M&A-activity
  25. 25. 25 FinTech Founder Alexander Graubner-Müller Formerly Groupon, Rocket Internet University of St. Gallen Founder Valentin Stalf Formerly Paymill, Rocket Internet University of St. Gallen Pawn Loans Payday Credit Cards Bank Loans Better credit for customers with no or poor access to credit The mobile bank Linkedin Information, Crunchbase
  26. 26. 26 AdTech Founder Andreas Bodczek Formerly Telefonica, Bertelsmann Ludwig-Maximilians Universität Mobile in-app ad monetisation platform, incl. ad mediation & marketplace. Founder & CTO Marcus Tober Formerly Ecards, Idealo Internet Technische Fachhochschule Berlin Acquired for $190m Linkedin Information, Crunchbase SEO SaaS platform
  27. 27. 27 Founder Hakan Koç Formerly Home24, Rocket Internet, Zalando, DailyDeal Founder David Schneider Formerly Compara Tarifas, Unibicate, Roland Berger San Andrés, Singapore, WHU Trouble Selling Grandma’s Cars Led to $1 Billion Startup, LinkedIn Information, Crunchbase eCommerce Designer shopping online IPO at €5.3b valuation B2B marketplace for used car dealers
  28. 28. 28 Leisure Alexander Ljung Formerly Trustmojo.com, Jung Studios, SF Anytime Stockholm University Rolf Schroemgens Formerly ciao.com Leipzig Graduate School of Management Online travel booking Social Music Samwer brothers Trivago, auf leisen Sohlen, LinkedIn Information, Crunchbase Christian Vollmann Dr. Florian Heinemann IPO at $4b valuation
  29. 29. Internet Exits 29 €6.5b (at IPO) €5.3b (at IPO) €100m €150m €272m €82m Trivago $4b (40%) TeamViewer €830m $190m €210m 2004 Onward: 16 Biggest German Exits So Far, Tech.eu: Scout24, Windeln Successfully Completes IPO, Das denkt die Szene über den 6Wunderkinder-Exit €3.2b €210m €150 €100m €215m eCommerce Gaming Travel Enterprise AdTech Social €150m (at IPO) $150m FinTech €108m joulex €108m €124m
  30. 30. Early stage companies to watch in 2017 30 Data driven publishing house Bus travel platform Large scale data analysis Video game coaching Video sharing network App retargeting Home cooking mail service API based CMS Bank of banks OKR Banking for freelancers Flying cars SME Lending App for your tax returnOffice management software Cloud banking platform Authors choice
  31. 31. 31 Outlook
  32. 32. 32 2017 Predictions Fewer new EU funds will enter the market Expect larger deals from Rocket after a 6 month lull Brexit will continue to accelerate ecosystem growth in Germany Great companies will come from all over Germany! Seed & Series A valuations will level off Interest from non-EU VCs in the German ecosystem will continue to increase
  33. 33. 33 2017 Predictions Large incubators will shift towards VC investing After 5 years of B2C growth, B2B startups emerge IPOs of Delivery Hero, Home24, will continue to fuel the ecosystem Global VCs will continue to hire Germans to target the region Zalando will become Germany’s first “decacorn” Germany to surpass the UK in total VC funding
  34. 34. 34 Twitter Medium Mathias Twitter Medium Quora
  35. 35. 35 Additional Slides
  36. 36. Rocket participates in 16 out of 20 of the largest rounds since 2012 36 Rocket Participates in 80% of €50+ funding rounds FY 2015 Financial Statements and Rocket Internet Financial Statements and Capital Markets Day
  37. 37. 37 Nine new funds in 2016 DB1 VENTURES TRUMPF STRATEGIC Germany’s 11 New VCs launched in 2016
  38. 38. 0 225 450 675 900 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 180 284 719 437 621 444 892 543 555 487 180 267 389 209 379 339 333 388 461 463 29 163 118 232 279 225 281 355 361 443 74 123 89 112 140 84 140 113 194 224 Sweden France Germany UK Funding Trends (ex-mega rounds) 38Europe & Isreal 2016 VC Year in Review, Gil Dibner MillionsofEuro’s
  39. 39. Online Content: Rocket Internet Financial Statements Germany’s FinTech Ecosystem: A Wheel in the European Innovation Machine Venture Capital and Startups in Germany 2015, E&Y 16 Biggest German Exits So Far Trouble Selling Grandma’s Cars Led to $1 Billion Startup Salary Survey in Berlin & Berlin Software Engineer Average Salary Berlin named most 'fun' city in the world - telegraph.co.uk A Letter to German Entrprenuers, Index Ventures Think We're the Most Entrepreneurial Country In the World? Not So Fast Heilemann Ventures and Earlybird VC Join Forces GP Bullhound 2015 Unicorn Report, GP Bullhound 2016 Unicorn Report Germany’s 11 New VCs launched in 2016 Data Services: CBInsights Dow Jones Venture Source Crunchbase LinkedIn 39 Source Links
  40. 40. Slide 2 - Venture funds in Germany Funds domiciled in Germany or that primarily do business there Does not include corporates, funds without official ‘funds raised’, or non-internet funds Rocket is a publicly traded company with €1.5b of cash and cash equivalents Slide 3 - Fund participation by stage Notable participants by stage, discretionary selection Slide 4- International participation Data from Crunchbase Pro Pitchbook data Slide 6 - A boom in activity Data from Crunchbase Pro Gil Dibner Startups and VC in Isreal Slide 6 - Selection of successful companies Companies with over €30m funds raised Authors choice Slides 9-15 - Notable players Discretionary selection of well known investors Slide 16 - Valuations Estimates based on experience Slides 24-30 - Successful startups Many startups have multiple co-founders that are not included here Authors Choice Slide 28 - Exits Notable internet exits since 2004 Slide 30- Early stage companies to watch Authors choice 40 Methodology